D. B. Corp Limited (DBCORP) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the DB Corp Limited Q3 FY '20 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Ms. Hina Agarwal. Thank you, and over to you, Ms. Hina.

Thank you, and good evening to everyone. We welcome you to the 9 month and Q3 FY '20 conference call of DB Corp Limited. We have with us today the senior management team of DB Corp Limited, Mr. Pawan Agarwal, Deputy Managing Director; Mr. Girish Agarwaal, Nonexecutive Director; Mr. P.G. Mishra, Group CFO; Mr. Mushtaq Ali, Vice President, Finance and Accounts; Mr. Lalit Jain, CGM Finance and Accounts; and Mr. Prasoon Kumar Pandey, Head, Investor and Media Relations, will represent DB Corp Limited on the call. We will be sharing the key operating and financial highlights for the quarter ended 31st December 2019, followed by a question-and-answer session. Before we begin, I would like to state that some of the statements made in today's discussion may be forward looking in nature and may involve risks and uncertainties. Documents relating to the company's financial performance have already been e-mailed to you. Now I invite Mr. Agarwal to share his outlook on DB Corp's performance for this quarter. Over to you, sir.

Thank you, Hina, and good evening to everyone. Let me begin the call by highlighting the key financial performance for the quarter ended December 2019, followed by key developments in the business and various growth strategies implemented by the company to maintain and strengthen the leadership positions across markets. Beginning with our Q3 FY '20 consolidated performance. Last few quarters, we have been working on optimizing the overall cost for the company. Our ongoing cost control measures, coupled with the lower newsprint prices, has helped in improving the profitability during the quarter. PAT reported a growth of 8%, stood at INR 816 million with a margin of 14%. EBITDA stood at INR 1,447 million with a margin of 24%. Our advertising revenues stood at INR 4,248 million, circulation revenues at INR 1,321 million and total revenues at INR 6,018 million. Our circulation expansion strategy is yielding results, and we are happy to share that Dainik Bhaskar featured amongst the world's top 3 most circulated newspapers in 2019 as per WAN IFRA. The other 2 newspapers are Yomiuri Shimbun and The Asahi Shimbun from Japan. The recognition of being ranked as the third largest in the world and the only Indian news daily to be in the top 3 is a proud development for the entire Dainik Bhaskar Group and a reflection of our hard work and sincere efforts towards driving DBCL to this position. Further, we are continuously working on our strategy to gain dominance and leadership in Rajasthan, Gujarat and Bihar, while maintaining dominance and leadership in other markets through reader-centric approach, idea-based journalism and knowledge and rich content. As also mentioned on earlier calls, we remain focused on our latest editorial philosophy, Har Zaroori Khabar Mein Hoga Aapke Kaam Ka Knowledge, which is driven on a knowledge and ideation approach. This constant realignment of editorial content to meet readers' evolving expectations has helped us make significant strides in readership. As per latest ABC results, Dainik Bhaskar Group maintained its position as the largest circulated newspaper group of India. As per latest IRS survey, Dainik Bhaskar Group maintained its position as the largest read newspaper group of urban India. Some of the other notable developments of the survey are Rajasthan, wherein our lead has increased impressively in urban Rajasthan as well as in Jaipur. In Bihar, we have strengthened our readership base by adding 1.82 lakh readers over the previous quarter. In Gujarat, in key markets of Ahmedabad, our lead has widened to 30% from 19%. DBCL radio business continues to maintain leadership position in all significant markets. Radio advertising revenue for the quarter stood at INR 372 million. EBITDA stood at INR 135 million, with an EBITDA margin of 36%. PAT stood at INR 62 million with a margin of 17%. Lastly, the overall market conditions continue to be challenging, led by weak consumer demand and a general economic slowdown. However, our prudent editorial and circulation strategies have enabled us to build a strong readership base and gain market share. With all our fundamentals in place, we are well prepared to capitalize on the upcoming opportunities and will strive to enhance our performance. My colleagues and I will now be happy to respond to questions.

