D B Corp BUY. Making headlines CMP. `264 Target Price `358. Initiating Coverage Media. Investment Period 15 Months. Key financials (Consolidated)

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1 Initiating Coverage Media December 16, 2010 D B Corp Making headlines D B Corp (DBCL) is a leading print media company, publishing seven newspapers and 52 editions in three languages (Hindi, Gujarati and English) across 13 states in India. Over FY E, we have modeled in CAGR of 17.2%, 9.3% and 19.9% in the advertising revenue, circulation revenue and earnings, respectively, for DBCL. We Initiate Coverage on the stock with a Buy recommendation and a Target Price of `358, based on 21x P/E FY2013E EPS. Controlled aggression in business edges DBCL over peers: Consolidated DBCL is a leader in terms of readership and circulation. The company also has to its credit the maximum number of successful launches. Moreover, Dainik Bhaskar is the only vernacular print play to have multistate leadership, which in our opinion augurs well for its advertising-focused business strategy. DBCL s ad revenue to outpace regional ad growth, we peg a 17% CAGR: During FY E, we peg DBCL s ad revenue (excluding radio) to witness a 17% CAGR, ahead of industry growth at a 14% CAGR. Growth will be driven by 1) higher ad spends in the regional markets, 2) uptick in the economy, resulting in increasing advertisement volumes, 3) penetration into new geographies and 4) sustainable ad rate hikes (rate hike of ~12% taken in 1QFY2011). Despite low focus on circulation, we expect DBCL to outpace industry growth: We expect circulation revenue to post a 9.3% CAGR over FY E compared to industry growth of 5.3% CAGR over the same period. We expect the circulation revenue to be led by ~5% volume growth and have penciled in average realisation per copy of `1.5 in FY2013E. Jharkhand and Jammu launches A good bet in the long term: We expect new launches to post a ~90% CAGR in advertising revenue over FY E on a low base to `43cr in FY2013. We expect circulation revenue to post an 80% CAGR over FY E, resulting in circulation per day increasing by ~284,000 copies by FY2013E. Radio to post a 20% top-line CAGR over FY E: We expect the radio business to post profit of ~`9cr/`11cr in FY2012E/13E, respectively, at the EBITDA level, aided largely by 1) synergistic benefits that will be derived from the parent post the merger (expected by 4QFY2011) and 2) shift of royalty rates to revenue sharing, paving way for Phase-III licenses auction. Key financials (Consolidated) Y/E March (` cr) FY2010 FY2011E FY2012E FY2013E Net sales 1,051 1,231 1,409 1,617 % chg Net profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) Source: Company, Angel Research BUY CMP `264 Target Price `358 Investment Period 15 Months Stock Info Sector Media Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume 4, / ,922 Face Value (Rs) BSE Sensex Nifty Reuters Code Bloomberg Code 10 19,865 5,949 DBCL.BO DBCL@IN Shareholding Pattern (%) Promoters 86.3 MF / Banks / Indian Fls 3.7 FII / NRIs / OCBs 8.8 Indian Public / Others 1.2 Abs. (%) 3m 1yr* 3yr Sensex (0.8) D B Corp 5.9 (0.7) - Note: *DBCL listed on January 6, 2010 Chitrangda Kapur chitrangdar.kapur@angelbroking.com Sreekanth P.V.S Ext: 331 sreekanth.s@angelbroking.com Please refer to important disclosures at the end of this report 1

2 Initiate Coverage with Buy and Target Price of `358 We estimate a 15% top-line CAGR over FY E We have modeled in CAGR of 17.2%, 9.3% and 19.9% in advertising revenue, circulation revenue and earnings, respectively, for DBCL over FY E. Moreover, with heavy capex done in FY2009 and significant improvement in the company s working capital, we expect DBCL s cash balance to swell to ~`390cr or ~`21/share in FY2013E. Exhibit 1: Our estimates are lower than the consensus Y/E March FY2011E FY2012E FY2013E Comments Top line (` cr) Angel estimates 1,231 1,409 1,617 Top-line estimates in line with consensus Consensus 1,224 1,403 1,624 Diff. (%) (0.5) EPS (`) Angel estimates We have factored higher Opex than Consensus consensus to account for new launches Diff. (%) 0.6 (4.0) (4.1) and increased competitive intensity Source: Company, Angel Research, Bloomberg; Note: *Refer Exhibit:23 TP based on 21x FY2013E EPS, 5% premium to its peers We initiate coverage on DBCL with a Buy recommendation and target price of `358, equating to an upside of 35% from the current levels. Our target price is based on 21x FY2013E EPS of `17.0, 5% premium to the target multiple of its peers, HT Media and Jagran Prakashan. We believe the premium valuation is justified given 1) the dominant position in the northwestern part of the country and leadership in the vernacular print space in terms of readership and circulation for consolidated DBCL portfolio, 2) only Hindi print play to have a leadership position in non-hindi state (Gujarat), 3)well-executed and most number of successful launches, 4) advertisement-focused revenue model from strong presence in urban Tier-II and Tier-III cities, 5) significant reduction in losses in radio (already achieved breakeven at the operating level) and 6) healthy balance sheet on account of retirement of high interest debts. Exhibit 2: Relative valuation DBCL has the highest EPS CAGR v/s peers M. cap EPS CAGR P/E (x) RoE (%) EV/Sales (` cr) FY10-13E FY11E FY12E FY13E FY11E FY12E FY13E FY11E FY12E FY13E Jagran Prakashan 4, DBCL 4, HT Media 3, Deccan Chronicle 2, Source: Company, Angel Research December 16,

