Anything less than 35% margins in radio biz a bad sign: DB Corp

Ad revenues of DB Corp were almost flattish in the fourth quarter of FY16. This was due to the company's various efforts to improve its yield in the market, says Girish Agarwaal, Director, DB Corp. He says DB, one of India's largest newspaper groups, has already started seeing double-digit growth in ad revenues of the first two months of the first quarter of FY17.The demand for ads has been coming from the real estate, automobile and education sectors. Agarwaal hopes to sustain the 38 percent margins coming from its radio business, saying anything less than 35 percent can be seen as a bad sign for the vertical.The revenues from newsprint business is also expected to grow owing to increase in circulation strength especially from Rajasthan and Gujarat. Below is the transcript of Girish Agarwaal’s interview with Nigel D’souza and Reema Tendulkar on CNBC-TV18.Nigel: Let us get chatting about the largest part of your revenues. That is the ad revenue. Over there it was more or less flat around Rs 360 crore. Why was it so low? What is the outlook over there? What is going on?A: Last four quarters, we have been doing a strategic work on improving our yield in the market. And we are happy to say that in the last two months that is in April and May we are on a strong double digit growth. So, all the efforts what we did in the last four quarters start paying off now. We are very excited about it.Reema: If you expect the ad revenue growth to come back, could you give us a sense that what the growth rates could be in FY17?A: I really cannot talk about the full year. What has happened in the last two months, that is our strong double digit growth in advertising as well as in circulation also. And especially, the markets like Madhya Pradesh, Rajasthan, Bihar, they have really grown a lot for us. And most importantly, the 2-3 categories like real estate and automobile and education, which was very sluggish in the last almost 8 quarters, this last two months we have seen a pretty good growth in these 3-4 categories.Reema: So, you are saying double digit growth has been seeing in advertising and circulation in the months of April and May.A: True.Reema: So, Q1 should be a good quarter for you?A: Yes, we are hoping so, I am sure. Another 14 days to go and we will see you again.Nigel: Good to hear you quite optimistic in the first quarter of this year itself. Our viewers will like it and I am sure your investors as well will like you sounding quite optimistic. But let us talk about a smaller part of your business. Your radio business, that is quite small currently, but I like the margins over there. It is at around 38 percent or thereabouts. What is the outlook going ahead. You had some new launches as well over there. Can we see higher contribution coming out of this business and these margins of 38 percent, sustainable?A: Very much. Radio business is all about the higher margin also, because there is no news print cost over there. And in the last bid which happened, we have got 13 more stations. So, from the existing base of 17, we will move off to 30 in the next six months’ time. So, radio that way is pretty clear for us that we have already done some Rs 100 crore topline in that business. And the new 13 stations coming will add on to a number more. And most importantly, we firmly believe that radio has to operate in the margin of 35-40 percent. So, if you are going below that, there is something wrong happening in your management.Reema: Coming back to the new print paper prices, where do they currently stand at? In the last two months, have they gone up? Is that likely to hurt the margins? Give us a sense of the broad trends there.A: Overall, as we indicated last time to you guys that the news print prices for this year, we are hoping around 3-4 percent growth in the price itself. And there will be some more cost coming because of new circulation. As you know, we are increasing copies every quarter. So, this quarter also, we are increasing new copies in the states like Rajasthan, Gujarat, so that impact, plus some news print growth. But keeping everything in mind, we believe that this quarter, you would have a very sizeable margin growth.Nigel: The Ministry of Information and Broadcasting (I&B), they framed this new policy about ads in newspapers, etc. It just happened earlier this month, how much of your revenues come in from the government and also how does this new policy change your business matrix? Can we expect something substantial coming in from there?A: Frankly speaking, this policy is good for us, but is it something major? No, because what they have done, they have not increased the rates. They are simply saying that from now on the front page, we will pay you a premium, page three, we will pay you a premium or for the colour ad, we will pay you extra premium which they should have done it some 10 years back. So, what we were expecting at least that they would come and say that okay, we will make our mechanism of giving you a rate increase because today, as you know, the Directorate of Advertising & Visual Publicity (DAVP) rates are much lower than the current market rates. So, government needs to see that when you advertise in television, you pay the market rate to them, the commercial rate top them, but it comes in news paper, you want a subsidised rate. At one point of time, government is saying that everybody should leave the subsidy off, but for the newspaper industry they want the subsidy on the advertising rates. So, I am not very clear, is this a real benefit coming to the industry or it is just like a small thing, a carrot shown to you that be happy.