[Operator Instructions] The first question is from the line of [ Raghav Bharadwaj ] from HNI Investments.

So can you just provide details in brief about the breakup of advertising revenue in terms of growth in various segments, particularly both state government and the central government advertising?

So sir, I'll give you the numbers for YTD 9 months. In this 9 months, the government contribution has been almost 18%. And education, automobile response and government put together are roughly around 55%, all put together. Unfortunately, government, overall, we have seen a decline of almost 9% in these 9 months, no? -- sorry, 8.5% overall. But if we look at only print, then we have seen a growth of -- decline of almost 7% in this 9 months. And if you look at this number, government advertising has declined by almost 15%, while education has maintained. Automobile also has seen a decline of almost similar 8% to 10%. Real estate category, surprisingly, has stayed flat, which means there's no decline on the real estate category, while some other categories also have declined.

Right. But in terms of -- so for -- in particularly for central government advertising, do you see any revival on -- in the current quarter vis-à-vis the same quarter last year? Or it is still down if we compare on a like-to-like basis at central government advertising?

If I break the government into 2 halves, 1 is central government and 1 is state government, so state government is still maintaining. There is no major decline on the state government, but central government decline is pretty sharp. So I think...

Even for the current quarter, vis-à-vis the quarter of the last year?

Yes, yes, on the current quarter also.

The next question is from the line of Prateek Barsagade from Edelweiss Securities.

So I had a couple of questions on the advertising bit. So I mean, I was just looking...

I'm not able to hear you. Can you speak on the phone please rather than speaker phone?

Hello? Is it fine?

Yes.

So my first question is on the radio and print advertising. So we have seen that radio last quarter also was 16% down and this quarter also 20% down. So it is largely because of the local advertising not picking up in the current slow economy. So I mean, what is your sense on the radio decline basically?

So radio has, of course, there's a big chunk of the central government advertising also in radio. For the last quarter, the decline was about, as you rightly said, about 16%. If I remove the DAV performance, it was about 3%. This quarter, this decline is about a low double digit without the central government. So while it has degrown by 20%, but if I remove the DAVP, it is in a low double digit, just about 10%, 11%. Automobile seems to be a concern this quarter, while real estate continues to stay little positive, but automobile was a big concern this quarter [indiscernible]

Okay. And sir, apart from the central government, and if we leave aside the government bid, so what other categories are you seeing the cutting, basically ad spends massively? Apart from auto, is there any other category or segment you'd want to highlight that which you know is not advertising as much?

Auto and a little bit of FMCG and lifestyle. But other sectors like education, and construction, real estate, they've been fine. Electronics have been fine.

Okay, okay. And also, sir, 1 more question I had on the circulation revenue. So we saw that the circulation revenue grew marginally this quarter, so is this a function of increase in the number of copies sold? Or you have taken any cover price hike?

See, in the circulation, if you notice, we have in this quarter, for Q3, there's a revenue growth of 1.6%. This is largely because of the certain rate hike taken in the fewer markets, especially in Madhya Pradesh market. If you see the overall circulation of last year quarter and this year quarter, the number has remained almost the same. We were at 56.58 lakh copies last year and in this quarter, Q3, again, it is 56.4 lakh copies. So circulation has not gone down at all. In fact, we are maintaining the circulation. But in certain areas, the copies -- cover price, what we have increased, that's the reason the growth has come at 1.6%.

And what would be the extent of this price hike?

I think around INR 6 to INR 8 in a month we have taken in Madhya Pradesh market.

[Operator Instructions] The next question is from the line of Vikram Ramalingam from Maybank.

Sir, my question is for the central government ads. I mean, is there any particular reason why they are not advertising? And I'll tell you the reason for me to ask this question...

Please?

