Stock Fundamentals

DB Corp: Buy

K. Venkatasubramanian | Updated on March 18, 2011

Mr Ramesh C. Agarwal (left), Chairman, and Mr Girish Agarwal, Non-Executive Director.



As consumption and the inherent growth story in India gathers momentum, much of its sustainability is expected to be on account of the thrust that companies across sectors lay on increased penetration of rural, tier-two and tier-three areas.

In reaching out to such regions there is an ever expanding advertising market that is being created. For investors with a two-year horizon, DB Corp, with a strong Hindi language newspaper under its belt, appears to be a well-positioned to play on this trend.

At Rs 242, the stock trades at 15 times its likely FY12 per share earnings, which is at a slight discount to its peer Jagran Prakashan.

Increasing regional advertising, hike in ad rates and strength in its readership in key Hindi speaking states are positives for the company. Newsprint price as proportion of total revenues too has remained stable over the past year, thus keeping costs under control. A slew of newly launched too holds promise, as does its radio broadcasting business which has seen significant growth in operating profits this financial year.

For the nine months of this fiscal, DB Corp has seen revenues increase by 18 per cent over the same period in FY10 to Rs 939 crore, while net profits expanded by 30.4 per cent to Rs 190.5 crore. The company has a net-debt to equity ratio of just 0.2. It enjoys a PAT margin of over 20 per cent.

Garnering advertisements

The company's mainstay and flagship product — Dainik Bhaskar — is present in 11 states and comes in as many as 31 editions. It also publishes a Gujarati newspaper in Gujarat and Maharashtra as well as a Hindi business daily in five states. It has a total readership of 17.5 million.

Dainik Bhaskar is the second highest read newspaper in the country with a readership of around 13.5 million daily and this base has actually been witnessing a steady growth.

After a difficult 2008-09 for the industry as a whole on account of subdued advertising budgets, the newspaper industry has staged a comeback.

The subsequent revival in corporate earnings and enhanced ad spends, together with a significant part of corporate India's focus being on non-metro expansion, has seen regional players such as DB Corp benefit better than national counterparts.

The company derives about 79 per cent of its revenues from advertisements and around 17 per cent from circulation. From single-digit increases in its ad revenues, the company has rebounded convincingly to register 21.9 per cent improvement for the nine months of this fiscal.

The growth in advertising revenues, led by volumes, has been supported by improving yields as well. In the recent quarter, about 70 per cent of increase in advertising has been on account of volumes while the rest has been due to yield improvement. Going forward, the company hopes to have growth with 30-40 per cent of such expansion coming through higher realisations.

In the near future, DB Corp has indicated an increase of 15-20 per cent in its ad rates.

Regional strength

One of the key aspects that helps DB Corp in tapping in volumes is its well-entrenched presence in the regional markets. The company derives as much as 57 per cent of its advertising revenues from a regional client base comprising clients of small and medium sizes. The rest comes from national advertisers. This strong regional base remained resilient even during the downturn and with the upswing in the economy has expanded over the last one year.

Education, the sector that advertises the most, has continued to grow for the company, as have telecom, electronics and automobiles. With telecom operators increasingly focussing on tier-two and tier-three towns and some of them witnessing half of their subscriber additions coming from such areas, advertising from the sector could receive further impetus.

The trend is also witnessed in automobiles and electronic goods segments that seek to target increasing disposable incomes from these under-penetrated regions. This, agains, presents robust opportunities for the company which it appears well-positioned to tap.

Circulation improvement

In most Hindi speaking states, DB Corp is number one or two in terms of readership and circulation. Over the last one year, the company has seen daily circulation increase from 39 lakh copies to 42.5 lakh in the recent December quarter.

This has also been aided by its launch in new states. Since 97 per cent of its newspaper copies are pre-booked, there is also limited scope for rejects or returns, which is a key positive for the company. The differential between English ads over local language ones has been diminishing over the past few years in terms of premium accorded, which is a desirable trend that players such as Dainik Bhaskar could benefit from.

Newsprint costs have risen by over 10 per cent over the last one year for the company, but the growth in revenues has ensured that as a proportion, it still stays at around 30 per cent. Some of the increase in raw material consumption was also due to its new launches. Since rates have been locked into at current levels, no untoward impact is envisaged by the company on margins.

Increased competition in its existing and new circles from entrenched players such as Dainik Jagran and increasingly from Hindustan could prevent any rise in cover prices.

Published on March 12, 2011

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