MOSL: D B CORP (Neutral)-Dismal quarter-near-term headwinds persist

D B Corp: Dismal quarter; near-term headwinds persist

(DBCL IN, Mkt Cap USD0.4b, CMP INR163, TP INR170, 4% Upside, Neutral)

• Higher newsprint costs continue dragging performance: Consol. revenue grew 2% YoY to INR5.8b (5% miss), mainly led by modest 4%/6% YoY growth in the print ad/circulation businesses. Double-whammy of rising newsprint prices and higher circulation copies led to a steep rise of 31% YoY in RM cost. This led to a 34% YoY decline in consol. EBITDA to INR0.9b (31% miss), with the margin shrinking 880bp YoY to 15.9%. Consol. PAT, thus, fell 41% YoY to INR462m (41% miss). Print ad revenue was impacted by deferment of the festive season to 3QFY19, while we believe that circulation revenue was hurt by lower yield per copy. Radio revenue rose 8% YoY, led by higher contribution from new stations.
• 1HFY19 performance: Revenue grew 5% YoY, while EBITDA/adj. PAT declined 20%/24% YoY in 1HFY19. EBITDA margin shrank 670bp YoY to 21.4%. For 2HFY19, we expect revenue to grow 11% YoY, and EBITDA/adj. PAT to decline 3%/6% YoY.
• Concall highlights: (1) Expect newsprint prices of INR46-47/kg in 3QFY19 based on current rates; however, some early signs of likely price declines in 3-4 months are visible. (2) Expect FY19 EBITDA margin to be upwards of 21%. (3) Expect double-digit growth in circulation revenue for FY19. (4)Management could explore cover price increase in the coming quarters.