D. B.Corp - a newspaper company

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DB Corp
CMP:401 Marketcap:7370.72

DB CORP is one of the largest print media company of Indi, publishes 8 Newpapers with 65 editions in 4 main Regional languages i.e. English, Hindi, Gujarati and Marathi across 13 states in India. Their brand name is Divya Bhaskar (in Gujarati), Dainik Bhaskar (in Hindi), DNA (in English) Divya Marathi (in Marathi).

They also have Radio FM that is “MY FM” under their brand “JIYO DIL SE” “frequency is 94.3” they are currently operating in 7 states and 17 cities. And they also have their mobile application under their brand name “DB DIGITAL”. They also run various portals in their own name for various subjects they cover.

Print- media: In print media revenues comes from two modes i.e. Print - ads and newspaper circulations. The circulation business is like an annuity business and is consistently grown 15% where volume contributes 5% and price is 10%. And according to the concall of previous year they have clearly said that they won’t erode price in advertisement business but to increase volume they can maintain or reduce some price in newspaper circulation. In circulation business they have expanded in regional footprint and have launched new editions in Bhagalpur, Gaya and Muzaffarpur besides 7 districts edition and extended presence in Bihar.

Radio Business operates in 17 cities under the brand name MY FM and they have acquired 14 stations in phase 3 auctions. They are likely launching their newly acquired stations in a phased manner. They are expecting 17% CAGR in Radio business. In Digital business, they are bullish on the readership base and will also start homeonline.com – a real estate portal with many new features timeline is August 1, 2016.

Financials:
Equity is 18.34 crores face value is RS 10
Promoter holding 69.95%
Long term debt of 154.91 crore and short term debt is 176.67 crore.
Company has Cash and bank balance of 92.39 crore and short term loans and advances of 56.03 crore.

Year 12 13 14 15 16 Q1 FY 17 Assumption
Sales 1451.51 1592.32 1859.76 2009.57 2051.86 570.39 2280
Np 202.11 218.14 306.65 316.34 296.65 103.96 415.84
EPS 11.03 11.9 16.72 17.23 16.15 5.66 22.64
Dividend 3.75 5.35 6.5 7.75 11 4.25 -

Investment Thesis:

Company is basically in two business i.e. newspaper and digital (includes radio). The company has been operational in Gujarat, Rajasthan, Madhya-Pradesh, Chattishgardh where elections are coming and they have good presence.

Coming with the economy revival and the introduction of 7th pay commission, the print-ad revenue is likely to increase as the auto, FMCG, Ecommerce companies is likely to increase their spend. So they had increased their prices and will also increase their volumes in print ads segment.
They are also entering into newer markets for circulations business. Long-term newspaper contract to hedge any spike in newspaper cost, which constitute 31% of revenue.
The circulation business is a sticky business where the customer doesn’t change on day to day business or year on year business and increase in prices of newspaper doesn’t affect their choices.
On segmental basis in terms of languages, the regional language contributes higher than the English languages.

In radio business, they have acquired 14 stations which are in phase 3 and will be starting them in next half of the current year plus they also have good share in 17 cities. This business can grow at 15 -20% CAGR in coming few years as the base is small.
Digital business: the management is focussing more on this business. According to investor presentations in terms of readers and page view they come in the 2nd position after TOI
In terms of ratios, the company have ROE of 22%, ROCE of 20% and ROIC is 22.22%. Their EBITDA margin is 26% the dividend yield is 2.7% and D/E is 0.1.
The company is trading at a P/E of 22 on trailing basis.

Risk:

  1. Promoter has pledged their share that is 44.65% of their holding

Technical:
The company is trading near all time highs

Disc- Not Invested

Just initiating the thread will add more. Seniors kindly help and comment

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What is the valuation comparison between HMVL and DB Corp?

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Please find the attachment:

2016-08-03.png1168×213 19.3 KB
(Source: Screener)

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Hi Smehta, thanks for posting the details! In my opinion, Doesn’t HMVL looks more lucrative based on financials and valuations? How DB Corp is a better placed?

Disclaimer - invested in HMVL for last 3 years.

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Actually i will be working more on DB corp’s competitors as well.

Regarding why DB corp is better placed ?