3 Investment arguments Controlled aggression in business edges DBCL over peers Dainik Bhaskar is a well-established No.2 player, trailing behind Dainik Jagran and is rapidly closing the readership gap DBCL, with its flagship daily Dainik Bhaskar, is one of the leading publishing houses, with its newspapers cumulatively commanding the highest readership and circulation in the country. The company is a well-entrenched player with a dominant position in the northwestern part of the country. The company also has to its credit the maximum number of successful launches, expanding into new states and languages by displacing strong incumbents. Exhibit 3: Dainik Bhaskar A well-entrenched No.2 player 18,000 16,000 14,000 ('000s) 12,000 10,000 8,000 6,000 R R Q2010 2Q2010 3Q2010 Dainik Jagran Dainik Bhaskar Hindustan Amar Ujala Rajasthan Patrika Source: IRS, Angel Research Benchmarking DBCL to its peers Premium to sustain DBCL trades at a premium on account of its business strategy through 1) expansion into new markets (urban towns beyond metros) and 2) focus on attaining leadership in its markets DBCL, though a dominant No.2 player in the overall regional print space (trailing behind Jagran Prakashan), enjoys a premium valuation to its peers Jagran Prakashan (flagship daily Dainik Jagran) and Hindustan Media Ventures (flagship daily Hindustan). We attribute the reason for this trend to DBCL s business model (which is primarily advertising revenue driven) and well thought-out launches into new markets. We believe the company s continuous endeavor to diversify its print business coupled with aggressive expansion into new markets (urban towns beyond metros) backed by exhaustive market research and focus on achieving leadership is the key differentiating factor compared to its peers. The following charts and tables benchmark DBCL to its peers in terms of circulation, readership and successful new launches. December 16,

4 Divya and Dainik Bhaskar together surpass the leader in readership While Dainik Jagran retained its lead as the No.1 Hindi daily in 3Q readership survey with an AIR of 15.95mn, its gap with the top-3 competitors has reduced, with Dainik Bhaskar maintaining its readership this quarter at 13.5mn. However, on a cumulative basis, the readership of Dainik Bhaskar and Divya Bhaskar surpasses the leader Dainik Jagran s by ~7%. Exhibit 4: Divya Bhaskar growing smartly at 5% CAGR (mn) Dainik Bhaskar Divya Bhaskar 1Q2010 2Q2010 3Q2010 Source: IRS, Angel Research Exhibit 5: DBCL is the leader in terms of readership (mn) Source: IRS, Angel Research Q2010 2Q2010 3Q2010 Dainik Jagran Dainik Bhaskar+Divya Bhaskar Hindustan Consolidated DBCL portfolio leads in circulation DBCL s rich portfolio comprises multilingual newspapers, including Dainik Bhaskar (Hindi), Divya Bhaskar (Gujarati), Saurashtra Samachar (Gujarati) and DNA (on a franchise basis in English). On a consolidated basis, the portfolio leads in circulation volume with a huge ~30% margin to Dainik Jagran. Exhibit 6: DBCL enjoys lead of ~30% to Dainik Jagran (mn copies per day) Dainik Jagran Dainik Bhaskar Hindustan HT-English CY07 CY08 CY09 CY10E Source: ABC JJ 10, Angel Research; Note: Circulation for DBCL includes Divya Bhaskar and DNA December 16,

