mediaindustry-jan2011

SECTOR REPORT

PRIVATE CLIENT RESEARCH JANUARY 14, 2011

Ritwik Rai [email protected] +91 22 6621 6310

Indian Media IndustryRiding on two key macroeconomic factors, growth in consumption and increasing penetration of media, the Indian media industry is set to grow at a strong pace through the next decade and beyond. We build a case for 15% CAGR growth in Indian adex and Indian (broadcasting) subscription revenue growth of 16% CAGR. We believe that sector-level growth will be moderated at company-level by forces of inter-industry as well as value chain competition, which would place limitations on assumptions of value - creation that can be made in financial models. We zero-down on two critical qualitative factors that enable assumption of industry/ super-industry growth among media companies - monetization of assets (readership/ viewership), and bargaining power within the value chain to pick potential long-term outperformers within the space. We conclude that HT Media and Sun TV Network are among the best positioned companies on these counts and rate them BUY. While monetization theme remains strong in the case of Jagran Prakashan and DB Corp, we find valuations of these incorporating significant upsides. Monetization is also a strong theme in the case of IBN18, but risks are high in the company's execution of future plans. We initiate on Jagran Prakashan, DB Corp, and IBN 18 with ACCUMULATE rating. We initiate on ZEEL with a REDUCE rating as we think the competitive position of the company is weak in relation to valuation enjoyed. 1. Industry Topline Growth To Rescale Highs Topline growth in both broadcasting and print spaces will remain strong. Growth in advertising revenues is well under way, as indicated by recent financial results and management comments. Strong GDP growth, along with improving consumption growth, shall see advertising expenses re-scale old highs. As consumption growth strengthens, we believe India is set for a long-term adex growth of 14-15%. We believe print adex, as has been shown by historical growth rates, is likely to grow at a rates similar to broadcasters. Subscription revenues among television broadcasters are likely to remain on a high growth trajectory, as a result of value chain reorganizations, as well as rising digitization and higher C&S television penetration. We believe broadcasters shall register long-term growth rates of 16% CAGR for the next ten years. We note that print players shall register poor growth in circulation revenues as a result of intensifying competition.

Companies covered

n DB Corp n HT Media n IBN18 n Jagran Prakashan n Sun TV Network n Zee Entertainmentx

ValuationCMP (Rs) Mkt Cap Ent. Value LT Sales (%) 23 18 23 18 14 16 LT PAT (%) 30 16 NM 38 20 16 ROIC (%) 42 15 -0.2 25 42 28 FY11E ROE (%) 35 14 -9.9 17 32 32 PER (x) 26.5 23.2 NM 19.6 19.0 19.2 FY12E PER (x) 21.4 20.5 57.0 13.9 15.6 17.5 FY11E PEG (x) 0.9 1.5 NM 0.5 0.9 1.2 FY12E EV/ EBITDA 10.6 12.1 30.5 7.4 9.7 10.2 Price Tgt 666 126 107 226 153 312 Up/ Reco Down (%) 32.8 BUY -4.2 REDUCE 17.8 ACCUMULATE 46.4 BUY 23.6 ACCUMULATE 22.4 ACCUMULATE

(Rs mn) (Rs mn) Sun TV Network Zee Entertainment IBN18 HT Media Jagran Prakashan DB Corp 502 197,631 191,858 132 128,633 123,513 91 154 124 255 21,454 36,165 37,345 46,286 21,737 36,305 36,809 46,048

Source: Kotak Securities - Private Client Research; Note: LT Sales, LT EBITDA and LT PAT growth refer to growth between 2010-2013

Registered Office: Kotak Securities Limited, Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400021 India.

SECTOR REPORT

January 14, 2011

2.Competition a key factor - Monetization a Key Theme Over the past few years, competition within industry has increased meaningfully. While there have been significant readership/ viewership acquisitions in the past few years by new entrants, challenger's models have typically been poorly monetized relative to the incumbent. The monetization of challengers shall happen, to a significant extent, at the cost of the incumbent, and shall alter significantly, the growth profiles of industry players.Monetization - Key lies with regional players, new entrants: Sun TV, HT Media, IBN 18

Although regional television channels enjoy viewership numbers of mainline Hindi GECs, they do not enjoy subscription revenues that are in line with Hindi GEC players. We believe that this is likely to change in the future, benefiting undermonetized players. Sun TV Network, with an all-regional bouquet and lower subscription revenues than Hindi peers, is one such play. We also find that IBN18's mass entertainment channels bring in poor subscription revenues relative to peer Zee Entertainment, which provides basis for the stance that subscription revenues of the company could rise sharply, and provide upsides. Among newspaper publishers too, monetization is a significant theme. Most publishers have expanded into new territories with significant spends in building up circulation and readership. Broad indicators show, for example, that a few of HT Media's newspapers (Hindustan, HT-Mumbai, Mint) are under-monetized relative to peers. With strong trends in readership, we think there is reason to believe the monetization will occur over time. This is the key reason for our bullish stance on HT Media. ZEEL's long history has enabled to develop strong subscription revenue streams. In time, as competition rises (and if average payments from cable homes do not rise), the company could see stagnation in a large part of its revenue pie. This is among our reasons for our non-sanguine stance on ZEEL. 3. Value Chain Key Determinant of Value Creation - Industry Concentration, Bargaining Power Key Indicators of Long-Term Performance

Broadcasting players beset with value chain issues, Sun TV stands out as exception

Three key participants in broadcasters' value chain - media buyer, content provider (for content - aggregating entertainment channels), and distribution partners enjoy high bargaining power in the scenario when number of channels has run up to over 500. The value chain of broadcasters is complex, and, with high competition, players will, as they have already, see escalating expenses on account of distribution/ content. We find that Sun TV is the only broadcaster positioned strongly in its value chain. Sun TV's markets are, in general, more concentrated than peers IBN18 and Zee Entertainment; Sun TV has greater exposure to the local media buyer (thus lower concentration at media buyer's end); Sun TV has significant say in distribution in certain areas - due to promoters' interests in distribution. Print players are less dependent on value chain partners - advertising revenue streams are better diversified among categories; newspapers typically compete with only 2-3 players within each city, and typically have a brand stickiness that is rare to find among broadcasters. Newsprint (key raw material for newspapers), however, remains a cyclical commodity that newspaper publishers' earnings are exposed to. Even so, we think that newsprint prices, affected thus far by sudden spike in price of raw materials (pulp) caused due to a natural calamity; have been factored well into estimates. We believe that newspaper publishers are, in general, in a greater possession of control on their value chains.

Print players: newsprint key issue

Kotak Securities - Private Client Research

Please see the disclaimer on the last page

For Private Circulation

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SECTOR REPORT

January 14, 2011

4. Growth Profiles of companies reflect our beliefs, HT Media and Sun TV top picks in the space.Sales Growth (FY10-13E CAGR)25% 20% 15% 10% 5% 0% Jagran DB Corp ZEEL HT Media Sun TV Netw ork IBN 18

Source: Kotak Securities - Private Client Research

PAT growth35% 28% 21% 14% 7% 0% ZEEL DB Corp Jagran Prakashan Sun TV Netw ork HT Media


5. Valuations Reasonable, But Advice Selective ApproachTop Picks: Sun TV, HT Media

We believe that media's strong long-term story shall be manifest in players with two characteristics: 1/ under-monetized media assets (readership/ viewership), and 2/ strong bargaining power, helped by factors such as strong industry concentration, control over distribution, diversified media buyer base, and leading position. We contend that in stocks that carry these characteristics, predictability of the flow-through of the macro story grows strong and upsides to industry growth may exist. As such, these stocks are stronger candidates for buying into the media story of India.




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SECTOR REPORT

January 14, 2011

INDIAN MEDIA INDUSTRY A STRUCTURAL GROWTH STORYMedia Story Tied with Indias Consumption Growth A significant stream of media revenues, that is, advertising expenditures is a function of consumption expenditures and corporate confidence/ profitability. Indias long-term consumption story remains intact private consumption is expected to quadruple in 2005-2025 (CAGR ~7% in real terms)1 led by strong growth in household disposable incomes. The growth in incomes is likely to be broad-based as well. In 2025, the deprived (population living below official line of poverty), is likely to reduce to 22% of the population down from 54% in 2005. India is likely to have middle/ upper income class that accounts for 78% of its population by 2025. (Source: McKinsey) As a large part of India's population moves into higher income brackets, consumer spends are more likely to be directed towards discretionary purchases, rather than staples; and branding shall be a key differentiator between producers - which implies that India as a purchasing class will be more brand-conscious, and advertising in India will accelerate. In the period 2000-2009, India's adex grew at a trend level of 4 percentage points above PCE growth. Were the present trend to persist, there is reason to expect adex growth of 15%+ in the coming decade, based on nominal PCE growth of 11%. Comparison With Peers Shows Potential for sustained growth As of now, Indias advertising expenses to GDP ratio is 0.4%, as compared with 0.8% for global peers as shown in the graph below:Media Spends as % GDP, select countries120% 90%251

Per Capita Media Spends ($US)491

343

60% 30%4

27 UK US China Japan

0% India UK US China Japan WorldIndia

Source: FICCI KPMG Report

Source: FICCI KPMG Report

As a result of the divide shown above, Indias advertising and media spends have been rising at a rate well higher than the nominal GDP in the recent past.Growth, Advertising Expenditures28% 21% 14% 7% 0% -7% 2010E4

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Source: Media Planning and Buying, Arpita Menon