  • The company’s motive was to increase newspaper circulation so the Ad revenue would definitely come in and past 4 quarters they were not growing well but just the last quarter their ad revenues came in.
  • they are well placed in Gujarat , Punjab, Madhya-pradesh where elections are going to come which would increase Ad revenue
  • If and only if India is growing and consumer spend is increasing then the company may get ads order from companies of Auto sector i.e. two wheeler, Ecommerce, FMCG sector so on and so forth.
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DB Corp has been a leader in most of the regions it operates in. Besides the management comes across as guys with good long term vision. They had implemented the yield strategy wherein they suffered in terms of growth for nearly 3-4 quarters and now q1 fy 17 is the first quarter of decent growth after all these lacklustre quarters.

For q1 fy 17, topline grew to 570 crores against 473 crores recorded in q1 fy 16. Op profit for same period increased to 182 crores as against 120 crores in q1 fy 16. And net profit jumped to 105 crores from 65 crores.

If the company’s strategy which has borne fruits this quarter continues to deliver then we could be looking at fairly decent numbers going ahead. Management commentary regarding radio business also is encouraging.

Newspaper business and even radio business is fairly predictable business. So i expect co to continue delivering good numbers.

Another aspect of this company is its dividend payout ratio which has been near 50% and that adds to the attraction. (And that is where HMVL is lacking.)

And both DB Corp and Jagran have demonstrated their ability to deploy cash thrown out of newspaper business into radio business which is slated to be the next growth driver.

Both newspaper and radio business are likely to be casualties to disruptions but I think they have a decent run way for some more time before any kind of disruption catches up with them especially more so in the vernacular languages.

I had recently entered into DB Corp as I was waiting for growth to return for the company and now I feel its on track.

I now own three newspaper companies namely db corp, jagran and hmvl. HMVL has mainly been a sort of parking space for me where I dont see too much downside but upside triggers also seem bleak. Today it has posted okay sort of results with marginal growth in topline and decent bottomline growth. But they have been sitting on 660 crores of cash without a clue on what to do with it. Thats one of the reasons why the stock is a value buy even in these kind of markets.

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Hitesh Sir,

Totally agreed.

some points which I took from ENIL concall:
Business regarding the Advertisement revenue:

  • They get most advertisement revenue from government in the last quarter as they had completed two years and so compare to other revenue they Govt revenue contributed nearly 13% of their total revenue. “this Govt likes to give more ads”
  • in fact this auto FMCG and other business were quite less compared to Govt.
  • Reliance Jio coming this month which will contribute to their revenues and other telecom companies has to do the same.

Will add more after hearing the others con-calls

Samkit

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Hitesh Bhai…How do you decide the size of these bets in overall portfolio?

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surender,

Size of the bets is largely a function of the quality of business and downside protection. If the company in question belongs to the high quality category of business, probably suffering some temporary pangs (this is often the reason for getting it at attractive valuations but one has to be sure that the problem is of a temporary nature) then one can bet a good chunk of portfolio in that company. (How much is a good chunk is a figure which will vary from person to person).

For opportunistic bets, or at times parking spaces, I usually allocate around 10% of PF size. Specifically in case of HMVL, bcos of cash on balance sheet and valuations as compared to peers I feel downside could be limited. But at the same time unless there is some real trigger around, upsides also seem limited. But market is a funny animal and often triggers come out from unexpected angles. So unless and until I can get hold of a fat pitch the money will lie in HMVL. But this can change all of a sudden if some really interesting opportunity comes around.

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Just to bring to focus one of the key risks in investing with DB Corp, or for that matter any other newspaper business is raw material cost. If we take a closer look, newprint costs are roughly at about 33-35% of operating revenue. This comes at a time when the export price of newsprint is around $500/MT (& Rs.35K from local manufacturers). In 2008 prices of newsprint were hovering around $750/MT and back in 1995 it was around $1000/MT. Even if prices were to reach 2008 levels, we are looking at a 15% drop in the OPM of DB to mid 15% levels - which is not the end of the world. But the more interesting question to ask is, would a company like DB be in a position to pass on such cost to the end customer.

