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DB Corp: Ad growth not seen in margins
Jul 26, 2011

DB Corp announced the first quarter results of financial year 2011-2012 (1QFY12) .The company has reported a 18.4% YoY growth in topline while profits have fallen by 15% YoY. Here is our analysis of the results

Performance summary
  • Top line increased by 18.4% YoY on back of strong growth in advertising.
  • Operating margins declined by nearly 10% YoY during the quarter.
  • Net profits fell by 14.8% YoY during the quarter despite lower interest outgo.

Financial performance snapshot
(Rs m) Q1FY11 Q1FY12 Change
Net sales 2,987 3,537 18.4%
Expenditure 1,851 2,534 36.9%
Operating profit (EBDITA) 1,136 1,003 -11.7%
EBDITA margin (%) 38.0% 28.4%  
Other income 43 37 -15.7%
Interest 47 27 -42.8%
Depreciation & amortisation 104 117 12.5%
Profit before tax 1,028 896 -12.8%
Profit before tax margin (%) 34.4% 25.3%  
Exceptional items - -  
Tax 311 284 -8.5%
Profit after tax before moinority 717 612 -14.7%
Share of minority   0   1  
Profit after tax 717 611 -14.8%
Net profit margin (%) 24.0% 17.3%  
No. of shares (m)   183.28  
Diluted earnings per share (Rs)*   13.0  
P/E (x)   14.1  
(*trailing twelve month earnings)

What has driven performance in 1QFY12?
  • The topline for the first quarter rose by 18.4% over the corresponding quarter last year led by a strong growth of 20.2% YoY in advertising. This is despite the fact that other media companies have reported almost negligible growth in advertising revenues. Circulation revenues grew by 6% over the corresponding quarter last year.

  • Raw material expenses increased on account of costlier newsprint and are up by 42%. This is also attributed to the newer launches in Jharkhand and Maharashtra recently.

  • Operating profits fell by 11.7% in Q1 and the operating margins reduced by nearly 10%. Such a huge fall is because of higher cost of newsprint coupled with additional sales and distribution expenses in the newer markets.

    Cost breakup
    (% of sales) Q1FY11 Q1FY12 Change
    Raw materials consumed 832 1,184 42.3%
    % sales 27.8% 33.5%  
    Staff cost 411 575 40.1%
    % sales 13.7% 16.3%  
    Selling and Distribution expenses 114 174 51.9%
    % sales 3.8% 4.9%  
    Other expenses 494 602 21.8%
    % sales 16.5% 17.0%  
    Total expenditure 1,851 2,534  

  • The print media company is in an aggressive expansion mode. With its Aurangabad and Nashik launch, it has entered Maharashtra and is soon expected to increase its footprint in the state.

  • Net profits fell by 14.8% YoY during the quarter. The PAT margins fell by nearly 7% over the same quarter last year. As stated earlier, this is mainly due to the new launches as well as higher cost of raw materials.

What we expect?
DB Corp's performance so far lags our estimates for the full year. The company has been expanding across regions and languages. As stated by us earlier, the impact of aggressive growth may be seen on margins in the medium term. DB Corp has done well in terms of advertising revenue but that does not filter into the operating margins. With the company planning new launches in the future, the situation will not be any different. At the current price of Rs 247, the stock is trading at a multiple of 12 times our estimated FY14 earnings. We reiterate our negative view on the stock.

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