Because I want to know whether it's just this year or is it a temporary phase or has the government reallocated its advertising budget towards other medium, like any sense, I'm sure you would have it.

So let me give you a perspective that when we spoke to the government, I think the large chunk of advertising which has gone down is because there are no schemes from the government, they have no announcement to be made. So that's the reason large chunk of advertising has gone down. Now coming to your point that is there a reallocation happening to any other medium. Radio has seen a sharper decline, even television has seen a decline from the government category. So I don't think government is reallocating the money anywhere. It's just that because they don't have much of reasons right now to make announcement. And hence, the advertising is not needed by the government.

Okay. But isn't usually 4Q the quarter wherein they try to push their ads because various departments have their budget and they need to fulfill the budget and all, is that not the...

No, there is no compulsion to exhaust the budget unless and until they have a reason to make an announcement. And for whatsoever reason, in the last few quarters, we have seen they don't have much of schemes to be announced and all that, that's the reason I think probably they are not advertising.

Okay. Sir, my next question is on the cost of raw material. When the government had increased the duty, you said that all the print companies had made a representation and trying to ask the government to withdraw it. Any development on that one?

So we are very hopeful that this budget, which is going to be announced soon, would bring us some relief.

Okay. And the price hike that was taken, that was only in Madhya Pradesh? Or was it in...

Only in Madhya Pradesh.

[Operator Instructions] The next question is from the line of Rohit Dokania from IDFC Securities.

Just 2 quick questions from my side. One is, have you done some analysis or if you are in the -- know as to how much -- by how much the overall government advertising would have fallen at an aggregate level? At the DAVP level, let's say, if it was 100 last year or the first 9 months, is it down like to 50, 60 or 80, anything that you can talk about, sir?

No, we don't have any certified data from government as yet. But what we -- the way to find out when we go to the DAVP website, they keep mentioning there that how much value they allocate to each publication. And when you total it up, you come to know the number. So that way, it looks like the DAVP volume is down by almost 40% to 50% across.

So volume is down by 40% to 50%, and they had given a 25% hike from 1st of Jan...

No, I'm sorry, not volume, value. Value is down by almost 50%.

Okay, okay, value is down. So which would mean that, for us, that's not the case. For us, you said government has probably fallen by 9% to 10%, if I'm not wrong...

No, government has fallen by almost 15%, but that is overall government. State governments are almost maintaining, but the central government is in the same tune.

Okay. So for us also central government would have fallen to that extent?

Yes.

And sir, what's the contribution of state versus central government? Can you share that?

I will not be able to give you that number, but I can tell you, generally speaking, our ratio of the central and the corporate and retail is in the ratio of almost 75 -- 65-35.

Sorry, can you repeat that? Central, corporate and?

Corporate advertising and the retail advertising, the ratio is generally 65-35.

And where do you club government in out here, sir, in corporate?

The corporate (sic) [ central ] government happens in corporate and the state government comes in retail.

Okay, understood sir. The other question that I had was, if I'm not wrong, over the last sort of 2 years, you have significantly increased the number of copies circulated, almost to the extent of 10% to 15%. But -- and at that point in time, the justification was that it will clearly help in terms of -- with a lag in terms of ad growth. But if I look at your sort of ad revenue growth over the last sort of 3, 4 quarters, obviously, there's an overall economic impact. But I don't see any benefit per say, vis-à-vis peers as well who had not probably increased the circulation by as much. So is there a rethink on the strategy? Do you think we could have handled it differently? Or did it help at all is what I want to understand, sir.

I'd like to differ with you on this because we clearly see the advantage. Now unfortunately, the overall economy is down, and hence the numbers are down. But if I look at the market share of my advertising volume in each of the states, right from Rajasthan to Gujarat to Haryana to Punjab, Bihar, Jharkhand, in all these markets, we have grown the volume pretty good. Like in -- I can't give you the exact number of each states, but the market volume has really gone pretty -- 10% to 20% growth in last 2 years' time in most of the markets. So I think what you're talking about is a difference in that. Had we've not taken this kind of circulation growth, then maybe these numbers could have been different.