2009

SECTOR REPORT

January 14, 2011

Between 1996 and 2010, Indias adex has grown at an average rate of 15.7%. If we were to exclude the two exceptional years 1998 and 2009 (impacted severely by East Asian Crisis and the global financial crisis respectively), Indias adex has grown at an average rate of 18% - well above nominal GDP growth rates. n A Comparison with China: An examination of take-off (in adex) in the Chinese markets indicates that the trend of rising adex may show considerable acceleration, as consumption expenditures reach a threshold point. There is, therefore, merit in the belief that Indias adex growth in the next decade could be well above the past decades average of 15%.Take-off of adex in India, Lessons from China

Source: HT Media Investor Presentation




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SECTOR REPORT

January 14, 2011

Media Penetration RisingAn implication of poverty in India is relatively poor media penetration, which is likely to change considerably in future, as incomes and literacy levels rise. With increasing affordability, the consumption of newspapers as well as television is set to rise, leading to a larger advertising market and better ROIs for advertisers.Media Reach over the yeas - Growth in Media Reach(Figures in Lakhs) 12+ Population Any Media Any Publication TV (Any TV) TV (C&S) Any Radio FM Radio Cinema Internet Source: Vanita Kohli-Khandekar 2005 7780 5257 2913 4277 2102 1609 716 889 111 2006 8040 5441 3102 4378 2308 1699 852 868 122 2007 8243 5614 3155 4538 2553 1788 969 837 143 2008 8429 5745 3234 4674 2873 1804 1120 833 173

Low media penetration result of poverty, poor infrastructure

India's penetration of TV is well below global averages. We believe this is a result of poverty, and that penetration levels could rise significantly (up to 86% in 2020, see pay TV model assumptions later in the report), as population moves out of the deprived category and basic facilities (electricity, availability of cable and satellite) are made available to a larger population. A combination of low incomes and technology issues has led to Cable and Satellite (C&S) penetration in India being low. We believe this is due for a correction as new technologies, such as DTH and HITS improve affordability of C&S TV in rural areas.India TV Penetration versus the ROW, C&S Penetration as % TV HH120 90 60 30 0 India China HK Korea Brazil UK US Russia

Source: The Indian Media Business, Vanita Kohli-Khandekar

India pay TV (C&S) penetration compared with Global Peers100 75 50 25 0 China UK India HK US Korea

Source: The Indian Media Business, Vanita Kohli-Khandekar Note: China and UK have a high proportion of viewers using terrestrial broadcastingKotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation

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SECTOR REPORT

January 14, 2011

Enabling Factors in Place: Technology Getting Cheaper, Removing Bottlenecks Cable television investments in rural areas are difficult in so far as analogue cable distribution is concerned, as TV owning population is sparsely populated. For this reason, a large part of the rural population has been deprived of C&S TV. We believe DTH and HITS (Headend in The Sky) are technologies that can reduce the investments required in these areas. DTH companies report that a large part of growth witnessed in DTH subscriptions is coming in from rural areas. Combined with the investments discussed above, Indian DTH players have grown aggressively, proliferating DTH technologies while taking a loss on set-top boxes (sold at Rs 1500 on the average, against average cost of Rs 2500).DTH: C&S growth with low capex

While HITS technology is yet to take off in a big way in India, there are considerable benefits that the rural/ sparsely populated areas can have from the technology. In order to achieve scale, DTH providers have also kept subscription rates low, which has led to strong take-up of DTH services even in low income and rural areas. As per Tam, DTH households account for about 35% of the total Cable and Satellite (C&S) households in rural India. We believe DTH shall continue to grow at a robust pace in India, leading to strong additions in C&S homes.India: DTH Subscribers (mn)60

45

30

15

0 2009 2010E 2011E 2012E 2013E





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SECTOR REPORT

January 14, 2011

Regionalization to remain a theme across the sectorWe believe that shift away from metros shall be a theme across both print and broadcasting players. With consumption growth being witnessed in smaller towns, these are receiving attention from the media buyers. While the per capita consumption from these towns is smaller than metros, the overall size of the pie is large, and incomes in non-metro towns are rising at a faster level.Split of urban expnditureSplit of Urban Population Est All India Urban Exp (Rs Crs) 336,572 228,880 673,686

Non-metros seeing strong growth

Metro KUT ROUI

51,371,205 55,490,940 231,300,828

Source: Ernst & Young. Note: KUT - Key Urban Towns, ROUI: Rest of Urban India

Growth in household incomesEstimated Per Capita Urban Cons Expenditure Metro KUT ROUI 65518 41246 29126 Average Growth (%) in Urban Household Income 21 25 23

Source: Ernst & Young. Note: KUT - Key Urban Towns, ROUI: Rest of Urban India

The higher attention has led to increasing spends on regional media, both in television and print advertising. We believe this trend would continue.Genre-Wise TV Ad-Spends2006 2007 24.5 26.4 7.1 19.1 10.1 5.8 4.7 2.3 2008 26.6 25.7 9.7 17.9 8.8 5.8 2 3.5 2009 28.6 25.3 12.2 17.7 7.2 4.7 1.7 2.5

Adex moving to non-metro, regional markets

Regional Channels Hindi GECs Sports News Doordarshan Cinemas/ Movie Channels Kids Others Source: FICCI - KPMG Report

20.9 26.1 7.2 17.7 15.5 6.1 2.1 4.3

Split of print Adex

Source: DB Corp Presentation




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SECTOR REPORT

January 14, 2011

Near-Term Outlook StrongConsumption, Adex Slowed Down Considerably, Estimates may be cautious; Upside LikelyAdex moves in line with consumption expenditures

FY 2010 saw significant slowdown in consumption expenditures in India. As can be seen from chart below, consumption expenditures in India have a strong bearing on advertising expenditures. Adex typically declines sharply as consumption growth decelerates below 5%.Adex - Real PCEGrw , Nominal Advertising Expense (LHS) 30% 24% 18% 12% 6% 0% -6% FY97 FY99 FY01 FY03 FY05 FY07 FY09E Grw , real PCE (RHS) 15% 12% 9% 6% 3% 0% -3%

Source: Company, Kotak Securities - Private Client Research

Projections of various agencies, CY201015% 12% 12% 9% 9% 6% 3% 0% Zenith OptimediaSource: Company

12%

13%

Group M

FICCI-KPMG

Pitch- Madison

Return of double digit Adex growth in CY2010

Industry estimates point to a return of double- digit growth in advertising. We believe the estimates provided by media agencies for 2010 are likely to be beaten, and future growth is likely to be stronger - for if it is true that India is set to witness a sustained period of 8% growth, we are likely to see consumption expenditures grow by well in excess of 6%, and, with consumption expenditures robust, we believe the medium-term strength in advertising expenditures is likely to be 3-4 percentage points over the projections made. The following factors support an assumption of higher consumption growth in future: 1/ return of urban demand as fears of job losses subside, job creation begins, salaries rise (11%-12% growth expected in FY11, as per various agencies), and consumer confidence returns (2QFY11 PCE registered growth of 11%), 2/ wealth effect impacts on consumers, as real estate and financial investments approach peak values, and notional losses decline, creating a psychological boost, 3/ companies no longer hoarding cash as fears relating to capital availability have been removed. We note that our base case assumes that food inflation shall ease off in the next few months. AS such, inflation and rate hikes by RBI are risks to our base case, which we shall monitor.




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SECTOR REPORT

January 14, 2011

Recent advertising trends point to a robust future. Media companies across print and broadcasting have raised advertising rates in 2010, and report a certain degree of pass-through, implying that the worst (in terms of advertising rates) is now past. The state of competition among consumer companies also point to a healthier future. We note specifically that Hindustan Unilever, Indias largest advertiser (largely broadcasting) has raised its advertising and promotional spends to a historical high, as a result of stiff competition being witnessed in the space. With volumes returning in some of the worst effected sectors (real estate, financials, travel and tourism), we believe near-term outlook on advertising expenditures is likely to be well over projections made by industry experts, unless the world faces fresh issues of confidence. Given the past history of media spends; we also think that there is reason to believe that print media is as likely to benefit from fresh confidence among consumers and media buyers as television is.Share in Media Spends over the years (% of total adex in India)60 50 40 30 20 10 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 New spapers TV

Source: Arpita Menon, Media Planning and Buying




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January 14, 2011

3QFY11 Expect Robust GrowthWe believe that media companies shall provide robust growth in advertising as well as subscription revenues in the coming quarter. While circulation revenues of key newspaper publishers will suffer on account of growing circulation in undermonetized markets and a price-war in Jharkhand/ certain parts of Uttar Pradesh, we believe advertising revenues have grown robustly in 3QFY10, on account of festival season. Moreover, many industry players suggest that advertising has been strong in the post-festive season as well. We factor in 20-25% advertising revenue growth for most print players key exception being Deccan Chronicle, which has lagged industry in the past few quarters. We expect revenue growth would be strong enough to offset poor newsprint expenses scenario.Expect robust revenue growth, watch out for expenses

While advertising revenue growth among broadcasters is expected to be less than print counterparts, revenues from DTH shall be strong on account of higher adds during the festive season. Other subscription revenues shall vary widely between companies, we think , with Sun TV expected to continue making y/y gains in analogue cable revenues, and Zee Entertainment registering soft revenues in analogue and international subscription revenues. Our summary of quarterly estimates is provided below:

Quarterly EstimatesRevenues (Rs mn) DB Corp HT Media IBN18 Jagran Prakashan Sun TV Network* ZEEL 3QFY11 3,377 4,784 2,079 2,733 6,395 7,404 2QFY11 2,976 4,455 1,890 2,769 4,248 7,116 3QFY10 2,814 3,661 1,934 2,269 3,951 5,309 3QFY11 1,159 971 5 817 3,187 1,938 EBITDA 2QFY11 951 791 18 909 2,415 1,885 3QFY10 959 745 85 653 2,240 1,573 3QFY11 666 521 (75) 503 2,207 1,388 PAT 2QFY11 551 399 (132) 555 1,674 1,253 3QFY10 506 369 (106) 397 1,519 1,151

