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DB Corp: Negligible growth in ad revenue - Views on News from Equitymaster
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DB Corp: Negligible growth in ad revenue
Jul 19, 2012

DB Corp announced the first quarter results of financial year 2012-2013 (1QFY13) .The company has reported a 7% YoY increase in topline and a 28.7% YoY decrease in net profits respectively. Here is our analysis of the results.

Performance summary
  • Top line increased by 7% YoY during the quarter on a disappointing performance from the advertising segment that grew by a meagre 1% YoY.
  • Subscriptions grew by 16% YoY due to rise in cover prices.
  • Operating expenses were up by 18.4% YoY largely led by an increase of 27% in other expenses.
  • Operating margins drastically shrunk by 7.7% during the quarter ended June 2012.
  • A poor performance at the topline level and higher operating expenditure resulted in net profit fall of more than 28% YoY during the June 2012 quarter.

Financial performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Net sales 3,525 3,770 7.0%
Expenditure 2,537 3,005 18.4%
Operating profit (EBDITA) 987 765 -22.5%
EBDITA margin (%) 28.0% 20.3% -7.7%
Other income 49 46 -7.6%
Interest 23 17 -28.3%
Depreciation & amortisation 117 135 15.3%
Profit before tax 896 659 -26.5%
Profit before tax margin (%) 25.4% 17.5%  
Tax 284 222 -21.9%
Profit after tax before minority 612 437 -28.6%
Share of minority (1) 0  
Profit after tax 612 436 -28.7%
Net profit margin (%) 17.4% 11.6%  
No. of shares (m)     183.33
Diluted earnings per share (Rs)*     10.05
P/E (x)     19.90
(*trailing twelve month earnings)

What has driven performance in 1QFY13?
  • Total revenues for DB Corp were up by 7% YoY during the first quarter. Growth in advertising was muted at 1% YoY while subscription revenue registered an increase of 16% YoY. The government advertising that contributes majorly to DB Corp's revenues saw a fall during the quarter. Rise in subscription revenue was on account of hiking cover prices across markets.

  • The operating expenditure was up by 18% YoY on account of 27% jump in other expenditure and 19% and 15% increase in employee cost and depreciation charges respectively.

  • Operating margins drastically shrunk by 7.7% during the quarter ended June 2012.

    Cost break-up
    (% of sales) 1QFY12 1QFY13 Change
    Raw materials consumed 1,184 1,331 12.5%
    % sales 33.6% 35.3%  
    Staff cost 575 682 18.6%
    % sales 16.3% 18.1%  
    Other expenses 779 991 27.3%
    % sales 22.1% 26.3%  
    Total expenditure 2,537 3,005  

  • A poor performance at the topline level and higher operating expenditure resulted in net profit fall of more than 28% YoY during the June 2012 quarter. Net profit margins fell by nearly 6% during the quarter.

What to expect?
At the current price of Rs 200, the stock is trading at a multiple of 20 times its trailing twelve month earnings. DB Corp had ambitious growth targets for itself in advertising segment. However, in the wake of the worsening economy and possibility of a drought year being declared, it seems highly unlikely that the company will be able to meet its targeted growth number. As mentioned earlier, the growth in advertising was muted this quarter.

Newsprint prices are expected to remain stable going forward. Also, the expansion plans have been kept on hold by the company which will imply lower initial and launch expenses towards new editions which may improve profitability. We are in the process of reviewing our estimates for the stock and shall soon update subscribers on the same.

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