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DB Corp (DBCL)
Media
DBCL’s Marathi expansion. We reiterate our BUY rating on DBCL with FY2013E TP of
Rs330 (Rs350 previously) factoring in (1) reduced advertising growth in FY2012E (~13%
in core/legacy markets versus ~18% previously) and (2) substituting Bihar (Hindi) market
expansion for Maharashtra (Marathi). The Marathi expansion is well underway with new
edition launches in three key cities. DBCL is focused on Tier-II/III cities in the market
(excluding Mumbai-Pune metros) given its track record in such markets. We discuss the
Marathi market: in terms of (1) competition and (2) penetration.
Reiterate BUY with FY2013E-based TP of Rs330 led by core/legacy markets
Exhibit 1 presents a breakdown of 1QFY12 financials of DBCL into mature (print, FM Radio) and
emerging businesses; DBCL’s strong positioning and well-diversified presence (Exhibit 2) across 4
regional markets (core/legacy) resulted in robust 11% yoy revenue and 5% yoy EBITDA growth
despite RM pressures. The RM pressures have started to wane with 2-3% correction in domestic
newsprint prices, which will likely support financials in 2HFY12E.
We have fine-tuned our FY2013E TP to Rs330 (Rs350 previously) and FY2012E-13E EPS estimates
to Rs13 (Rs14.2 previously) and Rs15.5 (Rs17.1 previously) largely due to (1) reduced core/legacy
advertising growth in FY2012E (~13% versus ~18% previously) and (2) start-up losses in Marathi
expansion negated by deferment of Bihar expansion. We do not expect Bihar expansion in the
near term given (1) Jharkhand and Maharashtra expansions, (2) competition in MP-Chhattisgarh
markets and (3) FM radio Phase-III (likely to come in by end-FY2012E).
DBCL’s Marathi expansion: A tale of two markets (metros versus Tier-II/III cities)
DBCL’s Maharashtra (Marathi) expansion is well underway with edition launches in Aurangabad,
Nashik and Jalgaon. The Marathi print market in Maharashtra is a tale of two markets: (1) metros
(Mumbai-Pune) and (2) Tier-II/III (rest of Maharashtra). DBCL is focused on the rest of Maharashtra
(RoM) market given (1) its execution track record in Tier-II/III regional markets and (2) dominance
of English print in metro markets. The Marathi print has average penetration (~25%) and limited
fragmentation (based on Herfindahl-Hirschman Index), excluding the Mumbai-Pune metros
(Exhibits 3-7). Lokmat is the only real competition in RoM market, with a large gap over smaller
competition such as Sakal, Punya Nagari and Pudhari (in Kolhapur).
However, emerging competition from Maharashtra Times (Times of India group) remains a threat,
though limited to Pune and Nashik currently. Marathi C&S TV has emerged in the past 10 years
but advertising is yet low (
may be capped by presence of the direct substitute (Exhibit 9). DBCL has already started tapping
into the local advertising in the launch cities; ramping up national advertising would be the key
challenge (and profitability metric) given phased expansion over FY2012E-13E.
The Marathi expansion (contd.)
We discuss key characteristics of the Marathi print market and DBCL’s Marathi expansion
below. As highlighted previously, DBCL is focused on the Tier-II/III cities in the Marathi print
market; DBCL’s has strong execution track record in such markets having established
leadership or strong runners-up position in Rajasthan, Haryana, Gujarat and Punjab markets
previously (Exhibit 2). DBCL’s multi-stage survey positioned Divya Marathi brand as the
independent newspaper in the market (differentiator) given key competitors (Lokmat, Sakal)
had known political affiliations.
�� The Marathi print advertising market is ~Rs9-10 bn/annum overall. However, Mumbai and
Pune cities contribute ~Rs1.5 bn each to the pie, which is not an addressable market for
DBCL. Thus, the addressable (RoM) Marathi print advertising market for DBCL would be
in the region of ~Rs6-7 bn. The RoM market is witnessing 15-20% growth in print
advertising, similar to other regional markets.
�� A majority (~60%) of the advertising spends are driven by local advertisers; DBCL has
a good track record of converting and expanding the scope of local advertising in its
legacy/core markets (3L+ advertisers). Finally, DBCL will likely aim to leverage its
extensive existing network to (1) bring national advertisers on-board and (2) negate
the lack of Mumbai-Pune cities in its footprint.
