Reduce DB CORP -Target: RS.404 :: Kotak Sec,report

Please Share::

DB CORP
PRICE: RS.399 RECOMMENDATION: REDUCE
TARGET PRICE: RS.404 FY16E P/E: 17.8X
DB Corp's 3QFY15 results are broadly in line with our expectations, even as
advertising revenue growth has disappointed. The company has reported a
robust EBITDA growth regardless, on account of decline in newsprint prices
- something that is likely to sustain for the next few quarters. Further, we
believe that while advertising expenditures have not improved already,
there is reason to be positive on advertising revenue growth for the
industry going forward (likelihood of better consumer spending). We raise
our price target to Rs 404 (prior target Rs 338), or 18X FY16E PER, on account
of improving visibility for earnings on newspaper publishers. While
retaining our negative stance on DB Corp, we raise the recommendation to
REDUCE (from SELL)

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

��

-->
 DB Corp's reported results were broadly in line with our estimates. Advertising
revenue growth disappointed (6% versus est. 8% growth), and total revenues
missed estimates marginally, despite stronger-than expected growth in circulation
revenues. Decline in newsprint prices (5% y/y) was higher than our expectations,
due to which reported EBITDA is marginally ahead of estimates. On higher expenses
below the EBITDA line, reported PAT is 2.5% below estimates.

 Advertising growth was largely led by rise in volumes (5% y/y growth), while
yields contributed relatively little. We note that the base quarter had a positive
impact of elections in MP/ Chhattisgarh and Rajasthan, and was therefore a
strong base (even though there were elections in Maharashtra and Chhattisgarh
in the quarter, these are geographies where DB Corp is not as strong). Management
said that while October was a strong month, November and December
were relatively weak. January continues to log single digit growth; advertising
growth is unlikely to pick up meaningfully in the next quarter, in our understanding.
 Circulation revenue growth was enabled by circulation growth of 4% and the
remaining via rise in realization. For this quarter, the average cover price for the
company stands at Rs 3.2/ copy, while the average realization stands at Rs 2.12/
copy.
 Raw material expenses de-grew on the back of decline in newsprint prices (5%,
y/y), while quantity consumed rose relatively little. The company has explained
that it expects raw material prices to remain benign in the coming quarters on
the back of lower freight and shipping costs, decline in international newsprint
prices, as well as rising imports from Russia. Going forward, the company expects
newsprint prices to decline further by about 2% in the near-term.
 Other operating expenses have registered a decline as the company continues to
focus on costs as also the fact that the base quarter was impacted by the launch
of the Patna edition.
 EBITDA for the company registered a robust 19% y/y growth, despite soft growth
in revenues, and came in marginally ahead of our estimates. On account of
higher expenses below the EBITDA line, as well as higher effective tax rate compared
with our expectations, reported PAT has come in 2.5% below our expectations.
Investment View
 DB Corp has broadly met our expectations in the quarter, despite soft growth in
advertising revenues, helped by lower newsprint expenses. We expect this driver
to sustain, providing greater visibility to our estimates. While advertising expenses
across industry have not begun to pick up, we see reason to be more sanguine
about the advertising revenues of media companies, given improving corporate
sentiment, declining inflation, and likelihood of rising gross margins for advertisers
(especially FMCG companies). Management has also expressed hope that
rate-sensitive sectors such as real estate and automobiles could see some pick up
in the coming quarters on the back of declining interest rates.
 Due to improving visibility in profits, we raise our target valuation on DB Corp to
18X FY16E PER, or Rs 404.
 Even so, we do not see a meaningful upside in the stock. Moreover, the benefits
that may be factored in for DB Corp must similarly be factored in for other newspaper
publishers, which remain significantly cheaper.
 We continue to believe that there is reason to be cautious on newspaper publishers
that have been affected adversely by the IRS - 2013. Recent numbers reported
by DB Corp do little to dispel our belief that advertising revenue growth of
the company may underperform industry. We therefore maintain a negative
stance on the stock; however, we upgrade DB Corp to REDUCE (SELL earlier).


LINK
http://www.kotaksecurities.com/pdf/dmb/MorningInsight16012015kl.pdf