5 Multistate leadership ensures high advertising revenue DBCL has an advertising-focused revenue model, and its multistate leadership ensures high advertising revenue. Interestingly, the company leads its nearest competitor in the market it operates with a huge margin in terms of circulation (refer exhibit 7). Exhibit 7: Leaders in Rajasthan, MP, Haryana, Chandigarh & Gujarat Editions Circulation in 000s JJ'09 Dainik Bhaskar 1,047 Rajasthan Patrika 624 Rajasthan Dainik Bhaskar 1,055 JD'09 Rajasthan Patrika 1215 JJ'10 Dainik Bhaskar 1,078 Rajasthan Patrika 1,234 JJ'09 Dainik Bhaskar 635 Nai Duniya Not reported Madhya Pradesh Dainik Bhaskar 667 JD'09 Nai Duniya Not reported JJ'10 Dainik Bhaskar 708 Nai Duniya Not reported JJ'09 Dainik Bhaskar 249 Navbharat Times 282 Chattisgarh Dainik Bhaskar 251 JD'09 Navbharat Times 283 JJ'10 Dainik Bhaskar 246 Navbharat Times 278 JJ'09 Dainik Bhaskar 241 Dainik Jagran 138 Haryana Dainik Bhaskar 241 JD'09 Dainik Jagran 118 JJ'10 Dainik Bhaskar 251 Dainik Jagran 113 JJ'09 Dainik Bhaskar 75 The Tribune^ 29 Chandigarh Dainik Bhaskar 83 JD'09 The Tribune^ 31 JJ'10 Dainik Bhaskar 81 The Tribune^ 30 JJ'09 Dainik Bhaskar 18 Shimla JD'09 Dainik Bhaskar 21 JJ'10 Dainik Bhaskar 19 JJ'09 Divya Bhaskar 854 Gujarat JD'09 Divya Bhaskar 905 JJ'10 Divya Bhaskar 766 Source: ABC, Company, Angel Research; Note: ^The Tribune is an English daily December 16,

6 According to the latest IRS figures (3Q2010), DBCL has made significant inroads in terms of expanding its footprints in the urban regions of MP, Rajasthan, Gujarat, Haryana, Punjab and Chandigarh (Refer exhibits 8 13), cementing its aggressive dominance in these markets in terms of readership. Exhibit 8: MP is the bastion, AIR gains of 8% ror (AIR in '000s) 3,000 2,500 2,000 1,500 1, ,659 2,457 Dainik Bhaskar Patrika Nai Duniya 2Q Nav Duniya 3Q2010 Raj Express Nav Bharat Source: IRS, Angel Research; Note: Readership for urban regions Dainik Jagran Exhibit 9: DBCL is leader in urban regions of Rajasthan (AIR in '000s) 3,350 3,333 3,298 3,300 3,259 3,250 3,196 3,200 3,150 3,100 Dainik Bhaskar Rajasthan Patrika 2Q2010 3Q2010 Source: IRS, Angel Research; Note: Readership for urban regions Exhibit 10: DBCL growth highest at 4.4% ror in Gujarat (AIR in '000s) 3,500 3,000 2,500 2,000 1,500 1, ,709 2,828 Divya Bhaskar+ Saurashtra Samachar 3,127 3,197 Gujarat Samachar 2Q2010 3Q2010 1,995 2,067 Sandesh Source: IRS, Angel Research; Note: Readership for urban regions Exhibit 11: Competition below half mark in Haryana (AIR in '0005) Dainik Bhaskar Dainik Jagran Punjab Kesari The Tribune 2Q2010 3Q2010 Source: IRS, Angel Research; Note: Readership for urban regions Exhibit 12: Only daily to exhibit growth in Punjab (AIR in '000s) Dainik Bhaskar Dainik Jagran Punjab Kesari The Tribune 2Q2010 3Q2010 Source: IRS, Angel Research; Note: Readership for urban regions Exhibit 13: Leader in Chd., followed by an Eng. daily (AIR in '000s) Dainik Bhaskar The Tribune Amar Ujala Dainik Jagran Punjab Kesari 2Q2010 3Q2010 Source: IRS, Angel Research; Note: Readership for urban regions December 16,

7 Well-executed launches ensure dominance DBCL is the only vernacular print play to have ventured out of its home turf with a well-researched strategy, thus resulting in instant success on its new launches. The past record of DBCL renders our confidence on the company s management and execution capabilities of its new launches going ahead. We believe the new launches will depress the company s margins in the short term, however, they will be a good bet in the long term. Exhibit 14: Successful launches backed by innovative strategies Editions Date of launch Comment Jaipur December 1996 No. 1 from the day of launch Chandigarh/ Haryana May/June 2000 No. 1 from the day of launch Ahmedabad June 2003 No. 1 from the day of launch Amritsar/ Jalandhar 2006 No. 1 from the day of launch Jharkhand (Ranchi) August 2010 Resulted in aggressive price wars Source: Company, Angel Research; Note: In terms of circulation DBCL s ad revenue growth faster than industry s Hindi dailies are expected to outpace the print ad market, registering a 13.9% CAGR over FY E According to FICCI-KPMG report 2010, print advertisement is expected to grow at an 11% CAGR over FY E, with contribution from newspaper and magazines growing at a similar rate over the same period. We expect Hindi dailies contribution to total newspaper advertising to be 26 27%, while contribution of English dailies is expected to be ~50%. Over FY E, we peg Hindi print advertisement to grow at a 14% CAGR to reach `3,514cr by FY2013E, outpacing English print advertisement, which is expected to grow by 13% to reach `6,507cr over the same period. Dainik Bhaskar s ad market share at 27% to overtake Dainik Jagran s market share, estimated to be 26% by FY2013 We expect Dainik Bhaskar to overtake Dainik Jagran in terms of advertisement revenue pie with 27% market share by FY2013, growing at a CAGR of 17.5% over FY E (Dainik Jagran s market share estimated at 26%, growing at a CAGR of 15% over FY E). December 16,