Okay. But sir, then -- so I mean, it's heartening to know that the volume increase has been so good across...

I didn't say -- what I'm saying is market share. So for example, if -- in Rajasthan market, there was 1 client who was releasing 10,000 centimeter in 2018, '19, and I was getting say 55% of it. Today, I may be getting 60%, 65% of it. Now unfortunately, this year, from 10,000, the guy has gone down to 8,000. But the overall volume of the market has gone down, but my share of that volume has gone up.

Okay, okay. Understood, understood. Fair enough. I think now it's probably more sort of...

And further to reiterate our confidence in this is that we are today at a particular number, and we believe that we must grow at least by 2%, 3% copies every year. Now 2%, 3% copies would mean at least 1 lakh, 1.5 lakh copies every year. Our endeavor would be that, that we must grow by at least 1 lakh, 1.5 lakh copies every year in the critical markets of Rajasthan, Gujarat, Punjab, Haryana, Bihar, Madhya Pradesh, Chhattisgarh and all.

Understood, sir. So great, sir. So any indication that you can give about the future in terms of how one should think of ad revenue growth for the next fiscal? Obviously, this fiscal has been very challenging. But now that the base is also sort of favorable in the sense because of the decline that we have reported in this fiscal. Next fiscal, can we expect some bit of growth to come through, at least in terms of...

Yes, I would like to answer it this way, that whatever the situation of the economy going forward, we are poised to get the larger benefit out of it. So if the number grows up, if the automobile companies start selling more, then we have positioned ourselves to get that advantage. Now whether the number will go up in 1 quarter or 2 quarters, frankly speaking, it'll not be possible for me to comment on the larger economy.

[Operator Instructions] The next question is from the line of Chirag Jain from Goldman Sachs.

Sir, can you please comment on the newsprint prices? How have they trended? And what was the blended cost for this quarter?

So newsprint prices, fortunately for us in this quarter went down by almost 16%. And so the price, for example, the blended price per tonne was INR 45,390, which came down to almost INR 38,000. So there has been a 16% decline in the newsprint prices. And our team is very confident that in the next quarter, which is Q4 of this year, we should be able to bring these prices down by another 3%.

From the -- from Q3?

Yes. Say at least INR 1 more per kg saving.

The next question is from the line of Ankit Shah from White Equity.

Just wanted to get a view on a 3- year, 4-year perspective of our digital strategy. So we understand that we are trying to completely realign ourselves. But can you give us more on how do we see ourselves positioned over next 3, 4 years to benefit from the digital wave?

As we discussed with you a couple of quarters back that we are revamping our entire digital strategy. And that's the reason you must have noticed from last 2, 3 quarters, we are not also giving out any digital stand-alone numbers to you. We would request you to please bear with us for next 2 quarters more. Once we have something concrete to show you, I can update you on -- in the way that we are doing lot of work internally. We are updating our app, lot of things are changing. We have appointed a new CEO for the digital, new CTO has also joined in the digital wing. So lot of things are happening. And I think they will take some more time to start showing the results. Once we have these -- the results rolling out, then we'll show -- roll out the entire picture to you for next 2 years' time. Until that time, we would request you to please bear with us.

[Operator Instructions] The next question is from the line of Vikram Ramalingam from Maybank.

Sir, during such challenging times, I'm sure the smaller players are facing much worse wrath. So why not look at M&A around this time?

Good thought. We've been open to M&As, but till now nobody has really raised the hand saying that they are willing to merge or get acquired. So we should -- we shall wait for the opportunity to be posed to us, and then we should try to discuss that.

And if not M&A, are we looking at any geographies in the near future?

