Margins to improve as forex losses shrink: DB Corp

Media conglomerate DB Corp disappointed the street by reporting lower than expected numbers in the quarter ended June 2012. Consolidated net profit went down by 2.22% quarter-on-quarter and 27.9% year-on-year to Rs 44 crore in the first quarter of FY13. Consolidated total income from operations rose by 4.4% quarter-on-quarter to Rs 377 crore during the quarter.

Even as advertising revenues continue to be sluggish, Girish Agarwaal, Director, DB Corp explained that compared to Q4 and Q1, there will be 9% growth in Q3 which may indicate that things may improve going forward. In the same breath, Agarwal added that there are no major signs from the advertisers saying that the next quarter will be a bumper.
Commenting on the company's margins Agarwaal tells CNBC-TV18, "If I compare the Q4 margin to the Q1 margin, from 21% we have gone up to around 22.4% since the new additions of Maharashtra and Jharkhand are getting stabilized. For example, the emerging market losses in the last quarter was to the tune of almost Rs 20 crore while in this quarter it has come down to Rs 12 crore. So the margins, in terms of percentage, will improve going forward because our losses in the emerging markets are coming down drastically." Below is the edited transcript of the interview on CNBC-TV18. Q: Your advertising revenues continue to be sluggish. Is this looking like a fairly prolonged sluggish cycle for advertising from the feedback that you are getting from your clients?
A: Yes, it looks like because this is Q3 where the numbers are not as per our expectations on the topline. But if I compare it with the Q4 and Q1, there will be a 9% growth. Now if that can be taken as a growth indication then things may improve in the next quarter. But overall, I don't able to see any major signs from the advertisers saying that the next quarter will be a bumper.
 
Q: You have already been experiencing sluggishness in many areas like banking and real estate. But there have been some signs that even the consumer sector is beginning to slowdown, have you seen evidence of that?
A: Not on the FMCG because that sector is very small for us anyway, it is around 6% of overall advertising. So that sector has not been affected much but the one concerned area is the government advertising because that sector has slightly taken a dip. Now that has been a constant sector with a 10-12% growth year-on-year (YoY) but that is slightly concerned now.
 
Q: The segment that was pulling some weight for you is education. There has been some pretty sluggish trends this time around, is education the one that is pulling ad performance down?
A: Retail education, which we get from our markets have been okay. There has been a growth but the national advertisers on education, this has been a sluggish environment over there. The dependency on one sector or two sectors in a particular quarter need to be taken out like in Q1, education used to be a very big segment. Going forward, we need to look for options where our dependency on any sector performing more than 10% of the overall revenue.
 
Q: How do you plan to take on news print for the rest of the year either in terms of whether you can increase prices of products or are you expecting some relief on the advertising front?
A: On the newsprint, we have seen around 6% year-on-year (YoY) growth on the quarter in terms of rates and another 6% because of the quantity. So quantity is very much in our hand because the expansion in Rajasthan, Punjab or Maharashtra where we launched a few more additions this year is within a company's control.
We hear from the market that the next two-three quarters, there will be no increase. So that looks like it is under control and we have taken some cover price increase in few of the markets.
 
Q: Do you see margins drifting even lower from here because there was a forex hit but even if you adjust for that, it looks like the pressures on your margins are building up?
A: No, if I compare the Q4 margin to the Q1 margin, from 21% we have gone up to around 22.4% since the new additions of Maharashtra and Jharkhand are getting stabilized. For example, the emerging market losses in the last quarter was to the tune of almost Rs 20 crore while in this quarter it has come down to Rs 12 crore. So the margins, in terms of percentage, will improve going forward because our losses in the emerging markets are coming down drastically.
 
Q: You have seen advertising downcycles in the past. Having seen the experience in previous cycles, how many more quarters of pain is it looking like this time around realistically?
A: In 2000, this pain was for 10 months then in 2008 and 2009, the pain was for 14 months. Come July, 10 months have crossed, we are waiting for another four months.
 
Q: What is the outlook on circulation revenues for the calendar year?
A: We have taken a conscious call that we are not increasing the cover price in most of the markets. In few markets, where we felt that we have a clear dominance, we have increased the cover price but whichever market we want to expand like Rajasthan, some markets of Madhya Pradesh or Gujarat or Punjab, we have consciously taken a call that we are not going to increase the cover price.
This is the easiest way to take the money but that contributes only around 22% for the total revenue of mine. Even if I take a 10% jump on that, it will not add on significantly to my numbers. So we have taken a call that we will not go after that so far.