1. 1QFY2011 Result Update | Media
August 13, 2010
Deccan Chronicle Holding BUY
CMP Rs135
Performance Highlights Target Price Rs193
(Rs cr) 1QFY11 1QFY10 % yoy 4QFY10 %qoq Investment Period 12 months
Revenue 231.8 216.6 7.0 191.7 21.0
EBITDA 119.9 105.9 13.2 81.3 47.5 Stock Info
OPM (%) 51.7 48.9 281bp 42.4 930bp Sector Print Media
PAT 91.2 77.0 18.4 6.5 1,303.5 Market Cap (Rs cr) 3,283
Source: Company, Angel Research Beta 1.2
52 Week High / Low 180/91
Deccan Chronicle Holdings (DCHL) posted decent results this quarter, with
top-line growth of 7% yoy aided by ad-revenue growth on a high base (as Avg. Daily Volume 2,24,781
1QFY2010 had national elections) and earnings growth of 18% yoy on account Face Value (Rs) 2.0
of margin expansion of 281bp yoy. We maintain a Buy on the stock.
BSE Sensex 18,167
Top-line and Bottom-line meet expectations: DCHL reported top-line growth of Nifty 5,452
7% yoy/21% qoq to Rs231.8cr (Rs216.6cr/Rs191.7cr) in line with our estimate of
Reuters Code DCHL.BO
Rs238.7cr (~10% yoy growth). On the operating front, DCHL registered margin
expansion of 281bp yoy/930bp qoq, driving 13.2% yoy/47.5% qoq growth in Bloomberg Code DECH@IN
EBITDA primarily aided by gross margin expansion as the company continues to
benefit from benign newsprint prices. Earnings for the quarter, on a standalone
basis, registered growth of 18.4% yoy to Rs91.2cr (Rs77.0cr) following decline in Shareholding Pattern (%)
the tax rate to 14% (16%), 27% yoy growth in other income to Rs9cr (Rs7.1cr) and
flattish interest expense and depreciation cost, on an absolute basis. Promoters 63.4
MF /Banks /Indian FIs 19.1
Outlook and Valuation: At Rs135, the stock is trading at attractive valuations of
FII /NRIs /OCBs 13.2
10.1x FY2012E standalone EPS of Rs13.4. We value DCHL on SOTP basis and
maintain a Buy on the stock with a Target Price of Rs193 based on: 1) Rs161 per Indian Public /Others 4.3
share value for its core print business (12x FY2012E standalone earnings), and
2) Rs32 per share value for the IPL Team (25% discount to the per share value
calculated, based on the US $225mn floor price set for auction of new teams).
Abs. (%) 3m 1yr 3yr
Upside risks to our valuation include: 1) higher gate/sponsorship revenues on
account of addition of two new franchises, which would lead to an increase in the Sensex 5.2 17.1 21.0
number of matches from 59 to 94 matches, and 2) revision in media telecast DCHL (8.2) 37.2 (42.4)
rights as post auction, we expect IPL to re-work media telecast rights with Sony (to
factor in higher number of matches).