8 Exhibit 15: DBCL s ad revenue pie higher than Jagran s and growth higher than the industry by FY2013E (` cr) FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E FY06-10^ FY10-13E^ Print ad market 6,940 8,490 10,020 10,840 10,300 11,400 12,700 14, Growth (% yoy) (5.0) Newspapers 6,345 7,820 9,219 9,884 9,504 10,440 11,676 13, English dailies 3,363 3,910 4,978 4,546 4,562 5,220 5,838 6, English dailies ad contribution (%) Hindi dailies 1,586 1,955 2,120 2,471 2,376 2,714 3,036 3, Hindi dailies ad contribution (%) Other regional dailies 1,396 1,955 2,120 2,866 2,566 2,506 2,802 2, Other regional print contribution (%) Magazines ,024 1, DBCL s ad revenue (Standalone) ,064 1, Growth (% yoy) Dainik Bhaskar (% of Hindi dailies) Divya Bhaskar DNA (Peer comparison) Dainik Jagran s ad revenue (% of Hindi dailies) DBCL s ad revenue (Incl. Radio) ,124 1, Growth (% yoy) Source: FICCI-KPMG report 2010,Company, Angel Research, Adex ; Note: ^represents CAGR We model in a 17% CAGR in DBCL s standalone ad revenue, driven by improving economy resulting in higher ad spends, sustained ad rate hikes and multistate leadership We expect ~20% yoy growth in advertising revenue in FY2011E for DBCL (in line with the management s guidance of 18 20% yoy growth) on the back of an uptick in economy and low base. Going ahead, we expect advertising revenue to post ~16% yoy growth. During FY E, we peg DBCL s standalone ad revenue (excluding radio) to grow at a 17% CAGR, ahead of a 14% CAGR in Hindi print advertisement during the period, driven by 1) higher ad spends in regional markets, 2) uptick in the economy, resulting in increasing advertisement volumes, 3) penetration into new markets (the company is making inroads in Rajasthan and Bihar/Jharkhand markets), 4) sustainable ad rate hikes (~12% ad rate hike taken in 1QFY2011) and 5) multistate leadership in key urban areas. December 16,

9 National advertisers focus on tier II/III cities drives Hindi print Per capita income in tier II/III cities increasing with growing literacy rate and spending power With growing focus of national advertisers on tier II/III cities coupled with increasing literacy level and higher spending power, it is expected that regional print will drive advertising growth in the print sector going forward. Exhibit 16: State presence of DBCL exhibits strong per capita NDP growth, implying higher spending power (` in '000s) Rajasthan ^ MP * Gujarat * Haryana ^ Chattisgarh ^ Punjab ^ Chandigarh (%) Maharashtra * Jharkhand Delhi * Himachal Pradesh per capita Net Domestic Product CAGR Source: RBI, Angel Research; Note: CAGR is calculated on base year , data availability for ^ till , * till , rest till Expanding infrastructure to help in garnering higher advt. with separate editions through bundling DBCL is establishing its infrastructure in MP and Rajasthan, with the aim to further make inroads into these markets DBCL is expanding its footprints in Madhya Pradesh (set up two new printing presses in Hoshangabad and Khandava in November 2010), Rajasthan (setting up new printing press in Nagour; already set up printing presses in Sirohi, Barmer and Hanumangarh in September 2010) and Gujarat (two printing presses to be set up by December 2010). We expect ~3% contribution to advt. from Bihar/Jharkhand We estimate Bihar/Jharkhand region to contribute 2 3% to total advertising revenue by FY2013E DBCL launched its Ranchi edition on August 22, 2010, with the cover price of `2 from Monday to Saturday and `2.50 on Sundays in all colour, thus taking the competitors Hindustan, Prabhat Khabar and Dainik Jagran head on. The company further plans to extend its reach in Bihar/Jharkhand (currently estimated to be a ~`300cr advertisement market) with the launch of Bihar, Patna, Muzzafarpur and Bhagalpur editions by FY2012. We estimate Bihar/Jharkhand to contribute 2 3% to the company s total advertisement revenue for FY2012E/13E. December 16,