Source: Kotak Securities, Private Client research; * for comparability we provide Sun TV EBIT numbers (for EBIDTA)




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SECTOR REPORT

January 14, 2011

PRINT

AND

BROADCASTING SECTOR STATISTICS

Indian Media and Entertainment Industry is pegged at Rs 580.8Bn, and is broken down as under:Indian Media Shares of Sub-Industries (%)OOH 2% Animation Gaming and VFX 4% Music 1%

Online 1% Radio 2%

Films 16%

Television 46% Print 28%

Source: FICCI KPMG report

In this resport, we deal primarily with the television and print sub-industries. Both television and print industries have dual income streams advertising and subscription, which break down as under:Newspapers Television

Subscription 38%

Advertising 35%

Advertising 62%

Subscription 65%

Source: Industry

Source: Industry




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SECTOR REPORT

January 14, 2011

Media Consumption by GenreWe provide below a summary of media consumption. GECs (Hindi + Regional) account for ~50% of the total television viewership in India. This, along with the fact that most of Indias viewership is accounted for by analogue cable households, is the prime reason for the fact that GECs/ movies are a must-have in order to generate subscription revenues.Mass channels key for subscription revenues

Among print players, it is noteworthy that Hindi newspapers have a readership that is more than four times that of English newspapers. This forms the ground for monetization argument for Hindi print media players.Genre Distribution Television ViewershipTerrestrial 2% regional Music 2% Hindi New s 3% Regional New s 4% Regional Movies 4% Kids 6% Regional GEC 24% Hindi Movies 12%Source: Price Waterhouse Coopers (TAM)

Music 2%

Other 4% Hindi GEC 26%

Sports 3%

Cable 8%

Genre Distribution Newspaper Readership134

41

32

29

23

22

21

16

16

9 Oriya

8 Asamese

5 Punjabi

2 Urdu13

Tamil

Malayalam

Hindi

Marathi

Gujarati

English

Telugu

Bengali

Source: Price Waterhouse Coopers



Kannada


SECTOR REPORT

January 14, 2011

Top Sectors Advertising on TV(%) F&B Personal Care/ Personal Hygeine Services Telecom/ ISP Hair Care Auto Banking/ Finance/ Investment Personal Accessories Personal Healthcare Household Products Source: FICCI - KPMG Report 14 11 6 5 5 4 4 4 3 3

Media Buyer Profiles Television and PrintWe provide below a summary of key categories that contribute to television and print advertising. It is clear from the below that FMCG players account for ~50% of the total advertising spends on television. This fact, along with fragmentation in most television markets, places bargaining power in the hands of the media buyer. Print players are less dependent on specific sectors. Education sector is created of multiple advertisers, as is retail. The non- consolidation of the media buyer, along with the less - fragmented nature of the print industry provides print players (in general) greater bargaining power versus the media buyer as compared with broadcasters.

Advertising Spends - by RecipientThe charts below show the consumption of advertising rupees by various genres. As in the case of viewership, the pie is loaded with mass channels, especially GECs. Sports and news receive attention well in excess of the viewership share due to the male TG that they provide. Print media is dominated by English newspapers as they are deemed to attract the highest quality of reader, with Hindi/ regional dailies accounting for a far lower percentage of advertising spends (relative to readership). We also note that business dailies earn advertising revenues far in excess of their readership, on account of a perception that the readership is exclusive and the reader is more influential.Genre -Wise Advertising Spends (Television)Kids 2% Others 3% Regional Channels 28%

Top 10 Sectors - Print(%) Education Services Banking/ Finance/ Investment Auto Retail Durables Personal Accessories Personal Healthcare Corporate/ Brnad Image textiles/ Clothing Source: FICCI - KPMG Report 15 12 9 7 6 4 4 3 2 2

Cinemas/ Movie Channels 5% Doordarshan 7% New s 18%

Sports 12%

Hindi GECs 25%

Source: FICCI- KPMG Report

Genre - Wise Advertising Spends (Print)Magazine 7% Business Dailies 6% Other Language Dailies 23%

English Dailies 45%

Hindi Dailies 19%Source: HT Media Investor Presentation




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January 14, 2011

INDUSTRY VIEW: BROADCASTINGAdvertising Expenditures Fragmentation to be strong; So will BeAdex in the broadcasting sector, on the whole shall be on the rise, owing to the following factors: 1/ Rising penetration of television, 2/ Rising penetration of cable television, 3/ Greater variety to the viewer as new genres become available, 4/ Improving technology and quality that shall raise overall time spent on television. On an industry level, we believe advertising revenues shall grow at a robust 16% CAGR through FY10-FY20. We believe that due to a greater amount of media buyer interest in regional markets, as well as better bargaining power of broadcasters in the regional space (broadcasters in the regional space would typically attract local as well as national advertising), regional channels shall witness a higher growth than Hindi counterparts.Regional broadcasters to register faster growth than Hindi mass channels

Fragmentation is a regular feature of competition. As competition rises, the number of channels available to the advertisers will increase, leading to declines in TRPs. Since advertisers use TRPs as a guide to media buying, the fragmentation witnessed could lead to a soft growth in advertising rates.Number of Television Channels - All India600

450

300

150

0 2002 2003 2004 2005 2006 2007 2008 2009 2010E

Source: Industry Presentations, PWC M&E Report, Industry DiscussionsAverage Monthly Cable BillMar-10 Chennai Delhi Kolkatta Mumbai Bangalore Hyderabad Ahmedabad Bhopal Chandigarh Cuttack Guwahati Jaipur Jamshedpur Raipur Kochi Lucknow Shimla Patna Dehradun Varanasi Jammu Shillong 106 183 161 248 209 153 259 174 165 207 187 208 149 203 137 156 172 129 204 157 185 319 Jan-07 146 156 171 240 211 169 217 193 212 256 200 244 158 232 149 160 171 158 218 159 197 322

Subscription Revenues to Rise, Taker UncertainWith growth in the viewership base, the subscription revenues paid out by Indian subscribers are set to rise. However, the destination of this high growth is uncertain. The Indian subscribers seem unwilling to pay a higher amount for his subscription. Therefore, the division of the amount (~Rs 160/ subscriber) is going to be the prime driver of growth. The distribution of amounts received from analogue cable subscribers continues to be an arbitrary action taken by the Local Cable Operator, and which broadcasters have little say in. While digitization continues to be a hope, let us remember basic facts about media businesses in general: there is, broadly speaking, a trade-off between advertising and subscription revenues. For the purposes of this report, we make a few assumptions that are provided below:

Source: Price Waterhouse Coopers E&M Report




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SECTOR REPORT

January 14, 2011

Television Model2009 Broadcasters' Revenues -o/w Advertising Revenues Grw, Advertising Revenues -o/w Subscription Revenues Grw, Subscription Revenues Derivation, Subscription Revenues: Population Growth # per household Households (000) - o/w Television Households % Penetration (TV) - o/w C&S Households % Penetration (C&S TV) - o/w Analogue Households - o/w Digital Cable Households - o/w DTH Households ARPU (Rs/ Month) - Analogue Households - Digital Cable - DTH 160 160 160 160 160 160 192,950 132,278 11,520 49,152 25% 20% 20% 40% 48,420 26,456 2,304 19,661 160 160 165 214,414 128,705 17,280 68,429 26% 20% 20% 40% 56,569 25,741 3,456 27,372 160 160 170 231,963 116,117 24,192 91,653 28% 20% 25% 40% 65,933 23,223 6,048 36,661 160 180 180 258,929 102,243 35,381 121,306 31% 20% 30% 40% 79,585 20,449 10,614 48,522 160 193 193 293,955 99,259 45,429 149,267 32% 20% 35% 40% 95,459 19,852 15,900 59,707 160 206 206 334,062 100,114 53,470 180,478 34% 20% 40% 40% 113,602 20,023 21,388 72,191 160 221 221 383,370 108,014 62,934 212,423 34% 20% 40% 40% 131,745 21,603 25,174 84,969 160 236 236 458,234 134,139 74,073 250,022 34% 20% 40% 40% 156,466 26,828 29,629 100,009 171 252 252 534,704 153,245 87,184 294,275 34% 20% 40% 40% 183,233 30,649 34,874 117,710 183 270 270 611,641 162,663 102,616 346,362 35% 20% 40% 40% 212,124 32,533 41,046 138,545 196 289 289 699,474 171,027 120,779 407,668 35% 20% 40% 40% 245,584 34,205 48,312 163,067 4.7 245,507 147,304 60% 91,329 37% 69,000 4,000 16,000 1155348 1170368 1185582 1200995 1216608 1232424 1248445 1263427 1278588 1293931 1309458 1325171 1.3% 4.6 253,774 152,265 60% 100,495 40% 68,895 6,000 25,600 1.3% 4.5 262,320 162,638 62% 110,594 42% 67,034 9,000 34,560 1.3% 4.4 271,153 173,538 64% 118,006 44% 60,478 12,600 44,928 1.3% 4.3 280,284 184,987 66% 125,791 45% 53,251 16,380 56,160 1.3% 4.3 289,722 197,011 68% 135,938 47% 51,698 19,656 64,584 1.3% 4.2 299,478 209,635 70% 146,744 49% 52,143 21,622 72,980 1.2% 4.1 309,257 222,665 72% 160,319 52% 56,257 23,784 80,278 1.2% 4.0 319,355 236,323 74% 184,332 58% 69,864 26,162 88,306 1.2% 3.9 329,783 250,635 76% 200,508 61% 74,593 28,778 97,136 1.2% 3.8 340,551 265,630 78% 212,504 62% 73,998 31,656 106,850 1.2% 3.8 351,671 281,337 80% 225,070 64% 72,713 34,822 117,535 40,320 99,000 113,850 15.0% 48,420 20.1% 130,928 15.0% 56,569 16.8% 154,494 18.0% 65,933 16.6% 179,214 16.0% 79,585 20.7% 207,888 16.0% 95,459 19.9% 241,150 16.0% 113,602 19.0% 279,734 16.0% 131,745 16.0% 324,491 16.0% 156,466 18.8% 376,410 16.0% 183,233 17.1% 436,635 16.0% 212,124 15.8% 506,497 16.0% 245,584 15.8% 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

