DB Corp betting big on expansion

DB Corp is betting big on its expansion in Maharashtra and Bihar. The new launches may affect profitability initially, but the company expects to break even in a couple of years.

DB Corp management sounded positive on the advertising growth outlook across all regional markets while speaking at the CITI Investors Conference.

[caption id=“attachment_23124” align=“alignleft” width=“380” caption=“DB Corp is looking positively at forays into Maharashtra and Bihar. “]  [/caption]

Volumes are expected to remain in strong double digits coupled with a yield improvement of 10-12 percent in FY12, given the recent rate hikes.

DB Corp launched its Maharashtra edition on 29 May this year and became the leading player in Aurangabad with 80,000 copies on the first day of launch. This was 20 percent higher than the incumbent leader Lokmat whose circulation came down in the first week of of DB Corp’s launch.

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Management noted that newsprint cost increased by 7-8 percent in FY11 while it might increase by 12-15 percent in FY12. New launches along with rising newsprint may affect profitability.

Management noted that in case of higher than expected newsprint cost the Bihar foray might be delayed by a few months.

The Jharkhand launches are expected to lead to negative EBITDA contribution of Rs 15 crore in FY12 with the break even expected in FY13.

In Maharashtra, post the Aurangabad launch, the company intends to launch in Nashik in July and Jalgaon in the second half of the current fiscal. All Bihar and Maharashtra additional launches are likely to be completed in the next two years.

DB Corp expects Rs 100 crore of capex for the new launches over FY12-13.

Management believes that despite the size of the UP market (Rs 800-900 crore) it may refrain from entering the market given that the growth rates are relatively muted compared to other states. In fact the Marathi market is likely to be as big as UP in the next 2-3 years, given superior growth rates and competitive dynamics.