CITIGROUP on DB Corp

DB Corp announced plans to launch into Bihar, Jharkhand and Jammu. Strategically, the entry into these high-growth regional markets is a long-term positive. Near term, as the company would need to invest for penetration and market growth, Citigroup expects a marginal hit on operating margins - management mentioned that EBITDA margins between 29-32% are achievable and reiterated their three-four-year breakeven guidance for all new launches. Citigroup believes growth would be driven by an expansion in the market itself owing to increasing penetration and robust ad market growth. The existing cover prices for the incumbents in these markets is about Rs 4, which is higher than prices of most newspapers in other Indian states and also DBCL's current ASP of about Rs 1.50. The premium pricing creates an opportunity for DBCL to break in. This coupled with low penetration levels makes the expansion into these states attractive. Management intends to have readership close to the existing No. 1 player in these markets over the near to medium term. The capex would be to the tune of Rs 70-75 crore; with launches in two of the three markets before October '10 and expansions over the next two-three years.