Buy DB Corp; target of Rs 341: Edelweiss

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Edelweiss' research report on DB Corp

DB Corp’s (DBCL) Q4FY18 revenue came in line. However, EBITDA belied our estimate due to 20.5% YoY jump in raw material cost led by increase in newsprint price and expansion drive in Bihar & Gujarat. Key positives: (i) 8.8% YoY ad revenue spurt aided 80% by volume and 20% by yield; and (ii) 8.5% YoY increase in circulation revenue largely on account of volume spurt driven by the circulation expansion strategy. Key negatives: (a) mature editions’ EBITDA margin fell to 24.2% (26.7% in base); and (b) muted digital revenue for fourth consecutive quarter.

Outlook

We expect higher ad spends in the FMCG sector (due to volume growth recovery), elections in core markets & Centre, successful Bihar expansion drive and ad spends in real estate sector (due to RERA), to aid DBCL. However, due to higher COGS, we prune FY20E target multiple to 15x (from 16x) to arrive at revised TP of INR341 (earlier INR440).  At CMP, the stock trades at 12.9x FY19E and 11.7xFY20E EPS. We maintain ’BUY/SO’.

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