Key Financials (Standalone)
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
Net Sales 815 892 991 1,113
% chg 4.2 9.5 11.0 12.4
Net Profit (Adj) 140.1 261.1 286.1 325.4
Anand Shah
% chg (48.5) 86.4 9.6 13.7
022 – 4040 3800 Ext: 334
EBITDA (%) 32.9 50.7 48.5 47.7 anand.shah@angeltrade.com
EPS (Rs) 5.7 10.8 11.8 13.4
P/E (x) 23.6 12.5 11.5 10.1 Chitrangda Kapur
P/BV (x) 2.9 2.5 2.2 1.9 022 – 4040 3800 Ext: 323
RoE (%) 12.6 21.1 20.2 20.3 chitrangdar.kapur@angeltrade.com
RoCE (%) 14.0 24.7 24.3 25.1
Sreekanth P.V.S
EV/Sales (x) 4.0 3.5 3.0 2.5
022 – 4040 3800 Ext: 331
EV/EBITDA (x) 12.0 6.8 6.1 5.3 sreekanth.s@angeltrade.com
Source: Company, Angel Research
Please refer to important disclosures at the end of this report 1
2. Deccan Chronicle Holding|1QFY2011 Result Update
Exhibit 1: Quarterly Performance (Standalone)
Y/E March (Rs cr) 1QFY11 1QFY10 % yoy 4QFY10 % qoq FY2010 FY2009 % chg
Net Sales 231.8 216.6 7.0 191.7 21.0 892.5 814.9 9.5
Consumption of RM 74.9 85.5 (12.3) 74.7 0.3 317.1 442.7 (28.4)
(% of Sales) 32.3 39.5 39.0 35.5 54.3
Staff Costs 18.2 14.1 29.5 18.1 0.9 65.5 49.4 32.7
(% of Sales) 7.9 6.5 9.4 7.3 6.1
Other Expenses 18.8 11.1 68.6 17.6 6.8 57.3 54.6 5.0
(% of Sales) 8.1 5.1 9.2 6.4 6.7
Total Expenditure 111.9 110.7 1.1 110.4 1.4 440.0 546.7 (19.5)
Operating Profit 119.9 105.9 13.2 81.3 47.5 452.5 268.2 68.7
OPM (%) 51.7 48.9 42.4 50.7 32.9
Interest 11.8 11.1 6.4 11.6 1.1 45.1 70.9 (36.4)
Depreciation 10.9 9.9 9.5 12.6 (13.7) 42.9 32.1 33.7
Other Income 9.0 7.1 27.0 7.3 22.5 29.4 42.7 (31.0)
PBT (excl. Ext Items) 106.2 92.0 15.4 64.4 65.0 394.0 207.9 89.5
Ext Income/(Expense) - - - - -
PBT (incl. Ext Items) 106.2 92.0 15.4 64.4 65.0 394.0 207.9 89.5
(% of Sales) 45.8 42.5 33.6 44.1 25.5
Provision for Taxation 15.0 15.0 0.0 57.9 (74.1) 132.9 67.9 95.8
(% of PBT) 14.1 16.3 89.9 33.7 32.6
Recurring PAT 91.2 77.0 18.4 6.5 1,303.5 261.1 140.1 86.4
PATM (%) 39.4 35.6 3.4 29.3 17.2
Reported PAT 91.2 77.0 18.4 6.5 1,303.5 261.1 140.1 86.4
Equity shares (cr) 24.5 24.5 24.2 24.5 24.5
EPS (Rs) 3.7 3.1 18.4 0.3 10.7 5.7 86.4
Source: Company, Angel Research
Top-line meets expectations driven by ad value growth
DCHL reported top-line growth of 7% yoy/21% qoq to Rs231.8cr
(Rs216.6cr/Rs191.7cr) in line with our estimate of Rs238.7cr (~10% yoy growth),
primarily aided by 7% yoy/22% qoq growth in advertisement revenue to Rs217cr
(Rs202cr/Rs177cr), while circulation revenue remained flat at Rs15cr (Rs14cr).
Management indicated the advertisement growth to be completely value driven as
rate hike (~20% taken in 1QFY2010 gets absorbed and the gap between the
effective rate and the card rate narrows). Moreover, the company had circulation of
13.86 lakh copies with Hyderabad, Chennai and Bangalore contributing to 5.79
lakh, 3.06 lakh and 2.45 lakh copies during the quarter.
