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D B Corp. - Ad revenue continues to drive results; Buy - Anand Rathi
Posted On : 2013-10-20 19:28:22( TIMEZONE : IST )
Key takeaways from 2QFY14 results and earnings call
Ad revenue momentum continues. DB Corp.'s ad revenues grew 17.6% yoy (our estimate: 15%), despite the Shraddh period during the quarter (in FY13, this period was in 3Q). Consequently, consolidated revenue was up 15.8% and 0.7% higher than our estimate. With election season approaching, government/political parties emerged as the largest advertiser during the quarter. Management is confident of sustaining ad revenue growth in 3Q. Revenues from circulation (+14% yoy) and radio advertising (+14.5%) were, however, slightly weaker than expected.
EBITDA margins were resilient. Input costs rose 6% qoq due to hike of 5% in newsprint prices and 1% in circulation. This, along with seasonal factors, caused 500bps qoq dip in EBITDA margins, though margins were up 185bps yoy. Management expects newsprint prices to firm further by ~5%.
Bihar launch to be Patna-centric. Management believes ~55% of the Rs. 4bn print advertising market in Bihar originates from Patna. The company will, therefore, concentrate on Patna and assess its performance there, before taking a call on further expansion. Management estimates pre-operating expenses and operating losses to be similar to those in other markets which it entered recently. Capex in Bihar is estimated at Rs. 200m in FY14.
Estimates slightly revised down. While 2Q results beat our estimates, we lower our revenue/earnings growth expectations for 2H and FY15 on weak economy and Bihar launch expenses/losses. Hence, our FY13 estimates are practically unchanged, while FY15 estimates are marginally down.
Our take. We remain positive on DB Corp., owing to strong earnings growth, rise in regional advertising and underlying business strength (high return ratios, low leverage, strong execution track record). It trades at 14x one-year forward P/E vs average 16x for past two years. Risks. Prolonged economic slowdown and rise material increase in newsprint prices.
