SPA Research has come out with its report on DB Corp dated October 9, 2012. The research firm says DB Corp is a strong player in print media industry having high execution capabilities to expand in new markets through organic routes which highlights its strong competitive strength and augurs well for the company in medium to long term perspective.
D B Corp Ltd. (DBC) is one of the India's top publishers with second largest read Hindi daily, Dainik Bhaskar, which enjoys leadership position in Madhya Pradesh & Chhattisgarh. We met the management of the company to understand the effect of current economic slowdown on their revenue and profitability.
Ad-revenue growth to remain muted:
DBC's Q1FY13 ad -revenues growth at 1% highlighted the strong headwinds faced by the company in current dull economic environment. While local advertising (~60% of ad revenue) registered growth, although at slower pace, national advertising (~40% of revenue) declined significantly. Company reported adrevenue growth of 12% in FY12 compared to 18% CAGR during FY09-FY11. Management expects ad-revenue growth to continue to remain challenging this year. Education, real estate, and auto sectors had a slight growth YoY whereas government ads that has been growing at stable ~10% YoY for many years de-grew 4% in Q1FY13 primarily on account of lower ads from central government, also consumer durables has been the worst hit in terms of advertising.
Benign newsprint prices to support EBIDTA margins:
Slower ad-revenue growth, increase in circulation and higher newsprint cost aggravated by depreciating currency resulted in decline in EBIDTA margins by 775bps YoY to 21% in Q1FY13. Management expects newsprint cost to remain stable in FY13 on the back of recent decline in international prices, stabilization in exchange rate and company's efforts to improve pagination.
Expansion plans put on hold:
DB has put its expansion plans in Maharashtra and Bihar on hold for the next twelve months. It had planned to launch 3 more editions in Maharashtra but delayed it given the weak advertising environment. Company expects to launch in Bihar in FY14, with expected improvement in economic scenario, and that too only in Patna city. Company at present is focussing on expanding its revenue base in existing markets.
Outlook and Valuation:
DBC is facing strong headwinds due to economic slowdown impacting ad-revenues growth. However, economic cycle resuming its growth path again would provide a huge upsurge in ad-revenues growth which is highly correlated to economic growth. Company's decision to put its expansion plans on hold in the current environment holds positive for the company and will help it to contain decline in EBIDTA margins and consolidate its position in existing markets. DBC is a strong player in print media industry having high execution capabilities to expand in new markets through organic routes which highlights its strong competitive strength and augurs well for the company in medium to long term perspective.
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