Maintain Hold on DB Corp - Emkay

Strong ad revenue of Rs2.5bn, growing by 30.6% yoy. Print revenues grew 27.4% yoy to Rs2.4bn, led equally volume and yield improvement.

EBITDA at Rs796mn improved 14.4% yoy. While EBITDA margin declined 197bps to 25.1%, on account of high opex pertaining to new launches.

Q4FY11 PAT grew by 22.5% yoy to Rs450mn, led by lower interest out & higher revenue realization. However, it was below our estimate of Rs.550mn.

Ad revenue growth to continue but margin pressure to remain in FY12E. We cut our EBITDA and EPS est. by 3.7% & 7.3% resp. Maintain HOLD rating with revised target price Rs271.

Strong ad revenue growth but margins take a hit

DB Corp reported net sales growth of 23.4% yoy led by strong ad revenue growth of 30.6% yoy to Rs2.5bn (Our est. of Rs 2.3bn, 20.2% growth yoy). Print revenue grew better than expected by 27% yoy v/s our estimate of 20.0%. Circulation revenue remained flat at Rs 534mn yoy, due to price cut taken in couple of markets. Radio revenue stood at Rs133mn with EBITDA margin of 30%. Con. EBIDTA grew by 14.4% yoy to Rs 796mn while EBIDTA margins declined by 197bps yoy to 25.1%. Despite of strong revenue growth, margin decline was primarily due to 26.7% yoy rise in operating expenses. PAT for the quarter stood at Rs 450mn up 22.5% yoy but below our estimates of Rs.550 mn.

Impending launches and cost increase to weigh on margins

DB Corp marked its entry in two new states during last fiscal and same is expected during FY12E (Maharashtra and Bihar). The company has booked pre-operating expense of Rs 43mn pertaining to Bihar, Maharashtra and Jharkhand launch in Q4FY11, impacting margins to extent of ~135bps. Given the bigger size of both Maharashtra and Bihar market, we expect the margin for DB corp to get impacted in FY12E. Newsprint print prices have been stable at $665/MT from last 2 quarters but increase in number copies pertaining to new launches would lead to higher raw material prices coupled with rise in other operating expenditure.

Outlook

DB corp has re-aligned its ad rate card and it has als o increased rate by 10-14% in April, 2011. With rise in yields and strong volumes, Ad revenue growth remains on track. Newsprint price from the current levels is not expected to increase significantly; however, the raw material prices for DB Corp would increase due to increase in circulation of copies for new launches as well as in existing markets. Considering this, we have revised our FY12E EBITDA estimates downwards by 3.7% and EBITDA margins by 166bps. We expect the margin would get back to normal levels post expansion during FY12E.

Rating maintained at HOLD, target price revised to Rs271 (earlier Rs284)

We have revised our EPS estimated downwards for FY12E by 7.3% to Rs13.8 and introduced FY13E at Rs16.8. At CMP of Rs240, the stock trades at 17.4x and 14.3x our estimated EPS for FY12E and FY13E, respectively.

Source : Equity Bulls

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