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DB Corp: Ad revenues power growth
Mar 3, 2014

DB Corp announced the third quarter results of financial year 2013-2014 (3QFY14) .The company has reported an 18% YoY and a 33.8% YoY increase in topline and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated revenues increased by 18% YoY in 3QFY14. For 9mFY14, revenues increased by 17.8% YoY.
  • Advertising revenue grew by 18.2% YoY for 3QFY14. During 9mFY14, ad revenues were up by 18.4% YoY.
  • Operating margin expanded by 2.6% YoY in 3QFY14 due to rationalization in wages and other expenses. For 9m FY14, the operating margin increased by 4.3% YoY.
  • Net profits rose by 33.8% YoY in 3QFY14 on higher operating profit as well as surge in other income. For 9mFY14, profits grew by a steep 41.7% YoY.
  • The company has declared an interim dividend of Rs 3 per equity share of the face value of Rs 10 each.

Consolidated Financial performance snapshot
Rs(m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Revenues 4,389 5,182 18.1% 11942 14056 17.7%
Expenditure 3,190 3,631 13.8% 9097 10099 11.0%
Operating profit (EBDITA) 1,198 1,551 29.5% 2,845 3,957 39.1%
EBDITA margin (%) 27.3% 29.9% 2.6% 23.8% 28.1% 4.3%
Other income 38 74 93.7% 122 158 29.9%
Interest 25 13 -47.7% 82 61 -25.6%
Depreciation 151 161 6.9% 430 478 11.2%
Profit before tax 1,060 1,451 36.8% 2,455 3,576 45.7%
Extraordinary inc/(exp) - -   - -  
Tax 352 506 43.6% 825 1269 -35.0%
Minority interest (2) -   -1 0  
Profit after tax/(loss) 706 945 33.8% 1,629 2,307 41.7%
Net profit margin (%) 16.1% 18.2% 2.1% 13.6% 16.4% 2.8%
No. of shares (m)         183.43  
Diluted earnings per share (Rs)*         16.22  
Price to earnings ratio (x)*         17.8  
*trailing twelve months

What has driven performance in 3QFY14?
  • Top line grew by 18% YoY during the quarter. For the 9 month period, revenues increased by 17.7% YoY. The company has launched Dainik Bhaskar in Bihar in January 2014.

  • Advertising revenue growth of 18.2% YoY led by 13.5% YoY growth in ad-yields and 4.5% rise in volumes. While ad-revenues at the local level had a lion's share of 66%, the balance has come from the national level. The company saw growth across segments including FMCG, lifestyle and real estate.

    Cost break-up
      3QFY13 3QFY14
    Raw material 33.0% 33.2%
    Employee 16.5% 14.6%
    Other expenditure 23.2% 22.2%

  • Newsprint prices were up by 11% YoY during the quarter due to higher prices coupled with weak rupee. Imports made up 21% of total newsprint requirements. This led to a 0.3% rise in raw material to sales ratio for the quarter. This impact was more than offset by savings of 1%-1.9% in each of the employee costs and other expenses (both as a proportion of sales). The operating margin expanded by 2.6% YoY during the quarter. The operating losses of emerging editions were cut down to Rs 10 m in the quarter excluding the Bihar launch expenses.

  • Net profits grew by 33.8% on a 29.5% increase in operating profit coupled with a 93.7% jump in other income. Even interest charges were down by 48% during the quarter. The tax incidence rose to 34.9% from 33% in the year-ago quarter.
What to expect?
DB Corp has been registering strong growth thanks to robust rise in advertisement revenues. Even the success of its emerging editions can be gauged from the fact that losses from emerging editions narrowed down to Rs 130 m in 9mFY14 as compared to Rs 270 m in the year-ago period. The company recently entered the Bihar market through its Dainik Bhaskar launch in Patna. Going ahead, the company is expected to maintain its growth momentum on account of the upcoming Lok Sabha elections.

However, at the current price of Rs 289, the stock is trading at valuations of 18 times trailing twelve month earnings. We would recommend that investors not buy the stock at current levels.

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