See, the market where we are already present, I think that market has a huge potential untapped. So we are looking at further growth in Gujarat, Bihar Rajasthan, Madhya Pradesh, Punjab, Haryana. So I think we have enough to grow in these markets itself from the revenue perspective as well as circulation. So we would like to focus in these markets only. Furthermore, I just wanted to add on point on -- of yours that since we are not looking at -- or there's no M&A lying on our table right now and hence whatever the cash company has, we are distributing it as a part of the dividend.

Yes. Actually, that's why my question is, I mean, why aren't we looking at M&A and giving out cash...

Yes, we are giving out cash. So we have done INR 6.5 as interim earlier. Today, Board was kind enough to announce another INR 3.5 as an interim dividend. So -- second interim dividend. So company policy is very clear, if we don't need cash for running the affairs of the company, then we should give out the cash to the stakeholders.

The next question is from the line of Pavneet Singh from Skyline Equity Manager.

My question is regarding over the past decade, the newspaper has seen a big splurge of readership. And like what happened to radio altogether, like despite increase in listenership and increase in the radio stations, why is the advertiser not interested to increase the volume in the radio segment, particularly? And seeing with your past experience of the industry, how do you, like, see the things panning out over the next, like, 4, 5 years? Like, would you see a splurge in the advertisement stand-alone for the product itself or like your competitor, it has been planning solutions business and ramping up solutions business for the radio segment. So do you plan to do or envisage something pertaining to that?

So in the radio business, this year, the central government revenue, that created the dip. And also the -- on 2 large sectors, I said, lifestyle and auto, most importantly, auto, that was -- there was a big dent to the overall growth. However, when we look at the volumes in the station, the volumes are -- the inventory levels are -- they're not operating at a 40%, 50% inventory, they're operating in a decent 60%, 65% inventory levels. And we are very hopeful that these -- the automobile and the lifestyle categories would come back to radio because the other categories like real estate, education, health care, electronics, those are really benefiting from radio because those are all small advertisers, getting a good audiovisual experience targeted in the smaller cities with a whole on ground activation piece. And we also have -- just to share with you, we also have about 20% of our revenues coming from non-air time. So these are all activations and sponsorship tags. And we see those also creating a good 20%, 25% revenue to the overall business other than air time. So those are the innovation, which are also helping the business grow. And we've always been a Tier-2, Tier-3 company. So our focus has been a lot on the combination of local as well as national revenues. So we're...

But the kind of dip was -- the kind of dip we've seen over the past couple of years is like enormous. And when do you think that it should be like overcoming this situation in next few quarters? How many quarters do you think it would like to get back to the same position as a couple of years back?

I wish I had that answer because the central government advertising, we have -- I don't have a...

We can't solely depend on the government advertising per se, after all we've got new channels to our kitty now. So we can't complain about government not contributing. So...

On the automobile and lifestyle, we're running a few experiments to get them back. They're down because they're not able to sell enough cars as they wanted to sell last year -- from last year. So we are still working on some of those factors to see how we can boost their response now and get them value from radio.

I think 1 fundamental question what you raised that why advertisers are reducing the volume in radio.

Absolutely.

It's because of 2 -- 1 reason I would say is the currency. If you notice, print has a currency, television has a currency, radio doesn't have a currency, which means the measurement of radio impact, as there is no currency available where a client or a agency can say that I played so many spots and this month or in a quarter, what was my response to that. I think this is one thing, which radio is struggling with is about the currency. Second thing, we've been discussing with government that maybe this is a high time government need to allow the free flow of news on the radio. Because please understand in a television or in a print genre, these players are free to do certain experiment with their content. So for example, if I'm a GEC, General Entertainment Channel, if a particular kind of operas are not working for me, I can change the format, I can go to the horror shows. Like in the print, I can still do a combination of edit changes. But in radio, they cannot play anything beyond the music. So I think if government allows news to come to the radio in some good format, the earlier format announced by government that we can take the news from All India Radio was really not working out. So if they do some changes, I think this category will see a new engagement with the readers -- with the audience.

