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MOSL: D B Corp (Buy)-Cost measures supporting in weak environment

D B Corp: Cost measures supporting in weak environment

(DBCL IN, Mkt Cap USD0.4b, CMP INR176, TP INR210, 19% Upside, Buy)

 

• Revenue disappointment, but lower opex drives EBITDA: revenue declined 4% YoY to INR6.1b (9% miss) due to weak print ad growth (-5% YoY) and lower circulation revenue (-2% YoY). However, consol. EBITDA increased 4% YoY to INR1.8b (14% miss), benefiting from a 6%/12% drop in newsprint/SG&A cost, partly due to Ind-AS 116 cost reallocation of INR85m (exhibit 4). PAT declined 4% YoY to INR937m (22% miss) owing to (a) lower other income and (b) reallocation and higher cost of depreciation/interest cost of INR92m based on Ind-AS 116. Radio segment performance was the only silver lining with healthy revenue/EBITDA growth of 19%/84% YoY.
• Concall highlights: (a) Local and national players are curtailing ad spends due to the ongoing slowdown in consumption spends. (b) Spot newsprint price is about ~INR1-2/kg below 1QFY20 price of INR40/kg; it is likely to decline further by INR2/kg. (c) The focus on cost reduction will continue against the backdrop of weak revenue performance.
• Outlook muted with limited growth visibility: Given weak ad spending by both national and local advertisers, management refrained from providing any guidance. However, post results, we cut our revenue/PAT estimate by 9%/18% for FY20. Yet we build in revenue/EBITDA growth of 3%/16% for the year in view of low newsprint cost and the strong focus on reducing cost.
• Valuation view: Our target price stands at INR210 (prior: INR215) - ascribing 10x (~40% discount to three-year average) P/E on FY21E EPS. Despite the cut in earnings, PAT is estimated to grow at 12%/19% in FY20/21, given the sharp reduction in opex. Maintain Buy.