MOSL: D B CORP (Buy)-Circulation drive, ad recovery bode well

​D B Corp: Circulation drive, ad recovery bode well

(DBCL IN, Mkt Cap USD1.0b, CMP INR360, TP INR430, 19% Upside, Buy)

• Higher RM cost dragged down PAT: Consolidated revenue grew 5.4% YoY (4.4% QoQ) to INR5.7b (3% beat). Adjusted for the INR104m one-off income (profit on the sale of Gitanjali Gems shares) in 2QFY17, revenue grew 7% YoY, led by increase in print revenue. Consolidated EBITDA declined 7% YoY (25% QoQ) to INR1.4b (7% miss); adjusted EBITDA declined 11% YoY (adjusting for music royalty provision reversal). EBITDA margin contracted 330bp YoY (675bp QoQ) to 24.6% (275bp miss). Adjusted margin shrank 490bp YoY, impacted by 9% YoY increase in RM cost and 20% YoY jump in other expenses. PAT fell 11% YoY (29% QoQ) to INR787m (12% miss), largely led by decline in EBITDA.
• Ad and circulation revenues regain momentum: With the impact of GST implementation waning, print ad revenue grew 6% YoY to INR3.5b (6% beat). Print circulation revenue rose 8% YoY to INR1.3b (2% miss), primarily led by yield growth (contributing 6.5%) in mature markets. Circulation increased 8% QoQ to 5.4m copies, led by focused circulation enhancement strategy. Radio revenue increased 17% YoY to INR349m (against our estimate of INR299m).
• Ad recovery, circulation drive to support earnings: Increase in circulation copies without aggressive price competition is expected to support circulation revenue. Additionally, upbeat festive season and support from large categories like FMCG should offset the impact in real estate and retail sectors. Recovery in ad market bodes well. We expect revenue/PAT CAGR of 7%/12% over FY17-19.