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Newsprint price hike to restrict EBITDA growth…

DB Corp’s revenues fell 6.2% YoY to | 456.6 crore as prevailing Covid-19 situation continued to impact revenues. Print & digital ad revenue dipped 5.9% YoY to | 281.2 crore while radio ad revenue also reported de-growth of 14.7% YoY to | 27.8 crore. Circulation revenue fell 8.0% YoY to | 110.4 crore mainly due to lower circulation of copies. EBITDA was up 53.3% YoY to | 101.1 crore while margins at 22.1% were up 860 bps YoY. Operating performance improved on the back of cost control measures and soft newsprint prices. Consequently, reported PAT was at | 61.9 crore, up 157.4% YoY, aided by onetime benefit of | 13.2 crore in the radio business, Adjusted PAT was at | 48.7 crore.

Ad growth to be volume led in FY22

The management indicated that their focus in FY22 would be to bring back volumes, which means that ad pricing would be still suppressed. We expect a pricing recovery only in FY23, provided circulation is not impacted by any potential third wave. The company had taken | 8-10 per month circulation hike, which was positively surprising considering the on ground situation. However, we believe it could be largely absorbed due to market share gain in its key markets. We now bake in lower print + digital ad revenue at | 1299 crore in FY23E with 18.4% CAGR in FY21-23E on a supressed base. DB Corp’s realisation per copy was | 2.85, up 5.9%YoY. We estimate circulation revenue CAGR of ~11% in FY21-23E with circulation reaching pre-Covid levels in FY23.

Higher newsprint to restrict EBITDA growth

Cost control measures along with low newsprint prices led to sharp margin expansion YoY. DB Corp has achieved cost saving of | 195 crore during FY21. The company expects significant proportion to be retained. The management indicated that newsprint prices, which were up 3% QoQ, are expected to rise further by 12-15% in Q1FY22 and are expected to normalise only in Q3FY22. The company also indicated the imported newsprint mix has also increased for the company from 39% to 54% in FY21. We bake in 22% and 25% margins in FY22E and FY23E, respectively.

Valuation & Outlook

The company has curtailed dividend payout to shareholders (from 60%+ in earlier years to ~37%) that was disappointing, considering its peer has been returning more cash to shareholders. Also, the impact of rising newsprint prices remains a concern. The stock has also run up sharply (~42% since our last update), which, we believe, prices in all positives pertaining to cost savings. We downgrade the stock from BUY to HOLD rating. We now value the stock at 7x FY23E EPS with a target price of | 120 (earlier | 95).

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