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DB Corp: Advertising fuels growth
May 20, 2011

DB Corp announced the fourth quarter results of financial year 2010-2011 (4QFY11).The company has reported a 23.4% YoY and 22.6% YoY increase in top line and net profits respectively. Here is our analysis of the results

Performance summary
  • Top line increased by 23.4% YoY on back of strong growth in advertising. For the full year, revenues grew by 19%.
  • Operating margins declined by nearly 2% YoY during the quarter. For FY11, there was a fall in operating margin by 0.4%.
  • Net profits grew by 22.6% YoY during the quarter and 41.4% YoY during FY11. Profit margins remained stable at 14% levels during the quarter.


Consolidated financial performance snap shot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Net sales 2,572 3,174 23.4% 10,630 12,652 19.0%
Expenditure 1,876 2,378 26.7% 7,200 8,621 19.7%
Operating profit (EBDITA) 696 796 14.4% 3,429 4,031 17.5%
EBDITA margin (%) 27.0% 25.1%   32.3% 31.9%  
Other income 44 36 -16.6% 112 142 27.1%
Interest 87 34 -60.8% 357 153 -57.1%
Depreciation & amortisation 105 111 6.5% 378 433 14.4%
Profit before tax 547 687 25.5% 2,806 3,587 27.9%
Profit before tax margin (%) 21.3% 21.6%   26.4% 28.4%  
Exceptional items - -   - -  
Tax 197 235 19.3% 1,057 1,000 -5.4%
Profit after tax before moinority 350 451 29.0% 1,749 2,587 48.0%
Share of minority (17) 1   (80) 3  
Profit after tax 367 450 22.6% 1,828 2,585 41.4%
Net profit margin (%) 14.3% 14.2%   17.2% 20.4%  
No. of shares (m)         181.5  
Diluted earnings per share (Rs)*         14.2  
P/E (x)         17.2  
(*trailing twelve month earnings)

What has driven performance in 4QFY11?
  • Topline rose by 23% over the corresponding quarter last year led by a strong growth of 30.6% YoY in advertising. For the full year, revenues grew by 19% YoY on the back of 24% YoY growth in advertising.

  • Raw material expenses increased on account of costlier newsprint which has risen by nearly 8% in the last 12 months.

  • Operating profits grew by 14% in Q4 and the operating margins reduced by nearly 2%. This is on account of higher raw material costs (esp. newsprint). Operating profits for the full year grew by 17.5% YoY with staff costs rising by 40% YoY.

    Cost breakup
    % of sales) 4QFY10 4QFY11 Change FY10 FY11 Change
    Raw materials consumed 788 1,042 32.1% 3,279 3,838 17.1%
    % sales 30.7% 32.8%   30.8% 30.3%  
    Staff cost 360 492 36.5% 1,318 1,846 40.0%
    % sales 14.0% 15.5%   12.4% 14.6%  
    Selling and Distribution expenses 181 210 16.4% 601 676 12.5%
    % sales 7.0% 6.6%   5.7% 5.3%  
    Other expenses 547 634 16.0% 2,003 2,261 12.9%
    % sales 21.3% 20.0%   18.8% 17.9%  
    Total expenditure 1,876 2,378   7,200 8,621  

  • DB Corp is focusing on increasing its presence across regions and languages. During the year DB Corp launched its operations in Jharkhand. A Marathi edition will soon start from Aurangabad in Maharashtra. Total number of languages in which DB Corp is published will increase to 4 post this.

  • Net profits grew by 22.6% YoY during the quarter and 41.4% YoY during the year. The growth in net profits was higher than that in operating profits mainly due to reduction in interest costs and a lukewarm increase in depreciation charges. Profit margins remained stable at 14% levels during the quarter. However there was a considerable improvement (3%) in margins during FY11.

What to expect?
DB Corp's performance is in line with our estimates. The company has been expanding across regions and languages. However, the expansion is coming at the cost of lower growth in revenues. At the current price of Rs 245, the stock is trading at a multiple of 13 times our estimated FY13 earnings. We reiterate our negative view on the stock .

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