Result Update on DB Corp for 4QFY2011

DB Corp. (DBCL) reported strong set of numbers on both the revenue and earnings front. The top-line was driven by advertisement revenue; earnings were aided by lower interest expense and tax rate. We maintain our Buy recommendation on the stock.

Strong top-line growth led by ad revenue growth: As expected, DBCL reported strong top-line growth of 23.4% yoy, led by 30% yoy growth in print advertising revenue and 41.7% yoy growth in radio ad revenue. Circulation revenue was marginally higher by 1.3% yoy but dipped by 1.1% qoq (on account of cover price cuts in Chattisgarh and launching DB Star along with the main newspaper).

Earnings robust at 22.6% yoy, despite margin contraction: In terms of earnings, DBCL posted robust 29% yoy growth on a recurring basis and 22.6% yoy growth on a reported basis, aided by a  60.8% yoy decrease in interest expense to `3.4cr and lower tax rate (down 177bp yoy), despite a 197bp yoy margin contraction  (on account of higher raw-material price and increased circulation volumes resulting in gross margin contraction of 216bp yoy).

Outlook and valuation: We have marginally revised our earnings estimates downwards to factor the increase in newsprint price and higher number of
loss-making editions (due to the slew of new launches). At the CMP of `243, DBCL is trading at 14.5x FY2013E consolidated EPS of `16.8. We maintain our Buy rating on the stock with a revised target price of `335 (`358), based on 20x FY2013E earnings. Downside risks to our estimates include – 1) higher-than-anticipated rise in newsprint prices, 2) increased competition and 3) higher-than-expected losses/increase in the breakeven period of its new launches.