DB Corp Limited (DB Corp) is tapping the capital markets with a public issue which opens on Friday the 11th of December 2009 and closes on Tuesday the 15th of December 2009. The issue will raise between Rs 336.2 crs and Rs 383.5 crs.

Business
DB Corp is a media house and in the business of publishing. Its flagship newspaper is the ‘Dainik Bhaskar’ in Hindi. Currently the group publishes newspapers in three languages namely Hindi, Gujarati and English. It has 48 editions, present in 11 states and a readership of 1.55 crs.  The company publishes Dainik Bhaskar in Hindi in nine states and having 27 editions. The newspaper Divya Bhaskar is published in Gujarati in 2 states and has 8 editions. The newspaper Business Bhaskar is published in Hindi from 5 states and has 7 editions.

DB Corp is present in multiple states like Madhya Pradesh, Chhattisgarh, Rajasthan, Haryana, Punjab, Chandigarh, Maharashtra, Himachal Pradesh and Delhi. The company has had huge growth which can be judged from the progress made from 1995 to 2009, a span of 14 years. From presence in 1 state to 11 states, from 5 editions to 48 editions, 1 language to 3 languages and finally a readership of 32 lakhs or 0.32 crs to 1.55 crs, has all happened in a mere 14 years.

The company also has its presence through a subsidiary in the FM business where it has grown from 7 stations to 17 stations. This business is yet to become profitable and the same is likely over the next 24 months if not earlier.

Financials
2008-2009 was an aberration in almost all businesses. The newspaper industry was no exception and things were badly hit. On the one hand newsprint prices went through the roof, on the other hand the global recession hit corporate and there was a sharp reduction in corporate advertising. This led to a sharp increase in costs and an equally sharp drop in revenues from advertising which form the bulk of the margins in the newspaper industry.

The net revenues for the company in 2008-2009, 2007-2008 and 2006-2007 were as follows: – Rs 674.37 crs, Rs 862.7 crs and Rs 961 crs respectively. The profit after tax for the same period was Rs 55.3 crs, Rs 75.89 crs and Rs 47.7 crs respectively. For the first half year ended September 2009, the net revenues were at Rs 524.39 crs and the profit after tax was Rs 95.5 crs. If one were to omit the aberration which appeared or happened in 2008-2009 the profit trajectory continues in a similar direction.

This year having witnessed the sharp newsprint price rise, DB Corp has already factored an increase of 17% in its newsprint price and also made the provision assuming the US dollar at Rs 49. Imported newsprint forms about 18% of the total newsprint required by DB Corp.

Objects of the Issue

The reduction in working capital loans will bring down the interest cost of the company and thus help to increase profits going forward. It may be mentioned that the company has spent Rs 40.17 crs in the financial year ending March 2009 and Rs 13.46 crs in the half year ending Sept 2009 towards financial charges.

Growth opportunities
DB Corp has always focused to be in tier 2 and tier 3 towns. Its strategy has been to focus on becoming the market leader or at best the number two player in the state/territory it focuses on. A case in point and a case study discussed at the IIM Ahmedabad is the launch of Divya Bhaskar in Ahmedabad. A brand new launch saw the initial sales at a record 4,52,000 copies on day one and the dislodging of a 80 year old paper from its market leader status. The success story of Ahmedabad which saw marketing effort and input from readers help in designing their newspaper, and achieve in making the paper the number one in the city and the state.

The company is in the process of launching its editions in some more states and its focus would continue to be in tier two and tier three towns. For reasons of maintain the secrecy and marketing edge naturally the states where new launches would be made will not be disclosed currently. The company has a franchisee agreement for printing, editing, publishing, circulating and marketing the newspaper ‘DNA’ in the states of Gujarat and Rajasthan at an annual license fee of Rs 12 lakhs per annum subject to an increase of 15% at the end of every year for twenty years.

Valuations
Based on the current half year earnings the post issue fully diluted earnings would reflect in a EPs of Rs 5.26 for the half year. On an annualised basis this would reflect in an EPS of Rs 10.52. The PE multiple at his EPS translates to a valuation of 18.14 times at the lower price band and at 20.15 times at the higher price band. The stock is comparable to its competitors in the listed space like HT Media and Jagran Prakashan. The radio business is at this point a loss making entity and could be sometime before it becomes profitable. The above results and valuations are for the consolidated entity and are reflective of the current position including this loss.

Strengths

• A  strong established brand in the Indian print media business
• The geographical reach and leadership in key markets
• Ability to identify and capitalise on new markets opportunities in local and regional areas and reach new readers and advertisers
• Efficient and speedy execution ability
• Robust marketing strategy
• Strong connection with consumers and advertisers
• Credible and respected editorial team
•  Experienced and capable management team

Weaknesses
Newsprint forms a substantial cost of printing a newspaper and the inability to provide for cost increase or charge the advertisers increased prices could be a concern for any printing media house. The inability to attract new advertisers or reach new markets and thereby increase market share could be yet another risk.

Conclusion
The company DB Corp Limited has come a long way from being a one newspaper company in one state to now being present in eleven states, 48 editions and a readership of 1.55 crs. It has demonstrated its ability to take on competition in the case of Gujarat and deliver results. The issue is competitively priced in comparison to its peers but has the advantage of a sound growth strategy. Based on the current price band the stock is just about reasonably priced and offers investors a fair return on a medium term investment horizon. One should not look for listing gains and should expect a decent 15-20% return over the next six months or so.

Investors with a six month investment horizon in a fast growing media company must apply for the issue.

SEBI disclaimer:-I intend to subscribe to the issue