Stock Market Result Update on DB Corp for 2QFY2012

Stock Market Result Update on DB Corp for 2QFY2012 with a Buy recommendation and  a Target Price of `278 (12 months).

DB Corp. (DBCL) reported modest performance on the revenue front and weak performance on the earnings front. The company’s top-line growth was driven by a mix of ad revenue growth and circulation revenue growth. On account of new launches in Maharashtra and Jharkhand, earnings for the quarter declined.
We maintain our Buy recommendation on the stock.

Key highlights for the quarter: For 2QFY2012, the company’s top line grew by 17.6% yoy (flat qoq) at `354cr. Consolidated ad revenue for the quarter grew by 15.9% yoy to `274cr. The company’s circulation revenue grew by impressive 13% yoy and 5.8% qoq on account of new edition launches in Maharashtra and Jharkhand. DBCL reported a weak set of numbers on the earnings front primarily on account pre-operative expenses of `9.9cr and operating losses on the three editions launched in the above-mentioned states. The company reported a 37.1% yoy and 34.1% qoq decline in its recurring earnings. Recurring PAT for the quarter stood at `40cr. Operating margin during 2QFY2012 fell steeply by 981bp yoy and 657bp qoq on account of new edition losses as well as forex losses.

Outlook and valuation: We have revised our earnings estimate downwards considering the higher-than-anticipated increase in newsprint price due to increased circulation, forex fluctuations impact and higher number of loss-making editions. At the CMP, DBCL is trading at 14.9x FY2013E consolidated EPS of `15.5. We maintain our Buy view on the stock with a revised target price of `278, based on 18x FY2013E earnings, which is in-line with its historical trading average since its listing. Downside risks to our estimates include 1) any further rise in newsprint prices, 2) competition becoming fierce and 3) higher-than-expected losses/increase in the breakeven period of the new launches.