DB’s circulation records close to 50 lakhs per day, at an average realisation on the cover price of Rs.2.2 per copy. The cost of producing a single copy is roughly about Rs.2.9 (give or take) at today’s prices. If newsprint prices were to go up to 2008 levels, then the cost of producing a single copy will go up by Rs.1.5 per copy. Will the end customer be willing to pay a 70% hike in cover prices? - Probably yes. The elasticity of demand for newspapers is actually very less world over.

But the mitigating factor for now is the consistently decreasing demand for newsprint from the west. Consequently, newsprint manufacturers are reducing capacity and this trend needs to be watched carefully.

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I went for AGM of DB CORP today:
Following were the questions I asked::

  1. Why promoters have pledge their 44% of shares while we do have debt (140 crores) in the company?
    It is for the personal use of the promoters.

  2. Investments of 33 crores in Gitanjali gems is it an Investment or a barter transactions?
    It is a barter transaction and they further clarified that they are in profits:grinning:

  3. The company has poor quality companies in the books as an investments? Why are we not disposing it?
    They replied as We do not invest in stock market it is a barter transaction and we also hold some stocks in Unlisted area like NAPTOL too but all are investments through barter transaction…

  4. When are the Radio stations be operational?
    The Radio business will be operational in 3-4 months and they have invested nearly 100 crores as in for buying new stations as well as for the upgradation of the current stations EG the contract of frequency was going to expire this year so they have upgraded it for next 15 years

  5. How much is the avg utilization of the manufacturing units?
    Our units work in three shifts:
    -6-7 hours a day goes for Job Work which contributes to nearly 100 cr in the revenue
    -Next 6-7 hours goes for the maintenance of the Units
    -6-7 hours goes for the newsprinting business

  6. How do we see raw-material costing going up? and Why do we have Foreign Outgo in our annual reports?
    For foreign outgo we import newsprint for our cover price which is very good quality and we become differentiate from our competitors and this expense is nearly 20-25 % of total Raw material cost and rest we buy from Imports.

  7. How do we see the elections coming forward?
    We donot operate much in Uttarpradesh but the elections coming in the next year is quite beneficial to us.

  8. Any dividend policy? and Further expansions?
    Our dividend policy is 50 - 55 % payouts and regarding expansions we need 2 -3 years to become mature so no further plans.

  9. We have an event management company so do we have any focus on them?(As money can be taken out Easily)
    No, we only have focus on our three businesses: Newspaper, Radio and Digital Business

Disc- Invested a small position

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Surprised some many flags n still invested

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Thanks samkit for the AGM update.

Good digging esp on DB Corp’s holding in various companies which comes into co’s books thru barter system.

Another very interesting aspect of this company is its shareholding pattern as revealed in fy 16 AR.

Promoter group has 69.96% holding.
DII hold 8.02%
FII hold 18.5 %.
Indian corporate body holds 2.44%.

Total of all above is 98.92% which leaves only 1.08% in retail hands.

Among the institutional, FII holding,

there are some names like Nalanda, Amansa Capital, HDFC trustee CO, Govt of singapore, ICICI Prudential Life Insurance, HDFC Standard Life Insurance Co, etc.

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I remember benet colman also doing this bartending. Is it a common practice?Tried to look for such signals in HMVL but they have not done

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@hitesh2710 Thank you sir Shareholding pattern was good point.

one more thing which I saw in this company is “Their PBT and CFO Doesnt have too much difference” So what i feel about this barter transaction is That would be a cumulative effect over a period.

@suru27 Dont know about HMVL need to see

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Tata Power in talks to acquire power arm of DB Corp promoters

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The power arm of DB Corp is just for cost reduction and increase profitability of the company. Lets see whether this deal happens or not and its in favor for DB’s shareholder.

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http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/54982EED_C04B_4CE2_9907_38508CF04994_131808.pdf

Good numbers from DB.
Total revenues up 9.7%…ad revenue grew 9% and circulation revenue grew 11.5%
PAT grew by 55.9%. Good margin expansion
Radio business delivered a stellar EBITDA margin of 50.9%…highest among all players
Print business EBITDA 32% for mature editions

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Analysis and but recommendation by : The Hindi Businessline

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Strong selling going on in D B Corp and other print media stocks except HT Media. How will these print media companies be affected with the increase in FDI?