Margins expand in quarter…. • DB Corp :: ICICI Securities, report

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Margins expand in quarter….
• DB Corp’s Q3FY15 results were in line with estimates with revenue
growth of 7.0% YoY, led by advertisement growth of 6.1% YoY to
| 428.3 crore, which was mostly led by volumes. Circulation
revenues posted robust growth of 16.7% YoY to | 96.9 crore
• The EBITDA came in at | 184.8 crore vs. expectation of | 162.1 crore,
up 19.1% YoY led by easing of newsprint costs (down 2.6% YoY).
EBITDA margins came in at 33.3%, up 339 bps YoY
• PAT was at | 105.2 crore (vs. estimate - | 95.6 crore), up 11.3% YoY.
Higher PAT came in due to higher operating leverage benefits
Focus on regional markets; but ad growth remains subdued
DB Corp, one of the largest print media companies, is the second most
read newspaper in the country with average issue readership (AIR) of
about 19.8 million (IRS December, 2012). It dominates the vernacular
market in both urban and rural areas and is No.1 player in several
territories namely Chandigarh, Haryana, Madhya Pradesh, etc. The
editions in Maharashtra and Jharkhand are expected to turn EBITDA
positive in coming months. DB Corp also forayed into Bihar with the
launch of an edition in Patna city and plans to come out with further
smaller editions in Bihar in the coming financial year. Going ahead, we
expect circulation revenues to grow 7.9% over FY14-17E to | 405.6 crore
in FY17E from | 323.2 crore in FY14. The ad growth, however, has
remained in single digits in all three quarters in FY15 with economic
conditions still at subdued levels. However, vernacular advertisers and
the rural economy remained relatively insulated, resulting in better than
industry ad growth for DB Corp. Still, with the grim economic scenario,
we expect DB Corp to maintain ad revenue growth of 11.1% in FY14-17E
to | 1944.7 crore in FY17E from | 1417.8 crore in FY14.
EBITDA expansion underway with reducing newsprint costs
There is a declining trend across commodities with crude having declined
39% over the past two months. The reduction in crude is helping
newsprint prices with lower freight costs. They are also witnessing a
declining trend. Moreover, cheaper Russian newsprint is being diverted to
India benefiting print players at large. DB Corp is expected to post a
decline in newsprint costs from 34% of revenues in FY14 to 27.3% by
FY17E despite an increase in the number of copies. It is also rationalising
its other expenses, which are fixed at 21-22% of revenues over the past
few quarters. We expect this to culminate into an EBITDA margin
expansion of about 620 bps to 33.1% over FY14-17E.
Company focuses strongly on radio and digital business
DB Corp operates the radio business under the name “My FM” in 17
cities, with revenues of about | 80.2 crore (FY14). The company has
exhibited decent YoY growth of 19.9% in FY14. Going ahead, we expect
radio business revenues to grow at 14.8% FY14-17E CAGR to | 121.5
crore by FY17E. The management is bullish on its digital business. The
segment is very small currently at | 9.2 crore revenue in the quarter but is
expected to pick up in the coming years.
Maintain BUY…
DB Corp being a regional player with a rapidly expanding footprint
commands a premium over national players. We expect consolidated
revenue and EBITDA growth of 11.3% and 17.5%, respectively, in FY14-
17E. We continue to maintain BUY rating, valuing it at a 17x P/E multiple
on FY17E EPS of | 27.4, arriving at a target price of | 465

LINK
http://content.icicidirect.com/mailimages/IDirect_DBCorp_Q3FY15.pdf