DB Corp: BUY

Select players in the media space have managed to do quite well despite a struggling economy.

DB Corp, the publisher of Dainik Bhaskar (its mainstay) and a few other newspapers, has been able to benefit from the rapid growth in tier-2 cities and towns, mostly in Hindi-speaking north Indian States.

Investors with a two-year horizon can buy the shares of the company, given the steady growth in its circulation and, more importantly, a revival in its advertising revenue.

For five quarters in a row, the company has grown its advertising revenue in double-digits — an indicator of its ability to effectively tap into spends in its key markets.

At ₹302, the share trades at 16 times its estimated per share earnings for 2013-14, which is lower than the valuation the company has historically traded at — closer to 18-19 times.

A steady improvement in the share of resilient regional advertising, leadership in circulation and readership in key markets are positives for the company.

Over the next 12-14 months, elections in many States as well as the general polls could provide the company advertisements from political parties.

In the first nine months of the current fiscal, DB Corp’s revenues increased 18 per cent over the corresponding period in 2012-13 to ₹1,421 crore, while its net profit expanded 42 per cent to ₹231 crore.

The company’s operating (EBITDA) margin of 29 per cent is among the highest in the print as well as the electronic media.

DB Corp publishes several newspapers, the main being Dainik Bhaskar which is circulated in 13 States and has the second highest readership among Hindi language newspapers.

It also publishes a Gujarati newspaper in Gujarat, and Maharashtra , a Marathi daily, as well as a Hindi business daily in six States. The total readership for its newspapers is claimed to be 19.8 million.

Dainik Bhaskar is among the most read newspapers in large States such as Madhya Pradesh, Rajasthan, Punjab and Haryana. In Gujarat, too, its regional language newspaper is among the most read. All these States contribute to the operating profits of the company.

DB Corp may benefit from increased advertising spends by telecom, automobile and consumer durables companies in smaller towns and cities.

The company has also been able to take price increases and yet protect its circulation in key States such as Madhya Pradesh.

Rising levels of literacy could mean more takers for regional language newspapers.

DB Corp derives around 76 per cent of its revenue through advertising and 17 per cent through circulation. The rest of the revenue comes from the radio division and OOH (out of home) operations. Its radio division has become profitable recently.

The company gets about two-thirds of its advertising revenue from local or retail advertisers. This segment, generally quite resilient to slowing macroeconomic indicators, has been steadily increasing contribution. The company has also been able to grow its national advertising footprint.

DB Corp’s advertising revenue grew 18.4 per cent in the first nine months of 2013-14. It has also been able to hike advertisement rates over the past year, and moderate discounts offered to advertisers.

The company’s circulation revenues have been growing in double-digits . The general elections in a couple of months may also generate greater advertising revenues for the company. Recently, the Election Commission increased the ceiling of poll expenses per candidate to ₹40 lakh from ₹15 lakh.

As candidates increase spends to improve visibility, regional language newspapers such as Dainik Bhaskar , could be among the beneficiaries. Pricing pressure from competition on advertisement rates or cover price can impact the company’s margins.