D B Corp Ltd Q4 FY2022 Concall Summary

Key Takeaways

• Print advertising recovered to pre-COVID levels: Q4 print ad revenue matched 2019 levels, excluding a ~₹189 crore combined shortfall from government and automobile categories.
• Newsprint cost spike is the central margin risk: Average cost was ₹48,000/ton in Q4 on older inventory, but current market rates north of ₹60,000/ton will hit Q1 FY23 hard before expected relief in Q2 and Q3.
• Cost discipline is structural, not temporary: ~80% of the ₹185 crore in FY21 print cost savings were sustained in FY22, and ₹95 crore is expected to continue into FY23, supporting a 26% print EBITDA margin.
• Digital audience scaled 8x but monetization is still nascent: Monthly active users reached 1.7 crore and daily e-paper downloads crossed 0.1 crore, yet advertising and subscription monetization plans are only beginning to roll out from Q2 FY23.
• What to watch next quarter: The magnitude of the Q1 margin hit from the newsprint cost jump, the pace of ad rate hike acceptance by clients, and any sign that the ~₹100 crore automobile category is returning as chip supply improves.

Advertising Recovery & Category Mix

• Print ad revenue fully recovered to 2019 levels in Q4, excluding the shortfall in government revenue and election billing from the 2019 base. April 2022 registered decent growth versus 2019.
• Three large categories caused the remaining dent versus 2019-20: automobile lost ~₹100 crore due to four-wheeler and two-wheeler supply issues, government revenue lost ~₹89 crore including election billing that is on hold across a few states and the central government, and lifestyle dipped ~₹30 crore.
• Most other categories are at par or growing versus 2019-20: real estate, education, jewelry, travel, and banking & finance are all looking good, with jewelry clients sitting at 20%+ growth with DB Corp.
• Real estate and e-commerce clients are seeing direct response from print, signing deals at higher amounts than their FY20 base, which management called heartening evidence that the business is moving in the right direction.
• Ad yields have returned to pre-COVID levels and are not a major issue now except in certain categories or with certain players.
• An advertising rate hike was undertaken effective April 2022, and the company has sent proposals to all clients explaining the newsprint cost situation and reach effectiveness; some clients agreed to a 5-7% increase immediately, while others are still negotiating.

Girish Agarwal: "What we have done, we have sent a very humble request letter to all our clients explaining them our situation, explaining them our reach, explaining them the newsprint cost at the same time explaining them how effective we are and some of them have been kind enough to say okay we will give you the 5%, 7% increase immediately, some of them have been slightly tough nut so we are still working with them."

Newsprint Cost & Margin Trajectory

• Newsprint prices are the primary dampener on bottom-line performance, with the Q4 average of ₹48,000/ton reflecting older inventory and contracts that have now rolled off. The current market rate is north of ₹60,000/ton, so cost will jump in Q1 FY23.
• Relief is expected from Q2 FY23 onward, based on indications from the newsprint industry that raw material availability is improving and costs will go down; by Q3, management expects a clearer picture of whether prices settle in the early-₹50,000 range or higher.
• Print EBITDA margin was 26% for full-year FY22, up ~100 bps YoY despite high newsprint prices, supported by sustained cost optimization. Margins in Q1 FY23 will be subdued due to the newsprint cost jump but are expected to improve in Q2 and Q3.
• Cost savings are structural and partially durable: of the ₹185 crore saved in FY21 over FY20, ₹150 crore continued in FY22 and ₹95 crore is expected to continue in FY23.
• The endeavor is to return overall EBITDA margins to earlier levels, but management declined to give specific guidance, citing too many moving parts including newsprint and digital monetization.

Girish Agarwal: "Unfortunately, if you look at the paper prices this quarter our average price is sitting at 48,000 per ton but this is because we already had some inventory and we also had some contract with us for the older rate. Current market rate this would be currently north of 60,000 plus so our worry is that in Q1 our cost has also jumped, but having said that because of the raw material availability now for the newsprint industry I think they are indicating the cost will go down going forward so we will have some impact coming in Q2 and Q3 as a reduction."

Circulation & Copy Trends

• Circulation copies declined ~5-6% YoY in Q4 FY22, from 45 lakhs to 42.76 lakhs, driven by households stopping subscriptions and the discontinuation of office, railway station, bus stand, and hotel copies during COVID.
• Pre-COVID copy loss stands at 10-12%, and recovery of these lost copies remains a focus within existing markets rather than through geographic expansion.
• No geographic expansion is planned; growth will come organically within Rajasthan, Gujarat, Bihar, and Madhya Pradesh by gaining copies, possibly from weaker players reducing product quality. Two district markets in Madhya Pradesh have been identified for increased sales focus.

Radio Business

• Radio revenue grew 9.2% YoY in Q4 FY22, with the largest growth coming from volume; full-year FY22 radio revenues grew 35% YoY to ₹112.2 crore.
• Capacity utilization is still at ~70%, with 14-16 minutes of advertising per hour against a 20-minute benchmark, leaving headroom for further volume growth.
• A rate hike was taken recently, though effectiveness takes time due to B2B long-term contracts; yield growth is expected to add to performance going forward.
• Volume growth momentum spans real estate, FMCG, banking, state government, and lifestyle categories.

Digital Strategy & Monetization

• Monthly active users grew 8x from 0.2 crore in January 2020 to 1.7 crore in March 2022, and daily average e-newspaper downloads crossed the 0.1 crore mark, making it the largest news app on Comscore.
• A massive digital brand campaign was executed during the quarter featuring brand ambassador Mr. Pankaj Tripathi with the tagline 'Such kareeb se dikhta hai', driving the majority of other expenses. Management declined to disclose the exact spend, citing competitive purposes.
• Digital monetization plans are progressing on both subscription and advertising fronts, with advertising monetization being planned from Q2 FY23; the strategy is not yet decided and rollout is expected in some months' time. Some contribution from the digital app is expected starting from the second half of FY23.
• Management is optimistic about potential revenue sharing from tech platforms, citing Canada's bill requiring social platforms to share revenue with news sources, and is hopeful the Indian regulator will decide favorably.

Girish Agarwal: "Most of the publishers in India strongly believe and rightly so that when we create news platform and if any other person is collaborating with us then we should also be sharing the revenue because there is a newsroom cost, there is a cost where every piece of news which is being generated, so suddenly whether it is Google or Facebook running the platform they should be rightfully sharing the revenue with us so that is the case we all are pleading in front of the regulators let us see how it comes out."

Balance Sheet & Capital Allocation

• Pledge of shares became zero as of March 2022, with a commitment to keep it zero.
• Receivables improved sharply, driven by a lesser proportion of government revenue and the team's work on recovery.
• The board recommended a final dividend of ₹3 per share, to be approved at the AGM in September. Management reiterated a policy of paying out most earnings as dividend and is evaluating the most tax-efficient ways to distribute benefits, but did not directly address why the current dividend level is low relative to the nearly ₹500 crore cash on the balance sheet.

Guidance & Commitments

Key Metrics