10 Circulation revenue pegged at 9% CAGR over FY10-13E We expect circulation revenue growth to be led by ~5% volume growth and have penciled in an average realisation per copy of `1.5 in FY2013E for consolidated DBCL portfolio For FY E, we expect DBCL to register a 9% CAGR in its total circulation revenue (excluding wastage sale and sale of power), with magazines and newspapers sale contributing 24% and 9% CAGR, respectively, over the same period. We expect circulation revenue growth to be led by ~5% volume growth and have penciled in an average realisation per copy of `1.5 in FY2013E (realisation per copy in FY2010 was `1.4). The company has a low focus on circulation revenue and hence, operates at low cover price to penetrate the market. Exhibit 17: DBCL s circulation revenue growth to surpass industry growth rate despite low focus over FY10-13E FY2006 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E FY06-09^ FY10-13E^ Print circulation 4,770 5,370 6,020 6,430 7,200 7,600 8,000 8, Growth (% yoy) Newspapers 4,455 5,010 5,611 5,986 6,696 7,060 7,424 7, Magazines Dainik Bhaskar's circulation revenue snapshot Newspaper sale (% of total newspaper circulation) Growth (% yoy) (2.3) Magazine sale (% of total magazine circulation) Growth (% yoy) (2.2) Total circulation revenue Wastage sale/sale of power Total circulation revenue (Reported) Source: FICCI-KPMG report 2010, Company, Angel Research; Note: ^represents CAGR Jharkhand and Jammu launches: Good bet in the long term DBCL s Jammu edition was launched in October We expect minimalistic revenue contribution from this edition due to the small size of the market (~`25cr) DBCL launched its Ranchi and Jammu editions (at cover price of `2) in August and October, respectively. In our opinion, revenue traction from the Jammu edition will be minimalistic (market size estimated to be ~`25cr), while the Jharkhand launch holds potential (market size estimated to be ~`100cr) on account of increasing per capita income in Bihar/Jharkhand region. We believe the only purpose for Jammu launch was to complete the coverage of the Greater Punjab area comprising Punjab, Haryana, Chandigarh, HP and Jammu. December 16,

11 Exhibit 18: Bihar/Jharkhand s per capita income increasing at 7% CAGR^ (` in '000s) Source: RBI, Angel Research; Note:^base year , data is per capita Net Domestic Product We peg advertisement and circulation revenue from new launches to grow at 90% and 80% CAGR, respectively, over FY E on low base We expect the launches to report an operational loss of ~`40cr 45cr by FY2013 For FY2011E, we estimate advertising revenue from new launches to be `12cr (management has indicated total billing of `1cr of advertising in the first month of its Ranchi edition launch). Going ahead, considering the launch of DBCL s Jameshdpur (launched on December12, 2010), Dhanbad and Bihar editions in 2HFY2011E/FY2012E (Bihar/Jharkhand s market size estimated to be `300cr currently), we have penciled in a ~90% CAGR in advertising revenue over FY E on a low base to `43cr in FY2013E. In terms of circulation, we peg the circulation revenue to grow at an 80% CAGR over FY E, resulting from an increase in circulation copies per day from 175,000 in FY2011E to ~460,000 in FY2013E. However, on account of hardening newsprint price, we do not expect the new launches to breakeven, resulting in an operational loss of ~`40cr 45cr by FY2013E. Exhibit 19: New launches to result in EBITDA loss of `17cr in FY2011E FY2011E FY2012E FY2013E Advertising revenue (` cr) Copies per day (mn) No. of copies sold per year (mn) Avg. realisation per copy Circulation revenue (` cr) Total revenue (` cr) Total RM cost (` cr) Opex (` cr) Total expenses (` cr) EBITDA (17.0) (40.3) (44.9) Source: Company, Angel Research December 16,

12 Radio to post a 20% top-line CAGR over FY E Radio business has already reported breakeven at the operational level, we expect it to report operational profit of `9cr/`11cr in FY2012E/13E Subject to the approval from the court (expected in 4QFY2011), the radio subsidiary SMEL will be merged with DBCL For FY2010, the radio subsidiary, SMEL (pre-merger) posted advertisement revenue of `35cr, posting stunning revenue growth of ~29% yoy, albeit on a small base. As of March 2010, the accumulated losses for the radio business stood at `99cr, which comes into the fold of the parent company, DBCL, post the merger of SMEL with the company. DBCL is merging its radio subsidiary SMEL with itself at a share swap consideration of 10:1, i.e. for every 10 shares of SMEL, 1 share of DBCL will be issued. SMEL had a promoter stake of 56.8%. The merger is awaiting court s approval, which is expected to be cleared by 4QFY2011. Exhibit 20: Details of the merger of SMEL with DBCL SMEL share capital (` cr) DBCL's holding in SMEL (%) No. of shares not held by DBCL (mn) Additional shares of DBCL issued (` cr) 1.73 Source: Company, Angel Research SMEL currently operates 17 radio stations under the brand name MY FM in Tier II/III cities, where DBCL has print presence and, going forward, the company will continue to remain steadfast with the same strategy. Exhibit 21: Radio revenue to witness a 20% CAGR over FY E ` cr (10) (20) (9) (4) (1) - (10) (20) (30) (36) (40) (50) (60) (70) (80) (86) (2) (90) (13) (100) FY2009 FY2010 FY2011E FY2012E FY2013E Revenue (LHS) EBITDA (LHS) EBIT Margin % (RHS) (%) Source: Company, Angel Research Our positive stance on the radio business stems from 1) the synergistic benefits that will be derived from the parent post the merger and 2) shift of royalty rates to revenue sharing, paving way for Phase-III licences auction The radio business currently contributes 3.3% to the company s total revenue, which is likely to increase. We have modeled in a 20% CAGR in the top line and expect radio to post a profit of ~`9cr/`11cr in FY2012E/13E, respectively, at the EBITDA level, aided largely by 1) rate hikes as the benefit of bundling with the print kicks in with improving economy conditions and 2) operating cost efficiencies on account of the merger with the parent. Moreover, we believe a positive decision with respect to royalty rates shift from fixed fees to revenue sharing at the rate of 2% of net advertisement revenue paving way for the Phase-III licenses will benefit the radio business s revenue significantly. December 16,