Did you have some discussions with the government regarding this?

Yes, we've been talking to them, but they have their own restrictions on this, how to control the transparency and all that. So we've been discussing it, let's see when the results comes out.

And one second question was pertaining to this DGRT (sic) [ DGTR ] Directorate General of Trade Remedies, admitting the plea of Indian Newsprint Manufacturers Association, so they've taken into cognizance that over the past 3, 4 years, the foreign manufacturers have been dumping because Indian manufactures are using recycled paper and they are doing it from the wood pulp. So -- and they have like pretty horrendously put a charge that the companies do not reveal the exact cost of the procurement. So they're never able to get to know what kind of production cost is involved. So -- and the DG admitting the complaint, don't you think it's a serious issue. On 1 side, we are thinking that the government may wave off the import duty and the other side the DGRT (sic) [ DGTR ] is admitting the complaint?

So there are 2 things. Government has not taken any call on the final issue. What they have done, the Indian Newspaper Manufacturers -- Newsprint Manufacturers had been complaining to the government, and government said, fine, we want to investigate to see whether this complaint holds some truth or not. So that's where it is right now. They have given 30 days' time to everybody to submit the data and all that. And Indian Newspaper Association also, INS, is also representing it, and individual newspapers are also representing it. And let's see what the outcome is, what the clarity emerges out of that.

One important point they are putting up is that earlier your plea was that please remove this custom duty because the local manufacturers do not provide us with the...

Particular quality format.

Large sheet format, like the double-sided format of more than like 56 centimeters side...

That was one of the plea, not the only plea.

Yes, but they have admitted their query because -- their plea because it says particularly that in strips or rolls of width exceeding 28 centimeters, or in rectangular, including square sheets with 1 side exceeding 28 centimeters and the other side exceeding 15 centimeters, this is not unfolded state.

Yes.

So is that the single sheet they're referring to or the double sheet which you were expecting your...

This is the single sheet they're referring to.

Okay, okay. And They're...

No newsprint manufacturer in India has the ability or the size to print a double width. That's a proven fact. There's no technology. Maybe hardly 1 or 2 guys are there and that...

What is the capacity which DB Corp has for double size -- double sheet?

Sorry?

What kind of capacity do we have for double sheet? And what kind of capacity do we have for single sheet for printing our papers?

So -- our paper?

Yes, our paper.

Out of 60 lakh copies, we have the printing facility to print almost 15 lakh copies to 18 lakh copies on the double width. Yes, almost 20 lakh copies on the double width.

Almost like 25% to 30%.

More. Yes, 30%, around 30% plus, actually.

[Operator Instructions] The next question is from the line of [ Raghav Bharadwaj ] from HNI Investments.

Sir, you have explained your cash distribution policy. In fact, you mentioned that most of the cash is now being distributed in the form of dividend. Now given the fact that buyback and dividend is from a taxation perspective is now more or less on an equal footing, just wanted to understand why you've chosen dividend over buyback? Because probably buyback at an attractive price might be a value accretive to the remaining shareholders.

I can certainly put up your point in the next Board meeting because this decision is taken by the Board, and I'll certainly put up your point to the Board.

But I think the Board has historically never kind of evaluated the benefits that buyback can provide at attractive price vis-à-vis dividend. Is it that case?

Just for your understanding, we have done the buyback, in fact, 1.5 years back.

Yes. I -- at current prices, I just wanted to understand that what is the consideration of assuming dividend over buyback.

As there are no further questions, I would like to hand the conference over to the management for closing comments.

Thank you for your participation and time on this earnings call. I hope we responded to your queries adequately today. And we'll be happy to be of assistance through our Investor Relations department, headed by Mr. Prasoon Pandey for any further inquiries. Thank you, gentlemen.

Thank you. Ladies and gentlemen, on behalf of DB Corp Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.