DB Corp (DBCL) reported 2QFY18 revenues of Rs 5.7bn, up 5% yoy and in line with EE. Print advertising grew by 6% yoy (vs. an 8% yoy decline reported by HMVL). Radio business also picked up pace this quarter with 17% growth yoy. DBCL, being an aggressor, continues to outperform competition in terms of circulation growth (+8% yoy). The company has added 0.4mn copies since July and plans to further increase its penetration in Bihar and Maharashtra by Jan’18. EBITDA margins were at 24.6% (-268 bps vs. EE) impacted mainly by higher expenses related to expansion in Bihar and other ongoing circulation schemes. We have cut our FY18/FY19 EPS estimates by -9%/-9% and roll over to Dec’18 TP of Rs 460 (from a Sep’18 TP of Rs 480). Maintain LONG.
Ad growth good at 6%; further acceleration likely in 2HFY18: Print advertisement revenues grew 6% yoy, which in our opinion was good amid the weak macro environment. To put things in perspective, HMVL has reported an 8% yoy decline in its 2QFY18 advertising revenues. Real estate (-30% yoy) and Education (-15% yoy) sectors continued to be weak, whereas there was some pick up in the government advertising. Radio advertising grew by 17% yoy (vs. +11% yoy in 1QFY18) mainly driven by new stations as the legacy stations grew in single digits.
Circulation revenue growth continues to outperform competition: While DBCL’s peers have witnessed pressure on circulation revenues due to a drop in cover prices in some states, DBCL’s circulation revenues grew at a healthy pace of 8% yoy. Circulation revenues were mainly driven by yield growth in mature markets and an increase in the number of copies in emerging markets of Bihar and Maharashtra. DBCL has added 0.387mn copies since July and plans to add further 0.4mn copies in Bihar by January. In 2QFY18, newsprint prices increased by ~3% yoy but were stable qoq. Going forward, management expects newsprint costs to remain broadly stable for FY18e.
EBITDAM was impacted by expansion in Bihar and other circulation related schemes: Other expenses spiked by +19% yoy in 2QFY18. However, expenses grew by ~5% yoy on adjusting for the following one-off gains in 2QFY17: (1) MTM gains on a private treaty (Rs 103.7mn) and (2) reversal of royalty provisions of Rs 58mn. In 2QFY18, ~70m was spent on expansion drive in Bihar and ~60m was the cost of ongoing circulation schemes. Adj. EBITDAM stood at 24.6% in 2QFY18 (flat yoy, 268 bps below EE).
Maintain LONG with a rolled over Dec’18 TP of Rs 460 (Sep’18 TP of Rs 480 earlier): Post 2Q results, we have cut our FY18/FY19 EPS estimates by -9%/-9% as the margins came in weaker. We maintain LONG on DBCL and roll over to a Dec’18 TP of Rs 460 (Sep’18 TP of Rs 480 earlier) set at 11x EV/EBITDA on our TTM Dec’18 estimates.
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