>DB CORP (ICICI DIRECT)

Riding on the regional bandwagon…

With its pure regional play and leadership position in key markets, DB Corp is well poised to capitalise on robust advertisement demand in the vernacular space, buoyed by consumption shifting to Tier II and Tier III cities. Riding on the regional bandwagon and implementing its aggressive marketing and pricing strategies the company has outpaced its peers. Continuing the trend, we expect the topline to grow at 11.9% CAGR (FY09-12E). With an improving operational performance and lower interest outgo on account of debt repayment, the PAT is expected to grow at 74.1% CAGR (FY09-12E). We are initiating coverage on DB Corp with a BUY rating.

DB Corp – Robust advertisement revenue growth

DB Corp’s presence in Tier II and Tier III cities coupled with its stronghold in its key markets had supported strong ad revenue growth. The consolidated advertisement revenue of the company grew at a CAGR (FY07-09) of 22.1% from Rs 486.6 crore to Rs 725.6 crore, while that of our print universe grew by 18.9% over the same period. Riding on pure regional play and vernacular diversification, the ad revenue for DB Corp is expected to grow at 14.3% and 13.4% in FY11E and FY12E, implying 12.8% CAGR over FY09–12E to Rs 1042.7 crore.

Expansion in new territories to give thrust to circulation revenues

Dainik Bhaskar is the second largest read newspaper in India with an AIR of 128.8 lakh. Consolidation in existing territories and new launches would result in 6.9% CAGR (FY09-12E) in circulation revenues to Rs 245.7 crore led by 4.6% CAGR (FY09-12E) in number of copies sold per day to 43 lakh copies and 2.2% CAGR (FY09-12E) in revenues per copy.

Valuations

With increasing income in non-metros and consumption shifting to smaller towns and villages, media companies with a regional presence have been more resilient to the slowdown. We expect the current trend to continue and players that cater to regional demand would continue to

command a premium over national players. At the CMP of Rs 228, the stock is trading at 17.7x FY11E EPS and 16.5x FY12E EPS. We value the stock at 19x (~5% discount to Jagran Prakashan) FY12E EPS to arrive at a target price of Rs 263. We initiate coverage on DB Corp with a BUY rating.

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