Revenues, Industry (Distrbn.) (Rs mn) 170,880 - Analogue Households - Digital Cable - DTH Broadcaster's Share - Analogue Households - Digital Cable - DTH Broadcasters' revenues (Rs mn) - Analogue Households - Digital Cable - DTH Source: Company 132,480 7,680 30,720 24% 20% 20% 40% 40,320 26,496 1,536 12,288

Even as the advertising and subscription growth is strong, and macro factors favor the industry, value creation at the industry - level is poor, and margins of the industry have declined over the past few years, as may be seen from the chart below:Profitability of Television Industry in India : Cross Sectional and Time Series Estimates

Source




16

SECTOR REPORT

January 14, 2011

We consider briefly the issues faced by broadcasters in translating industry level growth into margin maintenance/ enhancement and value creation:

Poor Bargaining Power in Value Chaina. Poor bargaining power with content provider as viewer has loyalty to programs, not channel - In general, given the high number of channels, the viewer tends to be loyal to programs rather than channels. This implies that the content provider (producer) has the ability to raise programming expenses, in as much as program preferences can be predicted. This is most apparent in the movie content acquisition. News channels are often dependent on star anchors for viewership. In a situation where channels are largely undifferentiated, this leads to steep escalations in employee expenses. b. Poor bargaining power with distributors: The number of channels in India has risen to over 500, whereas most analogue providers can only supply up to 100 channels. This has led to a situation where frequencies are "auctioned", leading to high carriage fees. c. Poor bargaining Power with media buyer: Television is highly dependent on FMCG companies for advertising. FMCG companies account for a high proportion of advertising on television, and bargain hard for advertising seconds, leading to poor advertising yields. It is also useful to note that most 'national' advertising is concentrated in the hands of few media buying agencies. Investment Recommendation- Braoadcasting: 1. Strong models shall be those that possess a distributor/ broadcaster nexus: Bargaining power of a distributor is a key factor in influencing the value that a broadcaster may create. As such, control over distributor is a key factor that would enable lasting strength in viewership. Nearly all large broadcasters in India (Star India, Sun TV, and Zee Entertainment) have a strong nexus with distributors. However, players in the Hindi space have, we believe, less market share in the distribution market than Sun TV has in Tamil Nadu. Moreover, Sun TV has taken a strong position in the South Indian markets with its DTH service. 2. Bargaining Power with media buyer requires industry concentration, leadership: Most of the Indian broadcasting space is highly fragmented, which improved the media buyer's bargaining power. Significant industry concentration, however, is seen in regional markets. We note that Sun TV's markets are highly concentrated, with top two players accounting for 60-80% of the market share. Moreover, we believe industry's bargaining power would be helped by media buyers who are not concentrated. Regional broadcasters have the additional benefit that they are able to rope in local advertisers, thus diversifying their buyer base, and improving yields. 3. Prefer to chase under-monetized, rather than well-monetized properties: Given that ARPUs are not likely to rise meaningfully, and a higher number of players are likely to fight for the same pie, we believe that under-monetized broadcasters provide a better opportunity for growth than well-monetized ones. This is the reason behind our preference for Sun TV and IBN18 over Zee Entertainment.

Capacity to carry channels by bandwidth, number of channelsBandwidth 300 450 550 750 860 Source: TRAI Max. # Channels 36 54 67 92 106




17

SECTOR REPORT

January 14, 2011

INDUSTRY VIEW - PRINTAdvertising Growth Strong, Fragmentation Low:We expect print to continue being a strong recipient of advertising expenditures. Overall, we expect print players' advertising revenues to grow 15% CAGR over FY10-FY20. Growth would likely be faster in the regional print media space, which has received relatively less attention from media buyers in the past.Print Adex growth strong as categories improve performance

Print media players are typically less fragmented than broadcasters. For most states in India, print industry is fairly consolidated, and the top three players account for 60-80% of the total newspaper readership. This has the following implications: 1/ Bargaining power with the media buyer is strong. Print players have a strong control over advertising rates, and concessions are low. Moreover, a single sector does not contribute significantly to print advertising revenues. For example, education, one of the largest categories of print advertising is spread over many educational schools and colleges, as well as coaching institutions, 2/ Key variable costs of employees are kept under check as newspaper brand is more important and few editors/ reporters enjoy the stardom that television anchors/ reporters do, 3/ There is greater co-operation between players in times of industry adversity. For example, newspaper publishers did, in unison, raise cover prices in the last year, when newsprint prices were high and advertising revenues had declined. As a result of the above, newspaper publishers are usually profit-making entities and enjoy margins that are, in general, higher than the average broadcaster.

Circulation Revenues Growth to be softSearch for new geographies leading to lower cover prices

Newspaper raw material expenses, consisting mainly of newsprint, are in the range of Rs 5.5-Rs 6/ copy for English newspapers and Rs 2-Rs 2.5/ copy for Hindi/ regional newspapers. In comparison, cover prices are in the range of Rs 2-Rs3/ copy for English newspapers, and Rs 2-Rs4/ copy for Hindi/ regional newspapers. Net of agent/ hawker commissions, which is typically in the range of Re 0.5-Re1/ copy, the realization for newspapers is low, in so far as subscriber generated revenue is concerned. For this reason, newspapers are largely a play on advertising revenues. Traditionally, Indian newspapers were territory players, with each player confined to certain geographical areas. In the past two decades, however, this has changed, and newspaper publishers now try to scale up to new cities/ states. Since newspapers are a habit product, trial of the product for extended periods is necessary before a newspaper can create a market for itself in a city that has been traditionally dominated by another player. A useful practice for a challenger is to "tie-up" readers for extended periods using "subscription offers". In typical subscription offers, the subscriber is provided a yearly subscription for Rs 199, or even lower. This has led to a general decline in newspaper cover prices.Advertising & circulation300 240 180 120 60 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Circulation Advertising

Source: FICCI - KPMG Report




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SECTOR REPORT

January 14, 2011

We believe this trend is likely to continue, and intensify over the years. While the trend has been most pronounced in English newspapers thus far, regional dailies have, in the recent times, used cover price as a prime tool in making market entries. We therefore tend to believe that there will be general softness across the board in the circulation revenues of newspapers, with circulation rising and realization declining over time.

Under-monetization key ThemeMonetization is the key theme of investment among newspaper publishers as well. As we see it, there are two aspects to monetization: one relates with regionalization of the media buying activity and is a broad, macro theme, the other relates simply to the general case of a challenger in a market garnering significantly lower revenue per reader (which requires a shift of media budgets between publications, rather than between languages)Shift to regional news papers a broad theme

Hindi/ Regional newspapers account for a large amount of media penetration in the country. However, media buying has largely been focused on metro cities; and English newspapers within these metro cities. The reason for this is that the class consuming these media products has largely been seen as the drivers of large consumption. However, as benefits of economic prosperity have been spread across a large part of the nation, the smaller cities/ towns have begun to display strong growth. The cost to the advertiser is measured in a "Cost Per Thousand" basis (that is, the money spent in order to reach a thousand people. Based on the CPT metric, Hindi newspapers continue to be well cheaper than their English counterparts, even as the disount has reduced over time.Share of Print Adex over the years80 60 60 46 40 40 54 English Indian Language

20

0 2003Source: DB Corp. Company Presentation

2009

Reach of newspapersSEC A AED (Any English Daily Reach) ALD (Any Language Daily) Source: DB Corp. Company Presentation 30% 60% SEC B 10% 50%

The regional under-monetization, relative to English language, is therefore one theme. However, under-monetization may exist within genres (that is English newspapers versus English newspapers). This would happen when a new entrant in the market is involved in price discounting with consumers, and/ or is in a position where rates can't be charged in line with the readership position. This may happen due for many reasons, but primarily because the entrant's readership/ circulation is not up to a 'threshold level', where rates in line with readership can be demanded. We find an example of such under-monetization in the case of HTMumbai, and Hindustan.




19

SECTOR REPORT

January 14, 2011

Newsprint Key RiskNewsprint is the key raw material for newspapers, accounting for ~30-40% of sales of a mature newspaper company. Newsprint is essentially a cyclical product. In the recent past, newsprint prices have been rather volatile, hitting an all-time high of $750/ MT in 2008-2009, and hitting an all-time low of $450/MT in 2010. Long-term newsprint prices shall be influenced by the following trends: 1/ longterm demand from western economies shall continue to be weak. Most westers economies are seeing declining circulation in newspapers, affecting newsprint demand negatively, 2/ newsprint prices shall continue to be affected by energy prices. Energy prices form a large part of the expenses of newsprint production, 3/ Pulp as well as recovered paper are the raw materials used in newsprint production. Longer-term, realization of scrap paper is likely to be smaller as demand is likely to come from China/ India. This will have a positive impact on newsprint prices, 4/ There has been considerable consolidation in the newsprint industry, globally, in the recent past. As producers look to control supply, there is likely to be greater consolidation in the newsprint industry. As a balance of these factors, we think long-term newsprint prices shall be slightly higher than long-term average of $600/ MT. We factor in long-term newsprint prices of $700/ MT in our models.Newsprint Prices over the years (US$/MT)800 700 600 500 400 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-1020

Jun-01

Jun-02

Jun-03

Jun-04

Jun-05

Jun-06

Jun-07

Jun-08

Jun-09

Source: Bloomberg

Our assumption of $700/MT for newsprint prices is in line with newspaper publisher's expectations for the near future. Newspaper publishers tend to hold a consensus view that the newsprint price increase we are witnessing is almost entirely on account of steep rise in prices of pulp, which shall likely come down as capacities in Chile, idled due to the earthquake, come back online.Pulp Prices (Indexed to 2000), Europe

Source: RISI




Jun-10

SECTOR REPORT

January 14, 2011

Historically, two things regarding newsprint prices deserve mention: 1/ newspapers have resorted to creative measures when faced with extremely high newsprint prices. Creative measures can include reducing width of pages, reducing grammage, and changing the mix of newsprint to use a higher amount of inferior grade newsprint. In extreme cases, companies have resorted to reduce width of the newspapers, which can have a significant impact on newsprint demand. 2/ The print industry in India has shown far greater amount of unity when newprint prices are high, in so far as raising advertising rates (passing on costs to the advertiser) or raising cover prices (passing on higher costs to the subscriber of the newspaper), The second of these came in ample evidence in FY09/ FY10.

