Buy DB Corp; target of Rs 315: PINC Research

“DB Corp Limited (DBCL) continues to expand aggressively, which would enable it to achieve strong growth in earnings and profitability; currently, the emerging editions contribute 10% to the company’s total revenue. Expansion in Jharkhand would be completed with the launch of Dhanbad and Jamshedpur editions by end-FY11. The Bihar edition will be launched in FY12. Moreover, the company would be setting up around 9-10 new printing centres in its existing territories of Rajasthan, Punjab, Madhya Pradesh and Gujarat.”

“The company’s strategy of aggressive cover prices renders ad revenue as its main growth driver, enabling it to attain No.1 position from the first day of a launch. Moreover, attractive growth opportunities in Hindi/ regional print dailies make a strong case for DBCL, where the model is skewed toward ad revenue (76% of total revenue), which entails higher operating leverage (during 1HFY11, ad revenue grew 18% although 1HFY10 was a festive period). We expect ad revenue to grow at 20% CAGR over FY10-12.”
“DBCL has presence in all major tier II and tier III markets, largely capturing the Hindi belt. It is also the second-largest circulated newspaper in Gujarat. The company expanded to 14 new states in the past 14 years (which implies a new state every year) and it entered the radio business with 17 stations. DBCL’s presence across multiples languages, geographies and media platforms differentiates it making it a preferred player over competition.”
“The company is self sufficient for expansion into new regions. It has already undertaken capex of Rs 3.5 billion over the past two years for upgrade and addition of printing facilities. After factoring in capex requirements of Rs1billion over the next two years, we expect healthy ROE of 27%, ROCE of 35% and FCF of Rs 2.4 billion by FY12. With revenue CAGR of 16% over FY10-12E, we expect DBCL to maintain its operating margins at 32% and net margins at 19%. We initiate coverage with ‘Buy’ with 12 month target price of Rs 315 (21xFY12E EPS),” says PINC Research report.
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