Emkay Global Financial Services has retained `Accumulate` on DB Corp with a price target of Rs 228 as against the current market price (CMP) of Rs 184 in its report dated Jan. 24, 2012. The broking house gave the following rationale:
Ad growth weak, other revenue streams aid growth:
DB Corp reported revenue growth on expected lines, aided by strong circulation revenue and other operating income (due to consolidation of MP printers acquired last quarter). Cons. ad revenue at Rs 3.0 billion increased 7.8% yoy was below our est. of 10.2%. Circulation revenue positively surprised with 17.2% yoy growth to Rs 63.0 million, driven by the new launches and increase in cover price in some of its mature markets. Radio rev. stood at Rs157million, up 22.1% with EBITDA margin of 28% v/s 9% in last quarter. Radio broke-even at net levels and reported PAT of Rs 22 million. EBIDTA declined by 11.4% yoy to Rs1.0billion and EBIDTA margins declined by 724bps yoy to 25.7%. EBITDA decline is attributed to expansion in Maharashtra and Jharkhand market. PAT for the quarter stood at Rs 553 million down 16.1% yoy, led by forex loss of Rs 59.4 million.
Slower ad growth, high costs to remain a drag on profitability:
Company`s EBITDA declined 11.4% yoy to Rs 1.0 billion primarily due to increase of 25.9% yoy in expenditure v/s revenue growth of 13.6% yoy. Slower ad growth due tough economic condition and ongoing expansion in Maharashtra would keep the margins under pressure. Further, rupee depreciation would also impact newsprint cost. Raw material and Employee cost saw 26.9% and 30.2% yoy increase, respectively. EBITDA loss from the emerging market during the quarter stood at Rs165million v/s Rs 231million in Q2FY12, losses would further increase as Maharashtra expansion is not yet completed.
DB Corp has reported strong set number in H1FY12 but the current economic condition has resulted in slower ad revenue growth. Nevertheless, we believe ad growth for DB
Corp to accelerate over the coming years led by expansion in Jharkhand and Maharashtra. DB Corp`s leadership position in key markets (Rajasthan, MP& Chhattisgarh, Gujarat, Haryana and Punjab) would garner strong ad revenues led by recovery in ad spends. We expect ad growth revival to happen in H2FY13E, driven by improvement in overall economic scenario.
Cut est, retain Accumulate with revised target price of Rs 228 (earlier Rs271)
Looking at slower ad growth and cost pressures led by new launches and higher currency exchange rate (impacting newsprint cost), we have revised our EPS estimated downwards by 12.0%/12.4% resulting in EPS of Rs10.6/13.8 for FY12E/13E. At CMP of Rs 184, the stock trades at 17.4x and 13.3x on our EPS for FY12E and FY13E, resp. The company has declared interim dividend of Rs 1.75 a share.
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