Newspaper publishers: Investment Recommendation1. We find the newspaper publishing space attractive for the long-term, given: 1/ continued strength in readership, 2/ potential for higher growth via expansion into new geographies, 3/ the catchall, habit-forming nature of the product as opposed to channel-surfing nature of the broadcaster's audience, 4/ better control over the value chain, 5/ better co-ordination among publishers, and strong profit profiles of players.BUY HT Media, ACCUMULATE DB Corp, Jagran Prakashan

2. Measured by broad valuation tools, newspaper publishers are cheaper than broadcasters. This is counter-intuitive, as broadcasters have substantially greater volatility in sales, and margins are under pressure from value chain participants. We believe there is considerably greater value in newspaper publishers than in entertainment broadcasters. 3. While newsprint prices remain a risk, we believe that margins of most publishers shall be protected, even in such circumstance. Broadly, our discussions with industry players suggest that there is sufficient growth in advertising yields to maintain strong margins. Moreover, we believe that newspaper publishers have significant leeway in cutting newsprint consumption in adverse times - this is especially true in the case of publishers who have a dominant position in certain geographies. 4. We look at monetization in a wholesome fashion. Hindi and regional newspapers are, as an industry, likely to display higher growth in the future. This will happen as a result of higher growth in the Tier 2/ Tier 3 towns than in metro cities. However, we find that certain characteristics of metro newspapers (higher entry barriers due to higher circulation/ better exploitation of reader's time) are worthy of note, and advertising revenue growth in these spaces, while softer than Tier2/ Tier 3 towns, is likely to be robust. On the whole, we find three of the newspaper publishers are candidates for greater monetization - and we maintain a positive stance on all three (HT Media, DB Corp, and Jagran Prakashan).




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January 14, 2011

COMPANIES




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SECTOR REPORT

January 14, 2011

Ritwik Rai [email protected] +91 22 6621 6310

DB CORP LTDPRICE : RS.255 TARGET PRICE : RS.312 RECOMMENDATION : ACCUMULATE FY12E PE: 17.5X

Stock detailsBSE code NSE code Market cap (Rs mn) Free float (%) 52-wk Hi/Lo (Rs) Avg. daily volume Shares o/s (mn) Source: ACE Equity : : : : : : : 533151 DBCORP 46,286 13.7 307/207 76,500 181.51

Summary table(Rs mn) Sales Growth (%) EBITDA Net profit Net Debt EPS (Rs) Growth (%) CEPS DPS (Rs) ROE (%) ROCE (%) EV/Sales (x) EV/EBITDA (x) P/E (x) P/Cash Earnings P/BV (x) FY10 10,630 10.6 3,429 1,748 1,257 10.0 369.6 12.1 1.3 39.3 20.3 4.5 13.9 25.5 21.0 7.0 FY11E 12,548 18.1 4,118 32.8 2,417 (238) 13.3 33.4 15.9 2.5 32.4 22.5 3.7 11.2 19.2 16.1 5.4 FY12E 14,337 14.3 4,364 30.4 2,642 (1,819) 14.6 9.3 17.3 3.0 27.7 20.7 3.1 10.2 17.5 14.7 4.4

We see DB Corp as a company with exceptional vision, and ability to expand and consolidate regional markets. DB Corp is in the leading position in most of the markets that it operates in, and is in prime position to benefit from strong growth in regional markets. Execution risks in the expansion underway in Bihar/ Jharkhand are, we think, balanced by strong growth in the company's other markets. We see sales - led PAT growth of 22% CAGR in FY10-FY13E. While we are positive on the company's approach and financials, we believe current valuations account for the same in a significant way. We rate DB Corp. ACCUMULATE with a price target of Rs 312/ share.

Investment Rationaleq Strong Play on Regional Media: DB Corp is a strong play on the regional print media space. The company is a fast-growing, regional print media player, with presence in two languages - Hindi and Gujarati, together accounting for ~17mn readers. Macro drivers of Hindi / regional print media remain strong, on account of significant cost per thousand differentials between the yields of English and Hindi newspapers. q Company's strengths - Vision, Execution, Consolidation: The company's track record in making entry in new markets is well above-par. Over the past fifteen years, the company has successfully grown into markets such as Rajasthan, Chandigarh, Punjab, Haryana, Gujarat, and Jharkhand. We concur that DB Corp has a vision, and execution ability that is the best-in-class. Moreover, it is evident from the company's record of maintaining positions that DB Corp has strong systems in place to manage a highly diversified set of geographies consistently. q Focus on Urban, Monetizable Reader: The company has a strong focus on developing a presence in urban areas to ensure greater monetization of its readership. Further, the newspaper is a leader in a large-number of high growth states and urban centres; and its revenue stream is well diversified across states. q Strong Revenue Prospects, Margins to Remain Healthy in Old Editions: Topline growth in the company will be driven by the increasing focus of the media buyer on regional media, as well as the company's presence in geographical areas that are witnessing strong consumption growth. DB Corp's more recent editions have less than optimised models. Some of these generate losses, and will be significant drivers of margins on account of rising advertising rates. q Negative Impact on margins on account of new geographies to remain contained: The company's entry in new geographies - Jharkhand and Bihar will generate losses in the medium term, impacting EBITDA margins negatively in FY11-FY14E. However, we believe that given the company's track record, there is reason to believe that DB Corp shall be EBITDA positive in these regions in the next four years. The company's margins and ROIC shall be supported by strong performance among older editions. As such, long-term drivers of the stock are well in place.

EBITDA margin (%) 32.3


Shareholding pattern

Corporates 1% Institutions Public 3% 5% Foreign 5%

Promoters 86%Source: ACE Equity

1 year performance (Rel to sensex)

Source: ACE Equity




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SECTOR REPORT

January 14, 2011

q PER Highest Among Peers, Premium Valuations Sustainable: Including losses emanating from Bihar and Jharkhand editions, we forecast a FY10-FY13E EPS CAGR of 23%. We note that DB Corp, at 19.6 PER FY11 and 17.9 PER FY12, is the most expensive print media stock in our coverage universe. Even so, for reasons discussed above, we believe that a premium over peers is called for and sustainable. We rate the stock ACCUMULATE. q Valuation: We compute the DCF value of the stock at Rs 312/ share (FY12E), implying 20% upside from present levels. Our FY12 -end price target implies Rs 277/ share on FY11 -end, which denotes a fair but limited price - value gap. q Risks: 1/ competitive risks across geographies, 2/ execution risks involved in new editions planned in Bihar/ Jharkhand, and 3/ spikes in newsprint prices, and risks relating with soft adex growth.




24

SECTOR REPORT

January 14, 2011

Regional Media PowerhouseDB Corp has expanded from being a MP-Chhatisgarh player to a regional media powerhouse, by expanding into diverse territories such as Gujarat, Rajasthan, Punjab, and Haryana. The company has also launched an edition in Ranchi and expects to have editions across Bihar, Jharkhand and Jammu over the next two years. Moreover, DB Corp. is the only regional print player to have successfully crossed the language barrier. Its Gujarati newspaper, Divya Bhaskar, is the largest circulated (and second largest read) Gujarati daily.Growth of DB Corp1995 State Editions Language Readership 1 5 1 3.2 2010 13 53 3 17.5

DB Corps geographical reach

Source: Company

Source: Company

Vision, Execution, ConsolidationHindi newspapers have, in the past decade or so, been more reliant on circulation than their English counterparts. This is likely on account of the fact that Hindi markets have attracted lower advertising volumes/ yields, forcing publishers to place the burden of costs on the reader in a larger way. However, as regional media has begun to attract greater attention of the media buyer, adex driven to Hindi newspapers has increased. The trend has implications: 1/ if national advertisers are more interested in regional media, the advertiser shall share a greater burden of the newspaper's costs, thus providing a newspaper an opportunity to raise circulation/ readership by cutting cover prices, 2/ if national advertisers are more interested in regional media, there are network benefits of being a larger player, 3/ newspaper cover prices, sometimes as high as Rs 4/ copy are a deterrent to readership, implying that there are circulation/ advertising revenue tradeoffs. We believe the strength of DB Corp lies in recognition, with certainty, of the trend and its implications. DB Corp has committed itself to growing across markets, providing a people's newspapers, at people's cost.




