DB Corp: In the news - Buy

The stock of DB Corp (publisher of Dainik Bhaskar) has been on a downtrend over the past few years. Rise in newsprint costs, the after-effects of GST (goods and services tax) and RERA (Real Estate Regulation and Development Act) on advertisements weighed on the share price.

Though the stock has declined over 35 per cent in the last one year, the company’s prospects appear to be improving.

With stabilising news print prices and increase in ad spends from retail and national clients, DB Corp provides a good buying opportunity for investors with a two to three-year horizon.

Election-related spends from political parties are a key positive in the near term. At ₹194, the stock trades at 12 times its trailing 12-month earnings, lower than its three-year average and at a lower valuation multiple than peer Jagran Prakashan’s (14 times).

Expansion to newer territories, improvement in digital and radio platforms, election ad spends and revision of DAVP rate (Directorate of Advertising and Visual Publicity — the nodal advertising agency of the government and government organisations) would also a have positive impact on the company’s earnings in the coming quarters.

Ad revenue to rise

DB Corp earns nearly 70 per cent of its revenue from advertisements. The company posted about 13 per cent Yo-Y in the December quarter of 2018.

The company’s ad revenue grew 8 per cent Y-o-Y for the nine months ended December 2018. Recovery in spends from companies in sectors such as real estate and automobile boosted ad revenues for the company.

Elections in four States during late 2018 also contributed to the company’s growth.

DB Corp is also well-placed to gain from the election-related ad spends by political parties in several States, given the leading position that Dainik Bhaskar enjoys. It is a market leader in States such as Madhya Pradesh, Chandigarh, Haryana and Punjab. Further, being a dominant player, the company would benefit from the revival in ad spends from sectors such as FMCG, healthcare and education.

According to a recent FICCI-EY report, ad volumes in vernacular publications are much higher than in English newspapers due to the former’s better reach.

For DB Corp, nearly 50 per cent of the ad revenue comes from local or retail entities. The ad spends recovery is not only for print but also for DB Corp’s radio segment.

For the third quarter ended FY19, the company registered growth of 39 per cent Y-o-Y; during the nine months ended December 2018, the revenue grew about 17 per cent Y-o-Y.

DB Corp undertook an aggressive circulation drive in July 2017 that has started working in the company’s favour. It was able to increase its circulation from 50 lakh in March 2018 to 56.6 lakh copies as of December 2018.

The circulation revenue registered a growth of 3 per cent in the December 2018 quarter.

According to the management, the company was able to sustain the circulation momentum in the newly-expanded markets of Bihar, Rajasthan and Gujarat and take a cover price hike in FY20.

Other macro-economic factors such as improving literacy in the economy, availability of quality content in regional languages and increase in niche or specialised content consumption can also contribute to readership growth and circulation revenue, going ahead.

Healthy financials

DB Corp’s total revenue for the nine months ended December 2018 grew about 7 per cent Y-o-Y, while profits fell 18 per cent during the same period. Though the newsprint costs have declined to $575 per tonne from a peak of around $750 per tonne, the impact of decline in the input cost is expected to reflect only in the coming quarters.

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