DB Corp.: Profitability compensates for soft revenue growth:: Kotak Securities

Please Share::

Profitability compensates for soft revenue growth. DB Corp.’s 3QFY15 PAT of
`1 bn (+11% yoy) was in line with estimates. EBITDA margin of 33.3% was the highest
in 18 quarters, aided by a fall in newsprint costs (-2% yoy) and a tight leash on other
operating costs (+5% yoy). The subdued 5% growth in print ad revenues was expected,
given a high base (election benefits last year). The improved economic outlook has not
triggered print ad-spend growth yet, but newsprint tailwinds and a check on costs
protected earnings. We expect ad revenue growth to improve in coming quarters. This,
with a favorable cost environment, is expected to drive 20% EPS CAGR over FY2015-
17. We retain ADD, revise TP to `425 (from `375) at 16X December 2016E EPS.

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
3QFY15 results – impressive margin performance
 Print ad revenue growth adjusted for one-off benefits from state elections (Rajasthan, MP
and Chhattisgarh) in 3QFY14, was close to 10% yoy. Improved business sentiments have not
influenced print ad spends yet. Adjusted ad revenue growth in 4QFY15 is likely to be similar.
 EBITDA margin of 33.3% was up 360 bps yoy, helped by a meager 1.5% yoy increase in
operating costs. A 2.2% drop in raw material costs was led by a 5% yoy decline in newsprint
prices. An increase in other operating costs was well contained at 4.7% yoy,
notwithstanding the new launch (Patna). The management indicated that inflation in
operating costs (excluding newsprint and staff costs) would be contained at ~5% even in
FY2016— positive for margins. Newsprint supply from Russia, led by (a) lower sea freight
(post a drop in oil prices) and (b) weaker Russian currency and geo-political issues, is keeping
a check on domestic newsprint prices notwithstanding rupee depreciation (traditionally drives
up newsprint prices).
 Circulation revenues grew 16.7% yoy, helped by price increase and Patna edition. The
management indicated that it may not raise price in FY2016 if newsprint price stabilizes at a
slightly lower level, as expected. DB Corp. plans to expand in new markets in Bihar and
increase circulation in Maharashtra in FY2016.
 Radio (~5% of revenues) revenues grew 8% yoy. EBITDA margin expanded 900 bps to 45%.
Capex for phase-III radio auctions will be `350-400 mn, spread over three tranches.
We expect ad revenue growth to improve in coming quarters
 Ad spend growth in the print media is more sensitive to GDP growth than in other media
platforms. We expect ad revenue growth to pick up in FY2016 on the likely improvement in
economic fundamentals and a favorable base. DB Corp. is a strong number one and number
two player in its legacy markets and is gaining strength in new markets. We expect it to
deliver strong growth as outlook improves.
 We tweak estimates – moderate FY2015/16 ad-revenue growth from 9%/15% to 6%/13%
and marginally reduce operating cost assumptions; we broadly retain our FY2015-17E EPS.
We roll over to December 2016, raise TP to `425 (from `375) at 16X December 2016E EPS.

LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily19012015tn.pdf