25

SECTOR REPORT

January 14, 2011

DB Corp has had a strong track record of success in expansion of its newspaper business. In virtually all of its new markets, the company's newspaper is in #1/#2 position. The company believes that its strong track record in building on new editions is a result of its unique strategy for launch, which relies on three essential steps: 1/ engagement with the reader, by way of a near exhaustive survey of the market, 2/ involving the customer in product creation, by seeking her inputs in the designing of the newspaper, 3/ going back to the customer with the designed product and seeking subscriptions. DB Corp identifies a market based on growth potential - determined primarily by factors such as monetization of readership and print penetration among literates.Strong track record in finding/developing new markets

In certain cases, the company's ability to spot potential and create markets is more pronounced than the others. The best example of DB Corp's exceptional ability to sight potential is the Chandigarh market. The Chandigarh market, prior to DB Corp's entry, was widely believed to be an "English market", meaning people somehow preferred English newspapers. DB Corp explored the market, and found that most people were familiar with Hindi, but did not like the way Hindi newspapers were presented - which discouraged reading of Hindi newspapers. A result of the above is the launch and success of the Chandigarh edition, which is the leader by far in readership within the Chandigarh market - English or Hindi. In terms of maintaining the position it has created, DB Corp's track record has been no less spectacular. The company believes that it is able to come across as a neutral media group (not aligned with a party/ ideology), and is able to localise content through its various editions and sub-editions. The company believes that in order to make significant profits in the newspaper publishing business, one must be #1 or a strong #2, and moves aggressively to ensure strong competitive position in all its markets.DB Corp - Timeline of GrowthYear 1992-95 1996 2000 2003 2006 2007 2010 2010 2011E Event Consolidated presence in MP/ Chhatisgarh to emerge as #1 Launched in Rajasthan, beginnning with Jaipur. #1 on Day one (circulation) Launched in Chandigarh and Haryana Launched Gujarati daily Divya Bhaskar, emerged as #1 on day one (circulation) Launched in Punjab (Amritsar/ Jalandhar) Launched Business Bhaskar, agreement for DNA in select geographies Launched in Jharkhand (Ranchi) Launched in Jammu Likely launch in Bihar

Source: Company




26

SECTOR REPORT

January 14, 2011

Regional Media - A Broad Play on Reader MonetizationRegional print media players have benefited and are likely to continue benefiting from lower monetization of readership as compared with English newspapers. As shown below, DB Corp's Cost Per Thousand (CPT) is well lower than English players such as The Times of India and Hindustan Times. Gujarat Samachar, which can be assumed as a valid proxy to Divya Bhaskar, is also, undermonetized in this sense.Cost Per Thousand (CPT) Metrics indicate potential for growth in Long Term YieldsCPT Index, Various Newspapers

100 86

Low CPT of regional players presents long term opportunities in raising ad-yields

62

21

18

13

10

6

The Times of India*

Hindustan The Times Times (Del+Mum) of India (AE)

Dainik Bhaskar

Eenadu

Dainik Jagran

Gujarat

Malay ala

Samachar Manorama

CPT index (SEC-AB), Various Newspapers

100 85 63 62 54 53 36 24

The Times of India*

Hindustan The Times Times (Del+Mum) of India (AE)

Eenadu

Dainik Bhaskar

Malay ala Manorama

Dainik Jagran

Gujarat Samachar

Source: Ernst & Young




27

SECTOR REPORT

January 14, 2011

Macro Trends Favour Tier -2 Towns, Hindi dailies continue to be cheap on a CPT basisAs stated previously in the report, there is a case for media buyers to look beyond metros for beter ROIs. India's media buyers have thus far been concentrating largely on metro newspapers, due to which the adex is tilted heavily in favour of metros. Moreover, there has been a case of differential treatment in so far as the case of regional versus English newspapers are concerned - with Hindi newspapers typically getting only 10-12% of the advertising rate on the average (cost per thousand basis). Trends confirm that media buyers have started to look afresh at regional markets, and the differential (between English and Hindi newspapers, CPT basis) has declined over the years. We expect this trend to continue - benefiting Hindi newspaper players.DB Corp present in some of the faster growing cities

DB Corp is positioned well in some of the faster growing states of India, and has presence in some of the key cities identified for growth. The chart below shows the extent of growth expected in key cities of India (cities to which DB Corp has exposure are highlighted in blue marker.Growth in Key Urban Towns (2005-2010)Bhopal Kanpur Coimbatore Kolkatta Hy derabad Rest of India Pune Faridabad India Jalandhar Chennai Chandigarh Delhi Amritsar All 20 Cities Bangalore Lucknow Mumbai Jaipur Ahmedabad Nagpur Surat 0 2 4 6 8 10 12 14 16 18

Source: E&Y, The New Market Shehers




28

SECTOR REPORT

January 14, 2011

DB Corp - Regional Play, Diversified GeographiesDB Corp is the owner of two of the largest newspapers in India - Dainik Bhaskar and Divya Bhaskar, together accounting for ~17mn readers.

Top Newspapers in IndiaRank 1 2 3 4 5 6 7 8 9 10 13 17 Publication Dainik Jagran Dainik Bhaskar Hindustan Malayala Manorama Amar Ujala Lokmat The Times Of India Daily Thanthi Rajasthan Patrika Mathrubhumi Gujarat Samachar Divya Bhaskar Language Hindi Hindi Hindi Malayalam Hindi Marathi English Tamil Hindi Malayalam Gujarati Gujarati 2007R1 2007R2 2008R1 2008R2 2009R1 2009R2 2010Q1 2010Q2 2010Q3 17,112 12,512 9,045 8,835 8,376 6,872 6,781 8,350 6,945 6,958 5,303 3,311 16,502 12,816 8,547 8,658 8,075 6,704 6,827 7,909 7,403 6,664 5,006 3,294 16,386 12,824 8,749 8,613 8,091 6,767 6,792 7,565 7,328 6,378 5,034 3,544 16,289 13,000 9,210 8,413 8,072 6,627 6,705 7,679 6,667 6,123 5,343 3,566 16,071 12,878 9,302 8,883 8,185 6,788 6,863 7,604 6,663 6,411 5,417 3,435 16,095 12,881 9,338 9,183 8,300 7,103 7,137 7,516 6,481 6,675 5,211 3,375 16,315 13,330 9,916 9,582 8,491 7,360 7,032 7,354 6,682 6,696 5,216 3,249 15,925 13,303 10,143 9,841 8,417 7,402 7,088 7,402 6,900 6,566 5,218 3,388 15,950 13,488 10,839 9,927 8,583 7,809 7,254 7,245 7,217 6,678 5,249 3,603

Source: IRS 2010 Q3

DB Corp's readership is well spread across various geographies in central and North India, and Gujarat.Distribution of Readership: DB CorpOther 4% CPH 14% MP/ Chhatisgarh 25%

Gujarat 21%

Rajasthan 36%Source: IRS 2010 Q1

A note on relative positions: DB Corp is a clear, dominant leader in Madhya Pradesh, Chandigarh, and Haryana. Punjab is a fragmented market, with four players involved in the race for #1 spot. In Gujarat, DB Corp (Divya Bhaskar) competes with Gujarat Samachar (#2)and Sandeh (#3). In Rajasthan, DB Corp is second to Rajasthan Patrika.




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SECTOR REPORT

January 14, 2011

Readership relative to Competition (Dainik Bhaskar)Madhya Pradesh (AIR, 000) Chhatisgarh (AIR, 000)

4000 3000 2000 1000 0

Dainik Bhaskar

Nai Duniya

Dainik Bhaskar 1200 900 600 300

Hari Bhoomi

2010 Q1

2010 Q2

2010 Q3

0 2010 Q1 2010 Q2 2010 Q32010 Q330

2007 R1

2007 R2

2008 R1

2008 R2

2009 R1

2009 R2

2007 R1

2007 R2

2008 R1

2008 R2

2009 R1

Punjab (AIR, 000)

Chandigarh (AIR, 000)

Punjab Kesari (#1) Dainik Jagran Dainik Bhaskar (#4) 1500 1200 900 600 300 0

Jag Bani Ajit

Dainik Bhaskar (#1) Amar Ujala 300 240 180 120 60 0

2010 Q1

2010 Q2

2010 Q3

2007 R1

2007 R2

2008 R1

2008 R2

2009 R1

2009 R2

2009 R2

The Tribune Hindustan Times

2010 Q1

2010 Q22010 Q2

Haryana(AIR, 000)

Rajasthan(AIR, 000)

1600 1200 800 400 0

Dainik Bhaskar Punjab Kesari

Dainik Jagran8000 6000 4000 2000 0

Rajasthan Patrika Dainik Bhaskar

2010 Q1

2010 Q2

2010 Q3

2007 R1

2007 R2

2008 R1

2008 R2

2009 R1

2009 R2

2007 R1

2007 R2

2008 R1

2008 R2

2009 R1

2009 R2

Gujarat(AIR, 000)

6000 4500 3000 1500 0 2010 Q1 2010 Q2 2010 Q3 2007 R1 2007 R2 2008 R1 2008 R2 2009 R1 2009 R2 Gujarat Samachar Sandesh Divya Bhaskar

Source: IRS




2010 Q1

2010 Q3

2007 R1

2007 R2

2008 R1

2008 R2

2009 R1

2009 R2

SECTOR REPORT

January 14, 2011

Stronger in Urban Areas/ CitiesDB Corp's management is focussed on readership within urban areas, and its urban readership is especially strong relative to competition.DB Corp: Urban Readership Relative to CompetitionAIR, '000 Punjab Punjab (Urban) AIR, '000 Haryana Haryana (Urban) AIR, '000 Gujarat Gujarat (Urban) AIR, '000 Rajasthan Rajasthan (Urban) AIR, '000 Madhya Pradesh Madhya Pradesh (Urban) DB 810 699 DB 1,446 696 DvB 3,579 2,652 DB 6,104 3,333 DB 3,357 2,659 DJ 802 692 DJ 927 488 SS 240 176 RP 7,135 3,298 ND 1,081 801 PK 1,078 816 PK 1,013 473 GS 4,472 3,197 DNA 25 25 NvD 174 129 Tribune 306 257 Tribune 136 117 Sandesh 3,377 2,067 TOI 199 186 Patrika 937 853

