A leadership position in its business, a good track-record and better growth opportunities in smaller towns augur well for DB Corp.
Circulation woes, a fall in advertisement revenues and higher newsprint costs translated into a tough 2008-09 year for print media sector. However, publishers with regional focus fared better as their advertising revenues were stronger than their national peers during the slowdown. And amongst the regional players that did well during this period was DB Corp, the publisher of Daink Bhaskar and Divya Bhaskar newspapers which are popular in northern, western and central India.
To consolidate its position in the regional markets, DB Corp proposes to raise Rs 235-270 crore through an IPO by diluting around 10 per cent of its post-issue equity capital; the total IPO is for Rs 336-385 crore including an offer for sale of 54.5 lakh shares. The company intends to use the IPO proceeds to set up new publishing units, modernise existing machinery and, part repayment of working capital and term loans.
| FINANCIAL SUMMARY | ||||
| in Rs crore | FY08 | FY09 | 6M FY10 | % chg |
| Circulation income | 232.0 | 236.0 | 124.0 | 10.1 |
| Advertising income | 649.0 | 726.0 | 400.0 | 15.2 |
| Total income | 863.0 | 961.0 | 524.0 | 14.0 |
| Newsprint exp | 337.0 | 407.0 | 165.0 | -21.0 |
| Non-Newprint exp | 343.0 | 406.0 | 182.0 | -14.2 |
| Expenditure | 680.0 | 814.0 | 347.0 | -17.6 |
| EBITDA | 183.0 | 147.0 | 178.0 | 356.0 |
| EBITDA margin (%) | 21.0 | 15.0 | 34.0 | - |
| Net profit | 76.0 | 48.0 | 96.0 | 2413.0 |
| EPS (Rs) * | 4.5 | 2.8 | 10.6 | - |
| PE (x) @ Rs 185 * | - | 66.0 | 17.5 | - |
| PE (x) @ Rs 212 * | - | 75.0 | 20.0 | - |
| %chg in y-o-y; *FY10 based on annualised PAT; Source: Company | ||||
Regional focus
Apart from Daink Bhaskar (a Hindi daily) and Divya Bhaskar (a Gujarati daily) which are the leading newspapers in states like Gujarat, Madhya Pradesh, Punjab, Chhattisgarh and Rajasthan. In addition, it also runs newspapers like Saurashtra Samachar, Business Bhaskar, DB Gold, DB Star and lastly, DNA on a franchisee basis. That apart, the company also publishes a few magazines. It is estimated that the markets which DB Corp services accounts for a quarter of India’s population.
DB Corp has envisaged plans to spend around Rs 140 crore to further consolidate in its existing markets by upgrading infrastructure. Plans are also afoot to enter newer markets by setting up publishing units and strengthening its marketing team. The company is focusing on further increasing its reach in Tier II and III cities where consumption is growing at a faster pace than Tier I cities. In these markets, the company is also aiming to localise content with publication offerings at multiple touch points through launch of newer editions and supplements. Recent edition launches include that of Ratlam, Bhilai, Pali, Shimla and seven editions of Business Bhaskar (a Hindi business newspaper).
Its regional radio business is run through a 57 per cent subsidiary that operates 17 stations. Revenues in this business are relatively small and analysts say that the venture reported a loss of about Rs 25-27 crore in 2008-09. However, the company expects this business to break-even in the current fiscal. Here, DB aims to leverage its strengths in the print business to scale up the radio business.
Advertisers, coming in
Advertising revenue is an important source and the largest component of the company’s income-mix. It has accounted for around three-fourth of total revenues in the last two and a half years. However, due to the economic slowdown in 2008-09, advertising revenues grew by just 12 per cent, which is about half of its historical growth rate of 20-25 per cent. What though helped DB was its focus on Tier 2 and 3 towns, which interestingly, are witnessing faster growth due to rising income, aspiration and literacy levels of the vast lower-and-middle income population. Thus, DB has seen the revenue share of local advertisers (in total advertising revenues) move up from 60 per cent as of 2008-09, to around 63 per cent in the six months of 2009-10.
The balance of revenues accrues from circulation. The bigger circulation and readership figures influence advertisers and the advertising rate. DB’s overall circulation is estimated to be at 3.5 million copies reaching to 15.5 million readers.
Newsprint costs fall
Newsprint forms a major raw material for the print industry, accounting for 50-55 per cent of total operating costs. Last year’s higher prices, thus, impacted the profitability of most print media players. However, with the drop in newsprint prices from the peak of $960 per tonne in November 2008 to around $550 per tonne currently, DB’s newsprint cost as per cent of total costs dropped from 53 per cent in 2008-09 to around 50 per cent in the first six months of 2009-10. The company has been increasingly sourcing its newsprint requirements domestically as it’s cheaper and helps avoid currency fluctuations. The company enters into medium-term contracts that are typically for three to four months. In that context, should newsprint prices move up again, it could impact the profitability of print media companies, including DB Corp.
Conclusion
With the brakes on the economy coming off, and India estimated to clock a GDP growth of 6-7 per cent, it means good news for the print industry, especially the vernacular players. Of the top 10 most read dailies, nine are in the regional languages including Hindi indicating a bigger market for the vernaculars. Besides, an increase in consumption habits in smaller cities and towns would also aid faster growth of regional players. DB Corp, which aims to expand its presence in regional markets, should do well.
FICCI-KPMG says that the advertisement expenditure of India Inc is set to grow at 12.4 per cent a year during 2008 to 2013, opening up several vistas for print companies to boost their revenue. Overall, the experience of promoters, diversified geographical presence and leadership in its markets are the positives for DB Corp. However, given that the PE works out to 20-21 times based on its annualised earnings for 2009-10 at the upper price-band, which is comparable to its comparable regional peer Jagran Prakashan, there is little room for appreciation in the near-term.
Investors interested in the print sector can consider investment with a long-term perspective.
