DB Corp IPO

 

Considering its new launches, DB Corp would take few years to break-even. Risk-averse investors should take exposure in the stock from the secondary markets

   DB Corp, country's one of the leading publishers of newspapers, is planning to raise up to Rs 385 crore through its initial public offer of shares. The company is offering 180 million equity shares in the price band of Rs 185-212 per share at a face value of Rs 10 each. The company publishes, Dainik Bhaskar, which is India's one of the largest circulated Hindi-language daily. The newspaper is published in nine states in North and Central India. These states are Madhya Pradesh, Chhattisgarh, Rajasthan, Gujarat, Haryana, Punjab, Chandigarh, Maharashtra, Himachal Pradesh, and Delhi. It plans to use around Rs 105 crore of the total proceeds for upgrading its plant and machinery and for establishing of new printing presses. It plans to use around Rs 130 crore for paying its loans. As of October 31, 2009, the company's total debt was around Rs 425.2 crore.

BUSINESS:

Besides Dainik Bhaskar, the company also publishes business newspaper in Hindi and a general newspaper in Gujarati under the name 'Business Bhaskar' and 'Divya Bhaskar' respectively. With 17 FM radio stations in seven states, the company is also present in radio business through its subsidiary, Synergy Media Entertainment Limited under the brand 'My FM' 94.3. In addition to newspapers, the company publishes five periodicals—'Aha Zindagi', a monthly magazine published in Hindi and Gujarati, Bal Bhaskar, a Hindi magazine for children, Young Bhaskar, a children's magazine in English and Lakshya, a career magazine in Hindi.

FINANCIALS:

An analysis of the second quarter results of the media firm reveals that non-English publications seem to be doing better than English publications. Jagran Prakashan, which owns Dainik Jagran and is country's largest publisher of Hindi language newspapers, reported 20% revenue growth in Q2 vis-à-vis 10% growth reported by Deccan Chronicle Holdings. HT Media, which publishes Hindustan Times, Hindustan in Hindi and Mint, besides other magazines, posted a marginal 5% growth. It derives a substantial amount of its revenues from English publications. This presents a good opportunity for companies like DB Corp, which has dominance in regional language newspapers. 'Dainik Bhaskar', the company's main publication has a growing readership across nine states—more specifically in the cities in these states. The company has a combined average daily readership of 15.5 million across its various newspaper offerings.

   On a six-month period ended September '09, the company's consolidated income jumped 100% to Rs 524 crore on a year-on-year basis. Its net profit increased to Rs 91.7 crore in the first half of FY10 from Rs. 3.7 crore in the first half of FY09. This huge jump was fostered by around 40% drop in newsprint prices, fall in dollar price, rise in advertising revenues in the first half of the financial year and measures the company adopted such as decrease in page-width, which helped it clock a better net profit during the six months ended September '09. Its net cash from operating activities, however, declined from Rs 223 crore in FY08 to Rs 114 crore in FY09.

INVESTMENT RATIONALE:

Most of new launches of DB Corp have been as early as in 2007. And these launches have worked on two strategies: lower invitation prices and freebies. It would take few more years to break-even and even longer to generate handsome profits. Hence, an immediate comparison with the listed player Jagran Prakashan wouldn't be the right criterion. However, on the debt and pricing front, Jagran Prakashan offers enough investment opportunity. It has less debt on books and higher revenues. As of FY09, Jagran Prakashan had total debt outstanding of Rs 141 crore against DB Corp's Rs 425.3 crore. Dainik Jagran, the daily of Jagran Prakashan, has a readership of 55.7 million much higher than DB Corp's Dainik Bhaskar. DB Corp faces immense competition from Jagran Prakashan, which is also present in its markets such as Punjab, Haryana, Bihar, Jharkhand, Himachal Pradesh, Madhya Pradesh, and Delhi.

VALUATION:

On the valuation front, the company is asking for a price-to-earnings ratio of 17x and 20x at the lower and higher end of the price band, respectively. Jagran Prakashan, its nearest competitor is currently trading at P/E of around 25x. On the dividend front, DB Corp's dividend payout as of FY09 has been just 13%, while Jagran Prakashan's has been 74%. But given the higher risks involved in DB Corp, the discount in valuation is justified. Investors may not expect huge listing gains. They could consider taking exposure to the stock in the secondary market.
 

 

 

IPO details
Price Band: Rs 185 - 212 per share
Net issue size: Rs 315-385 crore
Issue Date: December 11-15, '09