Source: Company, IRS Data. Note: DB: Dainik Bhaskar, DJ: Dainik Jagran, PK: Punjab Kesari, DvB: Divya Bhaskar, SS: Saurashtra Samachar, GS: Gujarat Samachar, RP: Rajasthan Patrika, ND: Nai Duniya, NvD: Navbharat

We note that even in states where DB Corp. holds a second position; its newspapers have a strong position in the key cities as shown. We note that newspapers are largely a city phenomenon, and readership in the larger cities is more monetizable than readership in smaller towns and villages. DB Corp. believes that 50% of the advertising of the regions originates from, and is targeted at, these top cities.Dainik Bhaskar/ Divya Bhaskar - Relative Position in Cities (AIR, '000)Ahmedabad DvB 1,038 Jaipur DB 969 Bhopal DB 316 Indore DB 442 Chandigarh DB 171 SS RP 720 ND ND 222 Tribune 89 GS 876 DNA 25 NvD 68 NvD Amar Uj 78 Sandesh 474 TOI 85 Patrika 255 Patrika 169 HT 85

Source: Company, IRS Data. Note: DB: Dainik Bhaskar, DJ: Dainik Jagran, PK: Punjab Kesari, DvB: Divya Bhaskar, SS: Saurashtra Samachar, GS: Gujarat Samachar, RP: Rajasthan Patrika, ND: Nai Duniya, NvD: Navbharat




31

SECTOR REPORT

January 14, 2011

Revenues will be on a Strong Growth PathOn account of factors discussed above, we believe DB Corp shall register strong growth in advertising revenues, as it has through its recent financial history.Revenue Growth over the years (Rs mn)17,000 12,750 8,500 4,250 0 FY06 FY07 FY08 FY09 FY10E FY11E FY12E FY13E

Source: Company Reports, Kotak Securities - Private Client Research

Revenue Break - Up by Geographies (2011)

1%

In our understanding, the company's revenues are spread fairly evenly across various geographies. In addition to growth in advertising revenues from existing markets, DB Corp's revenues shall also grow on account of expansion in new geographies, such as Bihar and Jharkhand.

Margins to remain at healthy levels despite new editions42% 57%

- Mature States - New States/ Other - Bihar & JharkhandSource: Kotak Securities, PCG Research; Note: "Mature States" include MP, Chhatisgarh, and Rajastha. These are states where the newspaper has been rolled our across the state, for over ten years. "New states"/ Other include Chandigarh, Punjab, and Haryana, as well as Gujarat, and other publishing revenues.

DB Corp has launched two editions in Jharkhand, namely Ranchi (launched August, 2010), and Jamshedpur (launched Dec, 2010). The company has moved aggressively in these markets, and has brought in strong subscriptions. As per management, DB Corp has a print order of 150,000 copies in Ranchi. AS of now, the company plans to launch another edition in Dhanbad (March, 2011). The company will launch its paper in Bihar in mid FY12, an dplans to complete expansion in Bihar in mid- FY13. New editions, to be launched through FY13E in Bihar and Jharkhand, shall struggle initially, until such a point that the company's circulation/ readership is stabilized and well - known. As such, we believe that the company shall bring in significant losses from these operations in the initial years.Estimation of Losses - Bihar and Jharkhand Editions2000 1500 1000 500 0 -500 -1000 FY11E FY12E FY13E FY14E FY15E FY16E Revenues EBITDA


Expansion in Jharkhand and Bihar shall be a difficult affair for DB Corp, notwithstanding its strong track record in other markets. Competitors in these markets have reacted with vigour and determination. In Jharkhand, Prabhat




32

SECTOR REPORT

January 14, 2011

Khabar, the #2 newspaper of state, reacted to DB Corp's plans by a sharp cut in cover price (Rs 2/ copy from Rs 4/ copy) across the state. Following this move, all print players, including Hindustan, the market leader, have cut cover prices. Moreover, companies have invested aggressively in facilities following this news, and players like Prabhat Khabar have gone completely colour. In short, to the extent possible, incumbents have closed easy paths for DB Corp to gain on account of attraction to the reader or the advertiser. We also tend to think highly of the capabilities of HT Media (Hindustan) to withstand and fight competition. We believe that HT Media has come out richer from the experience of defeat and resurgence in the Delhi market, and is unlikely to concede ground without struggle.We expect DB Corp to emerge as a #2 / strong #3 in Bihar and Jharkhand

Even so, we think DB Corp, given its track record, could emerge as a #2/ respectable #3 in both the Bihar and Jharkhand markets. We believe that the company shall break even by FY15E in these geographies. We set DB Corp's advertising market share at 20% of Bihar/ Jharkhand market FY15E onward. Longterm EBITDA margin for Bihar / Jharkhand editions has been set at 33%. Margins could rise on account of: 1/ strong advertising revenues in high-growth markets, 2/ higher circulation revenues. It is worth noting that the management expects that margins shall be in the 31%-32% range in FY12-FY13 period even after taking into account losses from Bihar and Jharkhand markets.

Outlook on Growth and Profitability - Newspaper PublishingWe forecast healthy gains in advertising yields for DB Corp. across editions in 2HFY11/FY12, as well as healthy growth in volumes, leading to strong gains in circulation revenues in FY11/ FY12. While the company is well placed relative to competition, we think DB Corp. shall like to maintain cover prices in most editions to maintain competitive position. As such, we are unlikely to witness meaningful growth in circulation revenues. Therefore, circulation revenues as a percentage of total shall decline over time. Newsprint prices shall impact DB Corp, as with all print media players. The growth in advertising that we have factored in shall offset growth in newsprint expense, leading to flat margins.Under monetized properties in new states to help maintain strong margins

Placed into geographies, DB Corp has significant losses from certain editions started in the past 3-4 years. In our understanding, the company has significant loss making editions in the CHP and Gujarat markets, where it has entered in the past 4-5 years. Markets in Punjab and Gujarat are also highly competitive, which means that margins in these regions shall continue to be well below other "mature states" in the next two-three years. In the meanwhile, we believe Bihar and Jharkhand editions shall bring in losses, leading to margin erosion in FY12-FY13.EBITDA (Rs mn): DB Corp's Geographies5000 4000 3000 2000 1000 0 -1000 FY11E FY12E FY13E FY14E FY15E - Mature States - New States/ Other - Bihar & Jharkhand

Source: Kotak Securities - Private Client Research; Note: "Mature States" include MP, Chhatisgarh, and Rajastha. These are states where the newspaper has been rolled our across the state, for over ten years. "New states"/ Other include Chandigarh, Punjab, and Haryana, as well as Gujarat, and other publishing revenues.




33

SECTOR REPORT

January 14, 2011

However, we think certain factors are going to impact margins of the company positively in the long-run. The company has been showing strong trends in readership in the competitive markets of Punjab and Gujarat. As DB Corp's newspapers emerge as clear leaders on readership, we think yields in these geographies shall rise strongly, leading to margin gains. In addition, improvement in the margins in Bihar and Jharkhand region (mentioned on the previous page) shall be a positive.

Presence in alternative media a positiveThe company has been conscious of leakages to alternative media vehicles. Since a large part of DB Corp's revenues are related with local (as opposed to national) advertising, radio could be a potential challenger to the company's newspaper activities. DB Corp operates, through subsidiary Synergy Media, 17 FM radio stations. Strategically, the company owns stations in such cities where it has strong newspaper operations, as the management believes that there are synergies in cross media promotions as well as 360 degree solutions to the media buyer. It appears that the company's strategy is working to its advantage, with Synergy Media approaching breakeven in FY11E. Synergy Media is also set to benefit from the recent order from the Copyright board, which reduces royalty payments to music companies. We note that as of FY10, the company paid Rs 87 mn, or 22% of revenues, as royalties to music companies. As per the order, which has come into effect from August 2010, the company shall be obliged to pay 2% of gross revenues as royalties. This, in addition to operating leverage, shall enable the company to raise its EBITDA margins to over 20% in FY12E.

1000

Revenues (LHS)

Margin (RHS)

100%

500

50%

0

0%

-500

-50%

-1000 FY09 FY10 FY11E FY12E FY13E FY14E

-100%


The company also punlishes DNA from certain geographies, as per an agreement with Diligent Media. These activities help DB Corp provide 360 degree solutions to the advertiser and are a long-term positive for the company.




34

SECTOR REPORT

January 14, 2011

Strong Margins in Addition with Improved Turnover to Drive Value CreationDB Corp has invested aggressively in its printing facilities, in order to ensure that the company is able to provide the highest quality of newspaper to consumers and advertisers. In FY06-FY10 period, DB Corp has invested Rs 6 Bn in development of quality print facilities/ updation of existing facilities in order to ramp up capacities/ build greater capacity for color newspaper, and the like. This investment, not met with sales that are witnessed in mature editions, have led to a consistent softness in asset turnover for DB Corp, which have a dampening impact on the copmany's ROIC.Asset Turnover Ratio versus peers2.4 DB Corp Jagran HT Media

Higher asset turnover, improved margins post scale - up will create value

1.8

1.2

0.6

0.0 FY07Source: Companies

FY08

FY09

FY10

With strong margins and healthy growth in advertising revenues, we believe DB Corp shall register healthy gains in its sales turnover ratio, leading to strong improvements in its ROIC over 2011-2014.Asset Turnover, margins to drive ROIC Incrementally2.0 Asset Turnover (x) ROIC (%) 40

1.5

30

1.0

20

0.5

10

0.0 FY10Source: Companies

0 FY11E FY12E FY13E FY14E

We believe the company shall bring in strong operating cash flows of over Rs 8Bn in the next three years. The company has a strong balance sheet, with zero net debt (FY11E), and the cash shall provide the company with an opportunity to pursue other growth options.