13 Financial outlook Foray into new geographies will aid a 15% top-line CAGR During FY E, we expect DBCL to report a consolidated 15% CAGR in revenue, driven by 1) steady 17% CAGR in advertisement revenue on account of higher ad spends in the regional market and entry into new geographies, 2) 9% CAGR in circulation revenue, led by ~5% increase in circulation volumes due to entry into Bihar/Jharkhand and penetrating further into Rajasthan and Punjab markets with the launch of Sirohi, Barmer and Nagour editions in the pipeline, 3) 9% CAGR in revenue from event management and 4) 4% CAGR from power and wastage sale. Exhibit 22: Consolidated top-line model; We peg a 15% CAGR over FY E (` cr) FY09 FY10 FY11E FY12E FY13E FY10-13E^ Key growth drivers Advertisement revenue ,124 1, Growth (% yoy) Dainik Bhaskar Strong foothold in the Hindi belt, recent rate hike (~12%) Growth (% yoy) and foray/penetration into new/existing markets Divya Bhaskar Steady growth contributing ~17% to total revenue Growth (% yoy) (two more printing centres in 2HFY2011) Radio/Event mgmnt Revenue contribution primarily from the radio business due Growth (% yoy) to higher retail advertisers and higher inventory offtake Circulation revenue Growth (% yoy) Newspaper sale ~5% volume growth (foray into new markets/setting of new Growth (% yoy) printing press) and avg. realisation of `1.4 `1.5/copy Magazines sale Growth on account of an uptick in the economy Growth (% yoy) 59.2 (2.2) Event management Modeling in conservative growth Growth (% yoy) Other sales Income from wastage sale and sale of power. Growth Growth (% yoy) linked to circulation (~1% steady contribution to total rev.) Net sales 949 1,051 1,231 1,409 1, Growth (% yoy) Source: Company, Angel Research; Note: ^ denotes CAGR December 16,

14 New launches to keep OPMs range-bound For FY2011E, we expect EBITDA margins to decline by 29bp yoy to 31.2% on account of higher newsprint prices and increased operational costs as the company aggressively looks at expansion in Bihar/Jharkhand and Rajasthan. DBCL has an impressive pipeline in terms of new launches in Rajasthan and Punjab. We expect EBITDA margins to stabilise at ~32% in FY2012E/13E. We have factored an 8% CAGR in newsprint consumption over FY E, with a blended newsprint cost increase of ~8%, resulting in a 14% CAGR in raw-material cost over the same period. Exhibit 23: Consolidated earnings model Expect margins to stabilise at ~32% in FY2012E/13E (` cr) FY09 FY10 FY11E FY12E FY13E FY10-13E^ Key growth drivers Raw materials Modeling in~ 8% increase in newsprint cost % of sales Event expense Non-focus area of business % of Event revenue Staff costs % of sales Print staff cost Modeled in a 16% CAGR in staff cost as we expect higher % of sales staff cost for launch of new editions Radio staff cost Drop as a percentage of sales as operational synergies % of radio revenue due to merging with the parent DBCL kick in IMCL staff cost Expected to remain flat % of sales SG&A expenses % CAGR to support new launches. We peg a 23% % of sales CAGR increase in advertisement and distribution expenses. Operating expenses Spike in FY2011 on account of Bihar/Jharkhand launch % of sales EBITDA EBITDA margin (%) Tax Tax benefit accrued due to accumulated losses of radio Tax rate (%) taken into the fold of DBCL post the merger in FY11E Reported PAT (after MI) PAT margins spike in FY11E on account of tax benefit due PAT margin (%) to SMEL merger with DBCL Source: Company, Angel Research; Note: ^ represents CAGR December 16,

15 Exhibit 24: DBCL s operating margins higher in comparison to Jagran (%) FY2009 FY2010 FY2011E FY2012E FY2013E DBCL JPL Source: Company, Angel Research Retirement of debt and increasing cash give further impetus DBCL has a strong balance sheet, with the company repaying its high-cost term loans (we model in a repayment of ~`50cr 60cr each year over FY E) and a cash balance of over `195cr as of FY2010. Moreover, with heavy capex done in FY2009 and significant improvement in the company s working capital, we expect DBCL s cash balance to swell to ~`390cr or ~`21/share in FY2013E. We expect DBCL s RoE to sustain at ~28% in FY2013E and RoIC to rise to 27.6% in FY2013E (21.7% in FY2010). Exhibit 25: Healthy balance sheet ensures increasing cash balance (` cr) (%) FY2009 FY2010 FY2011E FY2012E FY2013E Net Debt Avg RoE RoIC Source: Company, Angel Research December 16,

