‘Buy’ DB Corp on acquisition of stake in subsidiaries
After the acquisition, both these subsidiaries will be wholly owned by DBCL.
DBCL will pay ~R35.6 crore for the 45% stake in IMCL and also get tax benefits of ~R12 crore (management estimates) on the accumulated losses (of ~R33.8 crore as per the FY12 annual report) — implying a net purchase consideration of ~R23.5 crore. This values the digital business at ~R52.5 crore, that is, ~7x FY12 & 4x FY13E P/sales.
As per the FY12 annual report, IMCL had borrowings (debentures) of ~R35 crore on books — the management notes that DBCL had issued compulsory convertible debentures — which will be squared off with this transaction. We note this business had revenues of ~R7 crore in FY12 and the management guides to ~R13.5 crore in FY13E (1HFY13 revenues: ~R5.2 crore) with annual Ebitda loss of ~R6-7 crore. For comparison, the other listed internet stock, Info Edge, trades at ~9x FY12 & 7x FY13E EV/Sales.
The SMEL transaction is even smaller — the company pays R2.4 crore for 43% stake, valuing the business at R5.5 crore (~1.9x / 1.7x FY12/13E EV/sales on our estimates). SMEL is profitable with Ebitda margins of 15% in FY12.
We believe the transactions are in line with the management’s strategy to consolidate all media
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