Management Speak: DB Corp (Neutral) - Focusing on the longer run, near-term challenges notwithstanding…

We present key takeaways from our meeting with the DB Corp Ltd. (DBCL) management at its analyst meet.

• Bihar/Rajasthan/Gujarat circulation expansion to drive revenue growth: We believe DBCL’s focus on expanding circulation in Rajasthan, Gujarat and Bihar (to become #1 player) will not only drive subscription revenues over the next few quarters, but also improve ad revenues from these states, as circulation copies increase. Cover price hikes taken later could provide additional delta for growth (no hikes planned until next two quarters).
• Government ad spends to increase Q2FY19E onwards: DBCL’s key markets like Rajasthan, Madhya Pradesh (MP), and Chhattisgarh will go to polls post September 2018, followed by central government elections in early 2019. DBCL expects improved ad revenue traction Q2FY19E onwards in the run up to these events. MP/Chhattisgarh governments have already started their ad spend.
• Higher newsprint prices to hurt smaller players more: Large players like DBCL with strong balance sheets will stay strong in the current newsprint inflationary scenario vis-à-vis smaller players (who fought on price earlier). Smaller players have started cutting back on circulation, reducing pages per copy, and downgrading on quality in response to high newsprint prices (cool-off expected in 6 months).
• Change in digital strategy: DBCL will focus on building its own digital platform, invest more in content and app downloads versus earlier strategy of buying traffic from social media. The company is dividing its digital team into two, to focus on social media and own properties.
• Share buyback to conclude by September 2018: DBCL’s ~Rs 3.1bn share buyback is expected to conclude by September (received shareholder approval; filed draft offer letter with SEBI; promoters will participate partly), post which we expect the company to resume normal dividend payout.

Valuation & View:

Focus on calibrated copy expansion in key markets (which would also drive ad growth) and a heavy election calendar in H2FY19E (improve ad spend) make DBCL a better play among print media companies in the current newsprint inflationary environment. However, higher paper costs in FY19E could offset likely gains from election-related ad spend, in our view. EBITDA performance could rebound in FY20E, if newsprint prices cool off. We have a Neutral rating on DBCL (12.5x FY20E EPS).