DB Corp's Q4FY19 results (Outperformer) - Lower newsprint prices to drive profits in FY20E!

Q4FY19 Result Highlights

• Cons. rev grew 5.0% yoy to ~Rs5.9bn (1% miss), EBITDA grew 6.4% yoy to ~Rs1.0bn (7% beat led by lower than exp. increase in newsprint prices), while PAT fell 4.6% yoy to ~Rs545m (10% beat on EBITDA beat and lower tax rate at 32.4% vs exp of 34.5%).
• Print ad revenue grew 8.2% yoy to ~Rs3.6bn (2% miss). Growth was weaker than expected due to near zero political spending, although hike in government ad rates helped in Q4.
• Subscription revenue was up 1.7% yoy (2% miss), mainly driven by copy growth in emerging markets. The company has increased its circulation in Rajasthan/Gujarat to increase readership in its bid to improve ad market-share. Yields were flat across markets.
• Radio revenue grew 8.0% yoy to ~Rs390m (in-line) led by improved utilization in Phase III stations (already break-even at EBITDA). Digital business revenue fell 24.6% yoy to ~Rs98m as it removed low paying ads to improve consumer experience and drive direct traffic, although EBITDA losses shrank to ~Rs7m (vs ~Rs32m yoy).
• RM costs were up 14.3% yoy (est. +20.8% yoy) due to high newsprint prices (up 19% yoy), however consumption fell 4% yoy. All other costs were kept under tight control. As a result, EBITDA margin improved ~20 bps yoy to 17.7% (IDFCe: 16.4%). Strong radio performance and improved digital profitability too aided EBITDA.

Key positives: Lower raw material costs.

Key negatives: Fall in digital ad rev.

Impact on financials: Broadly unchanged.

Valuations & view

The recent fall in newsprint prices (to US$~550/tonne from recent peak of $750) would reverse the pressures that all print media players have been facing. The increase in government ad rates (~18% of DBCL’s Print ad revenue) has also provided a shot in the arm for the company. Although election related spending was muted, the focus will now shift back to regional/national players increasing ad spends in the coming quarters. DBCL’s strong position to capitalize on these potential tailwinds, alongside inexpensive valuations and high payout ratio (50%+), make the company a preferred play in the print media space. We roll-over to FY21E, valuing DBCL at 10x FY21E EPS (vs 12x FY20E EPS earlier). Our financials build in a ~21.5% earnings CAGR over FY19-21E. Maintain Outperformer (TP Rs231).