35

SECTOR REPORT

January 14, 2011

Quarterly Trends Indicate Traction in Advertising, Quality Management of ExpensesRecent quarterly results of the company show strong traction in advertising revenues. Moreover, while earlier quarters (Q1 FY11) witnessed growth largely on account of growth in volumes (upto 90% on account of volumes), management has confirmed that yields are recovering, and, in the most recent quarter, growth in advertising revenues was split 50:50 into volume and pricingRevenues (Rs mn) and Margins - Quarterly Results3500 2800 2100 1400 700 0 -700 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 Revenues (LHS) EBITDA Margin (%), RHS 60 48 36 24 12 0 -12

Source: Company Reports

Personnel expenses have risen sharply over the past year, as the company has brought in certain employees, earlier employed under agencies, into the copmany's rolls. In addition, the company has added employees in Jharkhand. The company continues to have significant control over newsprint expenses, leading to a healthy EBITDA margin of 31% in 2QFY11, even as DB Corp has expenses the costs of survey conducted in Jharkhand prior to the launch of its Ranchi edition. Quarterly trends of the company indicate that DB Corp is set to register strong margins over the next few quarters, notwithstanding the expenses that the company shall incur on account of Bihar/ Jharkhand editions rollout.

Assumptions and Value DriversWith continued growth in areas dominated by the company, and strong adex growth returning in the industry, we expect DB Corp's revenues to grow 17% through FY10-FY13E. Due to its strong competitive position in most geographies, we also think DB Corp's long-term growth prospects are strong. We factor in 13% advertising revenue growth through FY11-FY20E. In line with the industry, circulation revenue growth shall be soft (4% CAGR through FY11-FY20E). DB Corp has significant levers at its disposal to manage newsprint expenses, including management of newsprint mix (domestic versus imported), and management of pagination. However, we believe that current trends suggest that the company is utilizing these levers to a great extent. Considering the impact of sharply higher circulation (due to impending launches in Jharkhand, and Bihar), we factor in FY10-FY13E raw materials' expenses growth of 50%. With other operating expenses largely held under check, we estimate that the company's margins will decline in FY12-FY13 on account of new editions. Net-net, we see turnover-led PAT growth of 22% CAGR over FY10-FY13E.




36

SECTOR REPORT

January 14, 2011

Profit Model - DB CorpRs mn, FY Ends March Revenues: -o/w Sales -o/w Income from Event Management -o/w Advertising Income -o/w Other Op. Income Expenses: Raw Materials Consumed Event Expenses Operating Expenses Personnel Expenses Admin, Sales and Other Expenses EBITDA Margin Depreciation and Amortization EBIT PBT Provision for Tax PAT before Exceptionals FY10 10,630 2,272 148 8,085 124 7,200 3,279 118 1,315 1,318 1,170 3,429 32.3% 378 3,051 2,806 1,057 1,748 FY11E 12,548 2,524 170 9,710 144 8,430 3,864 127 1,368 1,771 1,299 4,118 32.8% 466 3,652 3,607 1,190 2,417 FY12E 14,337 2,678 196 11,298 164 9,973 4,743 138 1,494 2,207 1,391 4,364 30.4% 502 3,862 3,943 1,301 2,642 FY13E 16,466 2,845 225 13,211 184 11,733 5,471 150 1,770 2,634 1,708 4,732 28.7% 538 4,195 4,417 1,458 2,959





37

SECTOR REPORT

January 14, 2011

ValuationBased on our DCF valuation, we see fair value of the stock at Rs 312/ share (FY12 - end). As indicated brfore, we factor in revenue growth of 10.5% CAGR over the long-term, led by advertising revenues of DB Corp. On account of strong growth in yields, and strong but stagnant newsprint prices (we factor in long-term newsprint price of Rs 27/ kg), we think the company shall register s strong growth in EBITDA margin post the roll-out of Bihar/ Jharkhand editions. We set a peak and terminal EBITDA margin of 41% - amongst the highest in our coverage universe. We believe DB Corp's diversified revenue and EBITDA streams, as well as presence in the regional media, call for a strong terminal growth assumption. Accordingly, we factor in 5% terminal growth rate for cash flows. Our FY12E PT of Rs 312/ share implies Rs 275/ share on FY11E PT. On account of sufficient price-value gap, we initiate on DB Corp. with an ACCUMULATE rating. We believe significant catalyst for price- value convergence shall be: 1/ strong earnings performance from DB Corp in the coming quarters, 2/ clarity about the extent of losses from the company's forays in Jharkhand/ Bihar.DCF valuationRs mn, FY Ends March Revenues Growth EBITDA Margin EBIT NOPLAT Add: Non-Cash Charges Gross Cash Flow Changes in WC Cash Flow from Operations Capex Free Cash Flow PV -FCF PV 2012-21 Terminal Growth PV - Terminal Value Ent Value Net Debt/ Cash Mkt Value Per Share FY11E 12,548 18.1 4,118 32.8 3,652 2,447 466 2,913 627 2,286 600 1,686 1,686 22,837 5% 31,978 54,815 (1,819) 56,634 312 FY12E 14,337 14.3 4,364 30.4 3,862 2,587 502 3,089 717 2,372 600 1,772 1,574 FY13E 16,466 14.8 4,732 28.7 4,195 2,810 538 3,348 659 2,690 600 2,090 1,648 FY14E 18,704 13.6 6,104 32.6 5,530 3,705 574 4,279 748 3,531 600 2,931 2,053 FY15E 21,015 12.4 7,456 35.5 6,846 4,587 610 5,197 841 4,356 600 3,756 2,336 FY16E 23,181 10.3 8,459 36.5 7,813 5,235 646 5,880 927 4,953 600 4,353 2,405 FY17E 25,333 9.3 9,490 37.5 8,808 5,901 682 6,583 887 5,696 600 5,096 2,501 FY18E 27,574 8.8% 10,546 38.2% 9,828 6,584 718 7,302 965 6,337 600 5,737 2,500 FY19E 30,192 9.5 11,820 39.1 11,066 7,414 754 8,168 1,057 7,111 600 6,511 2,520 FY20E 33,700 11.6 13,585 40.3 12,795 8,573 790 9,363 1,179 8,183 600 7,583 2,606 FY21E 37,655 11.7 15,626 41.5 14,800 9,916 826 10,742 1,318 9,424 600 8,824 2,693





38

SECTOR REPORT

January 14, 2011

Risks and Concerns1. Competitive concerns relating with the durability of the company's dominance/ strength in various geographies: recent quarters have seen aggressive moves by "Patrika" into MP and Chhattisgarh markets. Patrika has registered a strong growth in the recent quarters (MP), in certain cities (notably Bhopal), even though overall numbers remain small when compared with Dainik Bhaskar. 2. The company faces strong execution risks on account of planned launches in Bihar and Jharkhand. These are geographies dominated by Hindustan, the Hindi daily from HT Media. The company's entry strategy in Jharkhand has been blunted by incumbents' across the board reduction in cover price to Rs 2/ copy. Recent surveys also show strong improvements in readership of incumbent dailies, with Hindustan's readership rising 36% over 2009 R2 levels. We believe, however, that DB Corp's management is likely to take a pragmatic and step-wise approach to expansion, and shall be able to manage these risks. We are comforted by the strong track record of DB Corp in launching editions in new geographies, as well as management comments on the same, which indicate that the rollout of Ranchi edition has met with success, and the newspaper is well in competition with the market leader in Ranchi, Prabhat Khabar.. 3. Earnings risks also arise from sharply higher newsprint prices. As stated previously in the report, we do not see reason to believe that a spike from present levels of $650-$700 is likely, and we are likely to see moderate increase in newsprint prices going ahead. High newsprint prices, to the extent observed at present, are likely to be sustained into the future, and we believe the same is built into street estimates. The company uses 20% imported newsprint. 4. Other macroeconomic risks relating with poor adex growth, and declines in particular categories that may affect volumes/ pricing for the company

About The CompanyDB Corp's primary revenue-generating activity is newspaper publishing. The company is also involved in other media activities, such as FM radio operations and event management.DB Corp: Business Overview

Source: DRHP




39

SECTOR REPORT

January 14, 2011

Newspaper publishing: 'Dainik Bhaskar', India's second-largest read daily is DB Corp's most important media property. The company also publishes 'Divya Bhaskar' (Gujarati daily), certain other dailies including 'Business Bhaskar' (Hindi business daily), and 'Bhaskar Gold'. 'DNA' and 'DNA Money' are published by the company under a franchisee agreement (with Diligent Media) in the states of Gujarat and Rajasthan. The company also publishes five periodicals, namely 'Aha Zindagi' (Hindi and Gujarati), 'Bal Bhaskar', 'Young Bhaskar', and 'Lakshya'. Radio operations of the company are under its (56.82% stake) subsidiary, Synergy Media and Entertainment Limited, which operates 17 radio stations under the brand name 'MY FM'. SMEL currently operates 17 FM radio stations in Jaipur, Ahmedabad, Chandigarh, Amritsar, Jalandhar, Indore, Bhopal, Gwalior, Udaipur, Ajmer, Surat, Bilaspur, Nagpur, Kota, Jabalpur, Raipur and Jodhpur. Promoters: The Company is promoted by Ramesh Chandra Agarwal and Sudhir Agarwal. The promoter group consists of several relatives of the promoters. The promoter group has a vast array of business interests, with a total of 97 companies forming a part of promoter group companies. Although there are no immediate risks to the fact, we find it useful to note the fact that the promoters of the company are involved in other media activities, held under different entities - most notably Diligent Media, the publisher of DNA.




40

SECTOR REPORT

January 14, 2011

FINANCIAL

mediaindustry-jan2011

Documents

consumption growth

cagr growth

poor growth

industry topline growth

lt pat growth

strong gdp growth

longterm adex growth

longterm growth rates