All in the family

The stock price of DB Corp, one of India’s biggest media companies, jumped 4% on July 9 from Rs.264 to Rs.283 after its shareholders approved a buyback of 9.2 million shares worth Rs 3.13 billion. The proposal was initially approved by the board on May 26, and at that time the price was around Rs.260. After the July 9 pop, the stock now trades much lower at Rs. 220.

During the buyback, promoters Sudhir Agarwal, Girish Agarwal, Pawan Agarwal, Jyoti Agarwal, Namita Agarwal and Nitika Agarwal along with promoter entities DB Consolidated and Stitex Global tendered 3.23 million shares worth Rs 1.10 billion. Even during the Infosys buyback, promoters had tendered a considerable amount of shares. There, too, instant gratification proved elusive.  Compared with its current price of Rs.743, Infosys’ buyback happened at Rs.575 (Rs.461 when the board approved it and Rs.506 when the buyback closed) whereas in DB’s case, the price has languished much below the buyback price of Rs.340. Post the buyback, promoter holding in DB Corp has gone up from 68.05% to 69.8%.

The continuing slide in the stock price might just be discounting investor worries about rising input costs. In Q1FY18, DB Corp’s ad revenue grew 5% year-on-year and circulation revenue jumped 10.3% for the same period driven by the company’s expansion strategy. The big blow was the 479 basis points fall in Ebitda margin owing to 27.7% jump in raw material cost led by an increase in newsprint price and expansion costs. As the rupee continues to hit a new low each day, the cost of imported newsprint will further adversely impact the company’s margin. Though the input mix for newsprint is 70% domestic and 30% imported, analysts expect newsprint cost to jump from 6.5% in FY18 to 10.5% in FY19.

However, some respite is expected from the upcoming elections and it is expected to benefit from a spike in political advertising. DB Corp has completed its expansion drive in Bihar, Rajasthan, Madhya Pradesh and Gujarat and the management claimed that it sold 5.8 million copies in Q1FY19 compared to 5.1 million copies in the same quarter last year. With the rise in circulation, the company would be able to levy higher ad rates to political parties.

Analysts concern notwithstanding DB Corp is still favoured by marquee investor Pulak Prasad of Nalanda Capital. Even as Government of Singapore has reduced its stake considerably since the June 2018 quarter, Nalanda Capital did not tender a single share in the buyback and now holds nearly 10% in DB Corp. FIL investments (Mauritius), Ocean Dial and Somerset Emerging Markets Small Cap Fund, post the buyback, hold 1.05%, 1.09% and 1.24% respectively.

Mutual funds don’t exactly seem to share this enthusiasm and have reduced their holding from 7.08% in June 2017 to 1.72% as per the latest September 6 holding. HDFC MF has cut its stake from 3.23% to 0.73%, UTI MF and Reliance MF from 0.80% to 0.33% and 0.23% to 0.01% respectively. ICICI Prudential MF is an exception having increased its stake from 0.47% to 0.81%. Other prominent holders are ICICI Pru Life and Azim Premji Trust with 2.8% and 1.2% respectively.