�� DBCL has avoided high fragmentation markets such as Mumbai, which has also helped
keep check on the cost of expansion. Exhibit 10 presents the circulation of key
competitors Lokmat and Sakal excluding Pune and Mumbai. Exhibit 11 presents the
sensitivity of annual cost of operation at various levels of circulation and all-inclusive cost
of circulation (per-copy). Thus, the breakeven point of DBCL in the market is ~Rs2.2
bn/annum (~1 mn circulation, ~Rs6/copy cost).
�� DBCL does not have to depend entirely on advertising since cover prices in regional
markets are at reasonable levels even in a competitive environment. The circulation
scheme launched by DBCL in the market (Exhibit 12) results in effective realization of
~Rs1.8-2.1 depending on the city/urban or upcountry/rural area.
Reiterate BUY on attractive valuations
The valuations of print media/media stocks recently have been impacted by the slowdown in
advertising spends in FY2012E led by (1) rising interest rate environment and (2) resulting
slowdown in economic growth. Additionally, the prices of domestic newsprint increased
disproportionate to prices of imported newsprint in 2HFY11-1HFY12, which impacted
regional players somewhat given their newsprint mix (70-80% domestic newsprint).
However, we believe the valuation compression has been overdone given (1) cyclicality of
advertising revenues and (2) recent correction in pricing of domestic newsprint. The street is
attributing trough valuations to trough earnings/growth. We discuss DBCL valuations from
two perspectives below, adjusting for new expansions.
�� DBCL stock trades at 12X FY2013E earnings adjusted for expansion in Jharkhand and
Maharashtra expansions. We believe DBCL’s mature business have the potential to deliver
at least industry-equivalent 15% CAGR in advertising and earnings growth; FY2012E may
be an exceptionally weak year in that respect where revenue and earnings growth may be
constrained by factors discussed above. We highlight DBCL’s strong, well-diversified
presence across its 4 core/legacy markets (Exhibit 2), which have been further
strengthened over time with launch of hyper-local editions.
�� DBCL stock trades at 14X FY2013 consolidated earnings including the startup losses from
Jharkhand and Maharashtra expansion; we highlight that FY2013E may likely see
operating losses peak in these markets. We believe DBCL has the potential to deliver
industry-leading consolidated 20%+ CAGR in advertising and earnings growth, led by
incremental revenue contribution from new expansions and simultaneous reduction in
startup losses (Rs0.8 bn in FY2013E). We again highlight DBCL’s focus and execution
record in Tier-II/III markets, which is playing to its strengths
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DB Corp (DBCL)
Media
DBCL’s Marathi expansion. We reiterate our BUY rating on DBCL with FY2013E TP of
Rs330 (Rs350 previously) factoring in (1) reduced advertising growth in FY2012E (~13%
in core/legacy markets versus ~18% previously) and (2) substituting Bihar (Hindi) market
expansion for Maharashtra (Marathi). The Marathi expansion is well underway with new
edition launches in three key cities. DBCL is focused on Tier-II/III cities in the market
(excluding Mumbai-Pune metros) given its track record in such markets. We discuss the
Marathi market: in terms of (1) competition and (2) penetration.
Reiterate BUY with FY2013E-based TP of Rs330 led by core/legacy markets
Exhibit 1 presents a breakdown of 1QFY12 financials of DBCL into mature (print, FM Radio) and
emerging businesses; DBCL’s strong positioning and well-diversified presence (Exhibit 2) across 4
regional markets (core/legacy) resulted in robust 11% yoy revenue and 5% yoy EBITDA growth
despite RM pressures. The RM pressures have started to wane with 2-3% correction in domestic
newsprint prices, which will likely support financials in 2HFY12E.
We have fine-tuned our FY2013E TP to Rs330 (Rs350 previously) and FY2012E-13E EPS estimates
to Rs13 (Rs14.2 previously) and Rs15.5 (Rs17.1 previously) largely due to (1) reduced core/legacy
advertising growth in FY2012E (~13% versus ~18% previously) and (2) start-up losses in Marathi
expansion negated by deferment of Bihar expansion. We do not expect Bihar expansion in the
near term given (1) Jharkhand and Maharashtra expansions, (2) competition in MP-Chhattisgarh
markets and (3) FM radio Phase-III (likely to come in by end-FY2012E).
DBCL’s Marathi expansion: A tale of two markets (metros versus Tier-II/III cities)
DBCL’s Maharashtra (Marathi) expansion is well underway with edition launches in Aurangabad,
Nashik and Jalgaon. The Marathi print market in Maharashtra is a tale of two markets: (1) metros
(Mumbai-Pune) and (2) Tier-II/III (rest of Maharashtra). DBCL is focused on the rest of Maharashtra
(RoM) market given (1) its execution track record in Tier-II/III regional markets and (2) dominance
of English print in metro markets. The Marathi print has average penetration (~25%) and limited
fragmentation (based on Herfindahl-Hirschman Index), excluding the Mumbai-Pune metros
(Exhibits 3-7). Lokmat is the only real competition in RoM market, with a large gap over smaller
competition such as Sakal, Punya Nagari and Pudhari (in Kolhapur).
