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Recommendations India

DB Corp 4QFY2014 performance highlights and results update

May 15, 2014, Thursday, 05:54 GMT | 01:54 EST | 10:24 IST | 12:54 SGT
Contributed by Angel Broking

For 4QFY2014, DB Corp’s bottom-line performance was better than our expectation (net profit grew by 37.5% yoy to Rs.76cr), aided by lower-than-expected tax expense (due to one-off tax benefit to the tune of Rs.15cr from merger of its digital business). On the top-line front, the company reported a 14.1% yoy growth to Rs.454cr (compared to our expectation of Rs.463cr) with advertising revenue posting a 14.3% yoy growth to Rs.340cr, while circulation revenue grew by 14.5% yoy to Rs.84cr. Advertising revenue during the quarter was adversely impacted by lower government advertising, due to model code of conduct.

Healthy operational performance: At the operating level, the company’s EBITDA grew by 11.3% yoy to Rs.105cr, in spite of incurring higher expenses in its emerging editions as it launched the Patna edition during the quarter. The launch of the Patna edition led to an increase in EBITDA losses in emerging editions from Rs.5.8cr in 4QFY2013 to Rs.12.4cr in 4QFY2014. Meanwhile, mature editions continued to report healthy EBITDA margins (29.8% for 4QFY2014). Consequently, the consolidated OPM for 4QFY2014 stood at 23.0%, contracting by 57bp yoy.

Expect yield-driven advertising growth: The Management commentary indicated that strong double-digit advertising growth is likely to continue, with the Management focusing on yield-driven advertising growth. At the same time, the Management will continue with its strategy of selectively hiking cover prices of mature editions. DB Corp’s average cover price of Rs.3 is still among the lowest in its peer group.

Outlook and valuation: At the current market price, DB Corp is trading at attractive valuations of 12.4x FY2016E consolidated EPS of Rs.22.9, which is at a discount to our Sensex target valuation multiple. However, considering DB Corp’s multi-state leadership and expectations of strong double-digit advertising revenue growth, we believe, the stock deserves a premium to our Sensex target multiple. Hence, we recommend Buy rating on the stock with a target price of Rs.360, based on 15.7x FY2016E EPS.