Published on 13/11/2017 4:03:36 PM | Source: Emkay Global Financial Services Ltd
Hold DB Corp Ltd For Target Rs.403.00 - Emkay
* DB Corp reported in-line revenue while higher-than-expected opex led to EBITDA miss of 10%. Other operating cost increased 19% yoy due to Bihar expansion and higher promotional spends.
* Circulation revenue increased by 8% yoy, driven by a 6.5% yoy increase in yield. The company has started to focus on increasing number of copies in core markets, resulting in 0.4mn jump in copies circulated. Radio revenue recorded a healthy growth of 17% yoy.
* Key sectors like Real Estate and Education have seen significant deceleration, which could restrict revival in Ad revenue growth in the ensuing quarters. There is still lack of clarity on full recovery in ad growth in H2FY18.
* States election in major states where DB Corp has presence will have elections in FY19, which could aid advertisement growth. We are projecting Ad revenue growth of 9%/11% for FY18/19E. Maintain HOLD with PT of Rs403 (15x Sept’17).
Muted operating performance impacted by higher opex
* Consolidated revenue at Rs5.7bn was up 5.4% yoy, in line with estimates. Ad revenue grew by 6.2% yoy to Rs4bn, in line with estimates. Print Ad revenue at Rs3.5bn grew by 6.1% yoy (vs estimate of +7% yoy). Circulation revenue of Rs1.3bn grew by 8.0% yoy (in line with estimates), driven by 6.5% yoy improvement in yield. Other operating income stood at Rs435mn (down 7% yoy) vs estimate of Rs340mn. Q2FY17 included one-off income of Rs104mn pertaining to profit on the sale of Gitanjali Gems shares.
* Consolidated EBITDA at Rs1.4bn was down 7.1% yoy (9.5% miss on estimates). EBITDA margin stood at 24.6%, contracting by 331bps yoy. Raw material cost increased by 9.3% yoy (4.6% qoq). Other operating expenses increased by 19% yoy due to royalty cost reversal of Rs58mn in the Radio business. Employee cost was up 2.1% yoy. PAT at Rs787mn was down 11% yoy, impacted by dismal operating performance.
DB Corp has been controlling costs for the past few quarters, which has resulted in a decent operating performance in spite of weak Ad revenue growth. However, now the strategy is to focus on increasing the number of copies in core markets, which would increase both RM cost and other opex. Incremental circulation could see some deceleration once DB Crop rolls back the ongoing promotional offers. In our view, the company’s aggressive stance to strengthen circulation could be attributable to IRS survey results, which is expected in Dec’17. Our revised Ad revenue growth estimates stand at 9% for FY18 (vs 11% earlier) while for FY19, it remains unchanged at 12%. We estimate EBITDA/PAT CAGR of 10%/12% over FY17-20E. At the CMP, the stock trades at a dividend yield of >3% and has healthy RoCE of ~35% on FY19E.
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