However, emerging competition from Maharashtra Times (Times of India group) remains a threat,
though limited to Pune and Nashik currently. Marathi C&S TV has emerged in the past 10 years
but advertising is yet low (
may be capped by presence of the direct substitute (Exhibit 9). DBCL has already started tapping
into the local advertising in the launch cities; ramping up national advertising would be the key
challenge (and profitability metric) given phased expansion over FY2012E-13E.
The Marathi expansion (contd.)
We discuss key characteristics of the Marathi print market and DBCL’s Marathi expansion
below. As highlighted previously, DBCL is focused on the Tier-II/III cities in the Marathi print
market; DBCL’s has strong execution track record in such markets having established
leadership or strong runners-up position in Rajasthan, Haryana, Gujarat and Punjab markets
previously (Exhibit 2). DBCL’s multi-stage survey positioned Divya Marathi brand as the
independent newspaper in the market (differentiator) given key competitors (Lokmat, Sakal)
had known political affiliations.
�� The Marathi print advertising market is ~Rs9-10 bn/annum overall. However, Mumbai and
Pune cities contribute ~Rs1.5 bn each to the pie, which is not an addressable market for
DBCL. Thus, the addressable (RoM) Marathi print advertising market for DBCL would be
in the region of ~Rs6-7 bn. The RoM market is witnessing 15-20% growth in print
advertising, similar to other regional markets.
�� A majority (~60%) of the advertising spends are driven by local advertisers; DBCL has
a good track record of converting and expanding the scope of local advertising in its
legacy/core markets (3L+ advertisers). Finally, DBCL will likely aim to leverage its
extensive existing network to (1) bring national advertisers on-board and (2) negate
the lack of Mumbai-Pune cities in its footprint.
�� DBCL has avoided high fragmentation markets such as Mumbai, which has also helped
keep check on the cost of expansion. Exhibit 10 presents the circulation of key
competitors Lokmat and Sakal excluding Pune and Mumbai. Exhibit 11 presents the
sensitivity of annual cost of operation at various levels of circulation and all-inclusive cost
of circulation (per-copy). Thus, the breakeven point of DBCL in the market is ~Rs2.2
bn/annum (~1 mn circulation, ~Rs6/copy cost).
�� DBCL does not have to depend entirely on advertising since cover prices in regional
markets are at reasonable levels even in a competitive environment. The circulation
scheme launched by DBCL in the market (Exhibit 12) results in effective realization of
~Rs1.8-2.1 depending on the city/urban or upcountry/rural area.
Reiterate BUY on attractive valuations
The valuations of print media/media stocks recently have been impacted by the slowdown in
advertising spends in FY2012E led by (1) rising interest rate environment and (2) resulting
slowdown in economic growth. Additionally, the prices of domestic newsprint increased
disproportionate to prices of imported newsprint in 2HFY11-1HFY12, which impacted
regional players somewhat given their newsprint mix (70-80% domestic newsprint).
However, we believe the valuation compression has been overdone given (1) cyclicality of
advertising revenues and (2) recent correction in pricing of domestic newsprint. The street is
attributing trough valuations to trough earnings/growth. We discuss DBCL valuations from
two perspectives below, adjusting for new expansions.
�� DBCL stock trades at 12X FY2013E earnings adjusted for expansion in Jharkhand and
Maharashtra expansions. We believe DBCL’s mature business have the potential to deliver
at least industry-equivalent 15% CAGR in advertising and earnings growth; FY2012E may
be an exceptionally weak year in that respect where revenue and earnings growth may be
constrained by factors discussed above. We highlight DBCL’s strong, well-diversified
presence across its 4 core/legacy markets (Exhibit 2), which have been further
strengthened over time with launch of hyper-local editions.
�� DBCL stock trades at 14X FY2013 consolidated earnings including the startup losses from
Jharkhand and Maharashtra expansion; we highlight that FY2013E may likely see
operating losses peak in these markets. We believe DBCL has the potential to deliver
industry-leading consolidated 20%+ CAGR in advertising and earnings growth, led by
incremental revenue contribution from new expansions and simultaneous reduction in
startup losses (Rs0.8 bn in FY2013E). We again highlight DBCL’s focus and execution
record in Tier-II/III markets, which is playing to its strengths
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