DB Corp - 3QFY2014 Result Update - Angel Broking

For 3QFY2014, DB Corp's (DBCL) top-line and bottom-line performance was better than our expectations. Its top-line grew by 18.1% yoy to Rs. 518cr, driven by strong advertising growth. The festive season coupled with the recently held state elections and increase in advertising yield led to a robust 18.3% yoy growth in advertising revenue to Rs. 404cr. The company also reported a strong 13.5% yoy growth in circulation revenue to Rs. 83cr aided by hike in cover prices in selective markets.

Strong operational performance: At the operating level, the company's EBITDA grew by 29.9% yoy to Rs. 155cr, in spite of incurring a pre-operative marketing expenditure of Rs. 4.5cr for its Patna edition. Mature editions reported a 172bp yoy margin expansion to 34.9%. Consequently, the consolidated OPM expanded by 273bp yoy to 29.9% and net profit grew by 33.3% yoy to Rs. 94cr.

Patna edition to be launched on January 19: Following the launch of Akola and Amravati editions in August, taking the total editions in Maharashtra to 7, DBCL has now shifted its focus to Bihar and is set to launch the Patna edition on January 19, 2014. With 1.5 lakh copies already being booked for the Patna edition, DBCL is set to enter Bihar as the No.1 player from Day1 itself. The cover price of the Patna edition is set at Rs. 2.5. According to Management commentary, newspaper readership of only ~40% among literate population of Bihar provides scope for market penetration and expansion. Further, Bihar's advertising market size of ~Rs. 350cr, with Patna cornering almost 50-55% of the total market, presents a lucrative opportunity for the company. The company expects to incur a capex of Rs. 20cr to Rs. 25cr for the Patna edition.

Outlook and valuation: At the current market price, DBCL is trading at 15.9x FY2015E consolidated EPS of Rs. 19.2. We recommend Accumulate rating on the stock with a target price of Rs. 340, based on 17.6x FY2015E EPS, benchmarking it to our print media sector valuations (which are at ~10% premium to our Sensex target valuation multiple). The downside risks to our estimates include 1) sharp rise in newsprint prices in INR terms, and 2) higher-than-expected losses/increase in the breakeven period of the new launches.

Source : Equity Bulls

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