DB Corp - Good show on EBITDA - ICICI Securities

DB Corp's (DBCL) Q3FY21 EBITDA rose 17% YoY to Rs1.7bn despite 13.7% dip in ad revenues, which is impressive in our view. This was aided by lower newsprint spend and aggressive cost savings. However, some of the benefits would reverse in Q4FY21 on rise in newsprint prices and normalisation of some of the saved costs. Nonetheless, DBCL sees a structural cost-saving of Rs0.8bn-1bn annually. We also like the company's digital strategy where it is driving higher users with good customer experience from nil ads, and fast-rising DAU and MAU. As seen in other digital platforms, on reaching large user base, monetisation becomes easier and better. We have raised our EPS estimates by 14.5% / 1.7% for FY21E / FY22E respectively factoring-in the better Q3FY21 performance. We have increased our target price to Rs100 (from Rs87) on valuation rollover to FY23E. Reiterate BUY.

- Good ad revenue recovery, but still below pre-Covid. DBCL's ad revenues dipped 13.7% YoY to Rs3.7bn on decline in the print segment by 12.9% YoY to Rs3.4bn, and in radio by 22% YoY to Rs291mn. Ad revenues during the festive season reached up to 95% on comparable basis, and DBCL expects ad revenues to reach pre-Covid levels soon. In Q3FY21, ad volumes were down 8-10% while realisations were down 3-5% YoY. Segments that have done well are education, real estate, and government/political while apparels and lifestyle underperformed. Local advertisers' contribution jumped to 36% (from 31% YoY) and the segment has been relatively outperforming national advertisers. DBCL expects at least flattish ad revenues QoQ in Q4FY21.

- Circulation recovery low. Circulation revenues dipped 18% YoY to Rs1.1bn (but were up only 4.7% QoQ). This was due to drop in copies by 22% YoY (up only 3.1% QoQ) to 4.4mn while realisation was up 3.7% YoY to Rs2.79/copy. Pagination however remains low at 21 pages (vs 24 YoY) on lower ad volumes. Circulation was hurt from logistical issues, which should get resolved with normalisation of train and local bus services. Circulation EBITDA benefited from lower newsprint prices, down 9.4% YoY, but DBCL expects prices to rise in the next quarter by 3-4% QoQ reversing some of the benefits. It is not planning any price hike and aims to increase copies beyond pre-Covid levels.

- 40% of the cost-savings are structural. DBCL has achieved cost-saving of Rs1.78bn, which may touch Rs2bn in FY21, including employees, other expenses, and printing & production. It expects 40% of the savings to continue even after normalisation. EBITDA grew 16.9% YoY to Rs1.7bn on lower newsprint prices and other cost-savings. EBITDA margin was strong at 33.5% (unlikely to sustain). Net profit rose 21.3% YoY to Rs1bn.

- Other highlights. 1) it has gained market share in Rajasthan, Gujarat and Punjab while the same has been stable in Bihar; 2) new royalty rates announced in radio could marginally benefit the company from lower payments; and 3) management does not expect any major impact of proposed anti-dumping duty on newsprint prices.

Shares of D B Corp Ltd was last trading in BSE at Rs.80.8 as compared to the previous close of Rs. 79.35. The total number of shares traded during the day was 18112 in over 790 trades.

The stock hit an intraday high of Rs. 83.1 and intraday low of 79.15. The net turnover during the day was Rs. 1474396.

Source : Equity Bulls

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