August 13, 2010 2
3. Deccan Chronicle Holding|1QFY2011 Result Update
Exhibit 2: Top-line growth gaining momentum Exhibit 3: Traction in ad-revenues to drive top-line
300 25
250 217
250 20 202
15 200
200 10
(Rs cr)
(%)
150 5 150
(Rs cr)
100 -
(5) 100
50 (10)
- (15) 50
14 15
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
0
Ad-revenue Circ. Revenue
Top-line (LHS) YoY (RHS) 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11
Source: Company, Angel Research Source: Company, Angel Research
Gross margin expansion continues, earnings robust on lower tax rate
On the operating front, DCHL registered margin expansion of 281bp yoy/930bp
qoq, driving 13.2% yoy/47.5% qoq growth in EBITDA to Rs119.9cr
(Rs105.9cr/Rs81.3cr). The company continued to benefit from benign newsprint
prices (DCHL’s average newsprint cost stands at US $600-615 per tonne) with the
raw material cost, this quarter, showing a decline of 713bp yoy/ 667bp qoq to
Rs74.9cr (Rs85.5cr/Rs74.7cr). Management has indicated that it doesn’t expect any
significant rise in newsprint prices in the near future (we are modeling in a ~10% rise
in FY2011E). However, the company’s staff cost and other expenditure increased by
136bp yoy and 296bp yoy (low base effect) to Rs18.2cr and Rs18.8cr respectively,
limiting further margin expansion.
DCHL’s reported earnings for the quarter, on a standalone basis, registering a
growth of 18.4% yoy to Rs91.2cr (Rs77cr) on account of the decline in the tax rate to
14% (16%), 27% yoy growth in other income to Rs9cr (Rs7.1cr) and flattish interest
expense and depreciation cost, on an absolute basis. On a qoq basis, earnings
growth was robust at 1,303.5% to Rs91.2cr (Rs6.5cr) as the company to maintain an
annual tax rate of ~33%, writes off the entire tax amount for the year in the fourth
quarter.
Exhibit 4: Bottom-line growth picks up Exhibit 5: Higher gross margins drive OPM
120 250 80 67 69 68
200 70 60 61 61
100
150 60 48
80 40
100 50
(Rs cr)
33 55 54
(%)
60
(%)
40 49 49 52
50
40 30 42
- 34
20
20 (50) 25
10 23
- (100) -
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
PAT (LHS) YoY growth (RHS) OPM Gross Margins
Source: Company, Angel Research Source: Company, Angel Research
August 13, 2010 3
4. Deccan Chronicle Holding|1QFY2011 Result Update
Key Concall Takeaways
Ad growth price led, volumes to recover: DCHL reported 7% yoy growth in
ad-revenue to Rs217cr (Rs202cr) in 1QFY2011 on improved yields.
Management indicated that the ad-revenue growth was primarily value driven as
the volumes came in lower by 30% yoy albeit on a high base (as 1QFY2010 had
national elections).
Newsprint prices expected to remain benign: The company’s newsprint cost
during the quarter stood at US $600-615/MT. DCHL has an inventory cover for
three months. However, management has not indicated a significant increase in
the newsprint cost going forward, and expects the price of the newsprint to
remain stable between US $640-650/MT.
Deccan Chargers likely to add Rs10-11cr profit in FY2011: Deccan Chargers
reported a loss of Rs30cr in FY2010 as DCHL did not receive the claims for the
loss of revenue due to the change in venue of IPL-II to South Africa. For FY2011,
management indicates higher central revenues of Rs50cr (Rs43cr) and ~Rs36cr
of revenues from the franchise/ticket sales. Moreover, there exists potential
upside to the same on account of increased number of matches post the
addition of two new IPL teams (Pune and Kochi).
Exhibit 6: IPL –III revenue breakup
(Rs cr) FY2011E
Revenues
Central Revenues 50
Other Local Revenues 36
Total Revenues 86
Costs
Player Fees 34
Other operational costs 25
Ammortisation 17
Total Costs 76
Net Profit 10
Source: Company, Angel Research
Odyssey already EBITDA positive, likely to register profit in FY2011E: Odyssey’s
current store count stands at 54 with 2,50,000-2,60,000 sq. ft. of space. In
FY2010, Odyssey recorded profit at the operating level and loss of Rs0.2cr at
the PAT level on account of: 1) increased same store sale, 2) re-negotiated
rentals, 3) downsizing of the non-profitable stores, and 4) reduced backend
operations. Management does not have aggressive expansion plans for the
Odyssey chain and indicated opening of 2-3 retail stores over the next 6-8
months.
