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DB Corp: Subscription revenue up by 17% - Views on News from Equitymaster
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DB Corp: Subscription revenue up by 17%
Feb 3, 2012

DB Corp announced the third quarter results of financial year 2011-2012 (3QFY12) .The company has reported a 13.6% YoY increase in topline and a 28.9% YoY decrease in net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line increased by 13.6% YoY on back of strong growth of 17% in subscriptions. For the 9 month period, subscriptions were up by around 12%.
  • Operating margins fell by around 8% during the quarter. The fall in operating margins was 9% for the 9 month period ended December 2011.
  • Net profits fell by 28.9% YoY during the quarter. The fall during 9 month period was 26.6%.

Financial performance: A snapshot
(Rs m) 3QFY11 3QFY12 Change 9MFY11 9MFY12 Change
Net sales 3,482 3,956 13.6% 9,479 11,032 16.4%
Expenditure 2,334 2,938 25.9% 6,244 8,239 32.0%
Operating profit (EBDITA) 1,148 1,018 -11.3% 3,235 2,793 -13.7%
EBDITA margin (%) 33.0% 25.7%   34.1% 25.3%  
Other income 30 25 -17.5% 105 81 -23.2%
Interest 34 81 136.2% 119 174 46.8%
Depreciation & amortisation 110 134 21.8% 321 375 16.8%
Profit before tax 1,034 828 -19.9% 2,900 2,324 -19.9%
Profit before tax margin (%) 29.7% 20.9%   30.6% 21.1%  
Exceptional items - -   - -  
Tax 255 271 6.6% 764 753 -1.4%
Profit after tax before minority 779 556 -28.6% 2,136 1,570 -26.5%
Share of minority 1 3   1 3  
Profit after tax 778 554 -28.9% 2,135 1,567 -26.6%
Net profit margin (%) 22.4% 14.0%   22.5% 14.2%  
No. of shares (m)         183.30  
Diluted earnings per share (Rs)*         11.0  
P/E (x)         17.2  
(*trailing twelve month earnings)

What has driven performance in 3QFY12?
  • Total revenues were up by 13.6% YoY. This was led by 17% YoY increase in subscription revenues during the quarter. DB Corp's total number of circulated copies increased during this quarter and the company also raised cover prices in select markets.

  • Growth in advertising was muted at 9% YoY for the quarter as a result of unfavourable economic environment.

  • Barring the selling and distribution expenses, an average increase of 25-30% was witnessed across all expense heads. Raw material as a % of sales increased from 30.6% to 34.1% over the past 1 year. Overall operating expenses were up by 26% during Q3FY12.

  • This resulted in a fall of 11% YoY in the operating profits of the media company for the quarter.

    Cost break-up
    (% of sales) 3QFY11 3QFY12 Change 9MFY11 9MFY12 Change
    Raw materials consumed 1,065 1,350 26.9% 2,797 3,779 35.1%
    % sales 30.6% 34.1%   29.5% 34.3%  
    Staff cost 485 631 30.2% 1,354 1,819 34.4%
    % sales 13.9% 15.9%   14.3% 16.5%  
    Selling and Distribution expenses 193 203 5.2% 465 595 27.9%
    % sales 5.5% 5.1%   4.9% 5.4%  
    Other expenses 592 754 27.2% 1,627 2,046 25.7%
    % sales 17.0% 19.1%   17.2% 18.5%  
    Total expenditure 2,334 2,938   6,244 8,239  

  • Interest costs (up by 136%) and depreciation (up by 22%) exerted some more pressure on the net profits. Thus, net profits for the quarter were down by 28.9%. For the 9 month period, these were down by 26.6%.

What to expect?
At the current price of Rs 189, the stock is trading at a multiple of 12 times our estimated FY14 earnings. DB Corp's expansion mood is a little subdued now. Plans to launch newspaper in Bihar have been put on hold for the moment. The print media company instead wants to focus on existing markets, especially the newly found market of Maharashtra. DB Corp raised the cover prices of newspapers in select states which resulted in healthy subscription revenues. However, the operating costs continue to remain high for DB Corp. Keeping all the positives and concerns in mind, we maintain our negative view on the stock.

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