DB Corp - Circulation normalising; but ad revenue is key - ICICI Securities

DB Corp's (DBCL) Q1FY21 EBITDA loss has come higher and ad revenues weaker than expected. However, circulation has been recovering fast and cost savings have helped the company reach positive EBITDA. Ad revenue is still not out of the woods and is key to watch (Q3FY21 would be critical for bounce-back). DBCL is yet to disclose KPIs on digital segment, but its efforts to drive direct volumes is appreciable. We would however wait to see the entire print before forming a view. Dividend distribution policy remains unchanged (at 65% payout). Promoters' plan to release pledged shares in 12 months should remove a persisting overhang. We have increased our EPS estimates by 10% / 2.6% for FY21E / FY22E respectively, and the target price to Rs106 (from Rs103). Reiterate BUY.

- Ad revenues not out of the woods. DBCL's ad revenues dipped 76% YoY to Rs1bn on decline in print segment by 75.5% YoY to Rs990mn, and in radio by 79% YoY to Rs80mn. Ad revenues in Apr/May'20 were 20% of last year - and while it improved to 53% in Jul'20, it is still significantly lower. Company expects growth from Q3FY21 on festive season. It has seen a few advertisers come back in Jul'20 - particularly in auto, real estate, FMCG and lifestyle. Recovery in education sector advertising is still awaited due to delay in start of physical classes. Revenues from government dipped 26% YoY and we don't see early revival in the segment.

- Circulation normalising fast. Circulation revenues declined 29% YoY to Rs928mn on volume decline (copies were down 28.3% YoY to 4mn). It dipped to 67-69% in Apr-May'20, but recovered to 76% in Jun'20 and 81% in Aug'20-TD vs pre-Covid levels. The drag is mainly in copies sold to shops and businesses that are not fully operational as yet, and in cash sales at railway stations, as well as due to logistical issues. DBCL is confident of reaching pre-Covid circulation levels. It has seen 4x rise in direct traffic on its app as well as increase in the time spent by DAUs. Company has kept its app subscription-free and ad-free and has worked on improving consumer experience. This has led to improved customer loyalty and DAU stickiness even in un-lockdown.

- Aggressive on cost saving. DBCL saw its 'other expenses' drop by Rs1.15bn in FY21 from last year's Rs5.8bn. This does not include cost saved on account of lower copies printed. Q1FY21 had Rs300mn of targeted cost saving and the remaining would come in next nine months. Some of these cost savings are expected by the company to be permanent in nature and some will reverse from FY22. Company already reached positive EBITDA in Jun'20 and achieved 20% EBITDA margin in Jul'20. In H1FY21, it aims to be EBITDA-neutral and erase the entire loss incurred in Q1FY21.

- Other highlights. 1) Fall in newsprint prices and lower pagination (14 pages in Q1FY21 vs ~23 pages) has helped DBCL turn EBITDA-positive on circulation, but this is unlikely to sustain; and 2) promoter aims to release all pledged shares in next 12 months. It is against the loan of Rs1.4bn and all businesses run by promoters are now self-reliant.

Shares of D B Corp Ltd was last trading in BSE at Rs.79 as compared to the previous close of Rs. 80.15. The total number of shares traded during the day was 24670 in over 571 trades.

The stock hit an intraday high of Rs. 83.3 and intraday low of 78. The net turnover during the day was Rs. 1992236.

Source : Equity Bulls

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