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MOSL: D B CORP (Buy)-In-line quarter-maintain estimates and target price

​D B Corp: In-line quarter; maintain estimates and target price

(DBCL IN, Mkt Cap USD1.0b, CMP INR372, TP INR450, 21% Upside, Buy)

• Operational performance largely in-line: DBCL's 1QFY18 EBITDA grew 3% YoY to INR1.86b, (largely in-line; our estimate: INR1.85b). Revenue grew 4% YoY to INR5.94b (in-line) as better than expected print ad revenue made up for the circulation disappointment. PAT grew 6% to INR1.1b (our estimate: INR1.12b).
• Ad growth healthier than expected: Print ad revenue grew 4.5% YoY to INR3.9b (our estimate: INR3.85b), despite the high base of 1QFY17 (20% ad growth) and the impact of impending GST implementation on print ad industry. While HMVL saw flat ad revenue, DBCL's ad growth seems healthy. The ad growth run rate pre-GST (April and May) was 7.5-8%. We have modeled 9% CAGR in ad revenue over FY17-19.
• Circulation growth moderates, falls short of expectations: Circulation revenue grew 5% YoY to INR1.23b (our estimate: INR1.27b). Growth was largely led by yield improvement in mature markets. The management intends to rev up circulation growth, given that the ad environment is improving. We have modeled 9% CAGR in circulation over FY17-19.
• Margins contract by 40bp; largely in-line: Margins declined 40bp YoY to 31.4% (our estimate: 31.1%), despite higher-than-expected RM and SG&A costs. Lower-than-expected employee costs more than cushioned the spike in RM and SG&A expenses. RM costs grew 6.8% YoY (price-led) to INR1.71b (our estimate: INR1.69b), constituting 28.7% of revenue.