16 Key concerns Aggressive expansion is risky: DBCL has a commendable history of successful launches; however, penetrating Bihar/Jharkhand region, where Dainik Jagran (Blackstone invested `225cr into the group company) and Hindustan (successfully raised `270cr through the recent IPO) are already present, may result in prolonged price wars, resulting in higher losses for DBCL s editions than anticipated. Increased competition in established regions may severely dent circulation: In 1QFY2011, DBCL had taken cover price cuts in upcountry markets of Bhopal. DBCL has been defending its home turf in Bhopal with Patrika, Raj Express, Dainik Jagran, NavDunia, Navbharat and Business Standard (Hindi) forcing DBCL to reduce its cover price to `1.50 (earlier operating at `2 and `3.50) by operating at a cover price of `2. Going ahead, any further increase in competitive intensity may dent circulation revenue severely. Higher-than-anticipated rise in newsprint prices: We have modelled an increase of ~8% in newsprint price; however, any further increase in newsprint prices than anticipated will depress margins. December 16,

17 Company background DBCL is a leading print media company, publishing seven newspapers and 52 editions in three languages (Hindi, Gujarati and English) across 13 states in India. Dainik Bhaskar, its flagship publication, is the market leader in terms of readership in Madhya Pradesh, Chattisgarh, Chandigarh and Haryana. DBCL s combined average daily readership of Dainik Bhaskar (2 nd largest Hindi daily), Divya Bhaskar (largest circulated Gujarati daily) and Saurashtra Samachar is 17.5mn readers, making it the most widely read newspaper group in India. DBCL publishes seven newspapers, namely Dainik Bhaskar, Divya Bhaskar, Saurashtra Samachar, Business Bhaskar, DB Gold, DB Star and, on franchisee basis, DNA (Gujarat and Rajasthan). Exhibit 26: DBCL s business model Source: Company, Angel Research DBCL has strong infrastructure with one of the largest newspaper production and distribution platforms in India. Backed by its proven execution skills and focus on consumer research (Rajasthan and Gujarat launch), DBCL has successfully ventured out of its traditional markets, expanding into new states and languages, and has established its leadership by displacing strong incumbents. DBCL also publishes five periodicals, namely, Aha Zindagi, a monthly magazine published in Hindi and Gujarati; Bal Bhaskar, a Hindi magazine for children (supplement to Dainik Bhaskar in four states); Young Bhaskar, a children s magazine in English (distributed throughout India); and Lakshya, a career magazine in Hindi. Moreover, the company operates 17 FM radio channels under the brand name MY FM through SMEL, a subsidiary of DBCL with 56.8% equity interest (pre-merger), and internet and short messaging service (SMS) portals through its subsidiary IMCL. December 16,

18 Exhibit 27: Only newspaper gp. in India with 52 editions in 13 states State Editions Newspaper daily Bhopal Indore Dainik Bhaskar, Business Bhaskar, DB Star Madhya Pradesh Ujjain Sagar Ratlam Raipur Dainik Bhaskar Dainik Bhaskar, Business Bhaskar Chattisgarh Jagdalpur Bhilai Bilaspur Jaipur Dainik Bhaskar Dainik Bhaskar, DNA Ajmer Dainik Bhaskar Jodhpur Dainik Bhaskar, DB Star Rajasthan Bikaner Udaipur Kota Nagour Pali Dainik Bhaskar Chandigarh Chandigarh Dainik Bhaskar Himachal Pradesh Shimla Dainik Bhaskar Uttarakhand Dehradun Dainik Bhaskar Panipat Dainik Bhaskar, Business Bhaskar Haryana Hissar Faridabad Dainik Bhaskar New Delhi National Ed. Delhi Dainik Bhaskar, Business Bhaskar Amritsar Dainik Bhaskar Punjab Jalandhar Ludhiana Dainik Bhaskar, Business Bhaskar Bhatinda Dainik Bhaskar Jharkhand Ranchi Dainik Bhaskar Jamshedpur Dainik Bhaskar Jammu and Kashmir Jammu Dainik Bhaskar Ahmedabad Divya Bhaskar, DNA Rajkot Divya Bhaskar Jamnagar Gujarat Surat Divya Bhaskar, DB Gold Baroda Bhavnagar Bhuj Saurashtra Divya Bhaskar Saurashtra Samachar Maharashtra Mumbai Divya Bhaskar Source: Company, Angel Research December 16,

