I have been reading up the business for the last week or so. There are lot of good things to talks about the management (shareholder friendly with respect to dividends, good capital allocation, have built a strong team etc.). At 9.5x PE, it looks to be trading at a decent price. A few things to note:
- Other income has gone up significantly. 88Cr in LTM vs 20Cr average between in FY '12-FY '22 when it was trading at 12-15x PE. If we adjust the other income in the LTM nos. the current PE would be 11-12. Not very far from historical.
- I was also excited about the upside from the digital business given it will be highly accretive to earnings. If I do a rough calculation of how much revenue can they generate from digital subscriptions:
MAU : 20mm
DAU/MAU : 20% (This is 60% for social media apps like Facebook/Instagram because anyone who is active in the month is highly likely to login at least once a day. However, news app like inshorts, Ken, ET prime are in the 15-25% range).
DAU : 4mm
% conversion from DAU to paid users : 2% (Spotify has a conversion to paid users, as a % of active users, of 50-60% globally but 3-4% in India. Very difficult to get Indians to pay for subscription services, particularly news).
**Paying users : 0.08mm. **
Annual subscription cost : Rs 1,200
Annual Revenue : INR 9.6 Cr.
Assuming all of it flows to PBT, it is still not sizable. One can tweak the assumptions and use a nominal growth in users, it would still not be very material. So I’m doubtful of the subscription model.
Inshorts did 180Cr of revenue (220Cr of losses) in FY '24 out of which 80% was ads. It has 1Cr downloads vs 5Cr for Dainik Bhaskar. DB Corp is expensing all the costs with respect to the digital business so I’m assuming the costs are already there in the PnL and there shouldn’t be any negative surprises with respect to cost once the ads business scales up. Earlier, the management seemed quite fixated on building only subscriptions but since the last 2-3 quarters, they have started experimenting with ads on the app.
I do find the dividend yield attractive but would need to see more revenue disclosure on the digital business to get excited.
Discl : Not invested