D B Corp - Diwali 2012 Pick - Angel Broking

DB Corp is one of the leading publishing houses in India, with seven newspapers and 65 editions in four languages across 13 states. The company has an advertising focused revenue model with average cover prices being the lowest among peers at Rs.2.6.

The company's continuous endeavor to diversify its print business with aggressive expansion into new markets (urban towns beyond metros) backed by exhaustive market research and focus on achieving leadership has made it a multistate leader. DB Corp leads its nearest competitor in its market with a huge margin in terms of circulation and it ensures steady advertising revenue even during lean times. We expect ~15% CAGR growth in ad revenue over FY2012-FY2014.

Due to cyclical headwinds such as sluggish ad revenue (due to slower GDP growth) and higher newsprint costs in INR terms (due to INR depreciation vs USD), the stock is currently trading at relatively cheaper valuations of 14.6x FY2014E consolidated EPS of Rs.14.4 (at 5% premium to Sensex). However, considering the structural positives of print business (high brand loyalty and significant entry barriers) and DB Corp's multistate leadership, in our view, the stock deserves a higher premium to the Sensex. Hence, we assign a target multiple of 18x FY2014E EPS, benchmarking it to our print media sector valuations (which are at 15% premium to the Sensex) and maintain our Buy view on the stock with a target price of Rs.259.

Source : Equity Bulls

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