19 Profit & loss statement (Consolidated) Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013E Gross sales 949 1,051 1,231 1,409 1,617 Less: Excise duty Net Sales 949 1,051 1,231 1,409 1,617 Total operating income 949 1,051 1,231 1,409 1,617 % chg Total Expenditure ,095 Cost of Materials SG&A Expenses Personnel Others EBITDA % chg (20.8) (% of Net Sales) Depreciation EBIT % chg (28.5) (% of Net Sales) Interest & other Charges (7) Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg (41.1) Prior Period & Extr. Exp./(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Earnings of associate Less: Minority interest (MI) (12) (8) PAT after MI (reported) ADJ. PAT % chg (37.1) (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg (37.2) December 16,

20 Balance sheet (Consolidated) Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013E SOURCES OF FUNDS Equity Share Capital Share Capital suspense account Reserves& Surplus ,056 Shareholders Funds ,008 1,241 Minority Interest Total Loans Deferred Tax Liability Total Liabilities 872 1,035 1,147 1,287 1,470 APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 872 1,035 1,147 1,287 1,470 Cash Flow Statement (Consolidated) Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013E Profit before tax Depreciation Change in Working Capital 13 (11) (2) (27) (36) Interest / Dividend (Net) (7) Direct taxes paid Others (16) 2 (4) (3) (2) Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (295) (38) (167) (65) (109) (Inc.)/ Dec. in Investments (18) Cash Flow from Investing (313) (34) (167) (65) (109) Issue of Equity (1) Inc./(Dec.) in loans 219 (242) (58) (50) (50) Dividend Paid (Incl. Tax) Interest / Dividend (Net) (7) Cash Flow from Financing 180 (48) (143) (131) (125) Inc./(Dec.) in Cash (36) 150 (12) Opening Cash balances Closing Cash balances December 16,

21 Key ratios Y/E March FY2009 FY2010 FY2011E FY2012E FY2013E Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV/Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) RoIC (Post-tax) Cost of Debt (Post Tax) (0.0) Leverage (x) (0.0) (0.1) Operating RoE Returns (%) RoCE Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) Inventory/Sales (days) Receivables (days) Payables (days) Working Cap. cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity (0.1) (0.2) Net debt to EBITDA (0.2) (0.5) Interest Coverage (EBIT/Interest) (63.8) December 16,

22 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement D B Corp 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%) December 16,

23 Address: Acme Plaza, A Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai Research Team Tel: (022) / Fundamental: Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angelbroking.com Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angelbroking.com Vaishali Jajoo Automobile vaishali.jajoo@angelbroking.com Shailesh Kanani Infrastructure shailesh.kanani@angelbroking.com Rupesh Sankhe Cement, Power rupeshd.sankhe@angelbroking.com Param Desai Real Estate, Logistics, Shipping paramv.desai@angelbroking.com Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angelbroking.com Paresh Jain Metals & Mining pareshn.jain@angelbroking.com John Perinchery Capital Goods john.perinchery@angelbroking.com Srishti Anand IT, Telecom srishti.anand@angelbroking.com Jai Sharda Mid-cap jai.sharda@angelbroking.com Sharan Lillaney Mid-cap sharanb.lillaney@angelbroking.com Naitik Mody Mid-cap naitiky.mody@angelbroking.com Chitrangda Kapur FMCG, Media chitrangdar.kapur@angelbroking.com Amit Vora Research Associate (Oil & Gas) amit.vora@angelbroking.com V Srinivasan Research Associate (Cement, Power) v.srinivasan@angelbroking.com Mihir Salot Research Associate (Logistics, Shipping) mihirr.salot@angelbroking.com Pooja Jain Research Associate (Metals & Mining) pooja.j@angelbroking.com Yaresh Kothari Research Associate (Automobile) yareshb.kothari@angelbroking.com Shrinivas Bhutda Research Associate (Banking) shrinivas.bhutda@angelbroking.com Sreekanth P.V.S Research Associate (FMCG, Media) sreekanth.s@angelbroking.com Hemang Thaker Research Associate (Capital Goods) hemang.thaker@angelbroking.com Nitin Arora Research Associate (Infra, Real Estate) nitin.arora@angelbroking.com Ankita Somani Research Associate (IT, Telecom) ankita.somani@angelbroking.com Technicals: Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angelbroking.com Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angelbroking.com Derivatives: Siddarth Bhamre Head - Derivatives siddarth.bhamre@angelbroking.com Jaya Agarwal Derivative Analyst jaya.agarwal@angelbroking.com Institutional Sales Team: Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angelbroking.com Abhimanyu Sofat AVP - Institutional Sales abhimanyu.sofat@angelbroking.com Pranav Modi Sr. Manager pranavs.modi@angelbroking.com Ganesh Iyer Sr. Manager ganeshb.iyer@angelbroking.com Jay Harsora Manager jayr.harsora@angelbroking.com Meenakshi Chavan Dealer meenakshis.chavan@angelbroking.com Gaurang Tisani Dealer gaurangp.tisani@angelbroking.com Production Team: Bharathi Shetty Research Editor bharathi.shetty@angelbroking.com Simran Kaur Research Editor simran.kaur@angelbroking.com Bharat Patil Production bharat.patil@angelbroking.com Dilip Patel Production dilipm.patel@angelbroking.com December 16,