Buy DB Corp, target Rs 286: Edelweiss Financial Services

Edelweiss Financial Services has a buy call on DB Corp with a target price of Rs 286.

The current market price of DB Corp is Rs 223.30.

Time period given by the brokerage is one year when DB Corp price can reach the defined target.


View of the brokerage on the company:
Although we prefer broadcast/multiplex stocks such as ZEE, Sun TV and PVR over Print stocks, however we believe DB Corp (DBCL) – after its sharp nearly 30 per cent correction over the past six months – now offers a decent entry opportunity from a one-year perspective. Ad revenue is likely to spike in H2FY19 owing to later-than-usual festivals this year, state elections in Madhya Pradesh, Rajasthan and Chhattisgarh (likely in Q3FY19), and campaigns for the 2019 general elections. That said, a steep rise in newsprint costs will dampen margins in the short term; on the flip side, market share gains are likely as smaller players will struggle to absorb higher costs. To factor in the higher newsprint costs, we are slashing FY19/20E PAT by 7.3 per cent/8.7 per cent and thus revising down the target price to Rs 286 valuing at 15x FY20 EPS (from Rs 319). Maintain ’BUY’.

Double-digit ad growth likely in H2FY19: DB Corp has seen double-digit growth in print ad revenue in the first two months of Q2FY19. In H2FY19 too, ad revenue is likely to be robust due to later-than-usual festivals this year, state elections in MP, Rajasthan and Chhattisgarh (wherein DBCL has strong readership), and campaigns for the 2019 general elections.

Strong focus on radio, digital and circulation expansion in Bihar: 94.3 MY FM continues to engage a large portion of audience through its engagement initiatives and hyper-local content. The company is also working towards strengthening its digital proposition and leveraging the leadership position to explore branded content on its digital platform. The company has managed to boost reader engagement in Bihar through localized campaigns, enabling it to make Rs oads into all 38 districts of Bihar with additional circulation in more than 0.4mn homes.

Outlook and valuations-Positive; maintain ‘BUY’: We expect elections, Bihar expansion, and revival in ad spends to drive DBCL’s performance. The spike in newsprint cost would impact near-term EBITDA. We are thus cutting FY19E and FY20E PAT by 7.3 per cent and 8.7 per cent, respectively, but retaining FY20E target PE of 15x, thereby revising down the target price to Rs 286 (earlier Rs 319). At current price, the stock trades at 13.3x FY19E and 11.9x FY20E EPS. We maintain ’BUY/SP’.