August 13, 2010 4
5. Deccan Chronicle Holding|1QFY2011 Result Update
Investment Rationale
Print business - strengthening its foothold in South: Following launch of its
Bangalore edition, DCHL registered its total average daily circulation of 1.39mn
during Jan - June (JJ) 2010 according to the Audit Bureau of Circulation (ABC,
latest circulation figures), an increase of 3.0% over Jan - June (JJ) 2009. We
believe that DCHL’s enhanced presence places it in a significantly better position
in terms of offering bundled advertising to any media planner looking for a
pan-South India platform. We have valued the company’s standalone print
business at 12x P/E on FY2012E earnings, a 40% discount to its peers given its
limited southern reach.
IPL – huge value un-locking potential: Deccan Chargers Sporting Ventures
(DCSVL) houses the Hyderabad IPL team, Deccan Chargers (100% stake), which
won the second season of IPL. Based on the floor price of US $225mn for the
recent new teams auction (Kochi team and Pune team), we had calculated Rs43
per share value for DCHL’s IPL team. However, we would be cautious due to the
uncertainty in the recent team auctions, as covered in certain media reports, and
would give 25% discount to the per share value for the IPL team and have
accordingly arrived at a value of Rs32 per share for DCHL’s IPL team. We
believe DCHL might renew its interest to dilute stake in its IPL team. We remain
optimistic on IPL's money-making prospects and reiterate that any news flow on
the stake sale front will trigger a re-rating in the DCHL stock. With the addition
of two new teams, we expect: 1) Media telecast rights with Sony to be revised
upwards (higher central revenues for IPL teams), and 2) number of matches to
increase from 59 to 94 (higher gate/sponsorship revenues).
Attractive valuations: DCHL is currently trading at 9.3x FY2012E standalone EPS
(print), which is at a steep discount to its peers due to scalability issues as it is
characterised as a single publication company with limited reach (only South).
However, fading balance sheet concerns (debt and receivable days both stand
reduced), rising profitability in IPL (possibility of un-locking) and successful foray
into the Bangalore print market instills confidence. Moreover, if one were to
remove Rs32 per share value ascribed to IPL based on the floor price of US
$225mn, the core print business is available at extremely attractive valuations of
~8x FY2012E EPS.
Outlook and Valuation
During FY2010-12E, we expect DCHL to post a CAGR of 11.7% in standalone
revenues largely driven by 12.1% CAGR in advertising revenues and 6% CAGR in
circulation revenues on account of higher contribution from the Bangalore edition. In
terms of earnings, we have penciled in 11.6% CAGR during the period largely driven
by top-line growth, as we expect slight dip in the margins as newsprint prices
increases.
At Rs135, the stock is trading at attractive valuations of 10.1x FY2012E standalone
EPS of Rs13.4. We value DCHL on a SOTP basis and maintain a Buy with a Target
Price of Rs193 based on: 1) Rs161 per share for its core print business (12x
FY2012E standalone earnings), and 2) Rs32 per share for the IPL Team (25%
discount to the per share value calculated, based on the US $225mn floor price set
for auction of the new teams).
There exist upside risks to our valuation on account of the following:
• Higher gate/sponsorship revenues: Addition of two new franchises would lead to
an increase in the number of matches from 59 to 94 matches.
• Revision in media telecast rights: Post auction, we expect IPL to re-work media
telecast rights with Sony (to factor in higher number of matches).
August 13, 2010 5
10. Deccan Chronicle Holding|1QFY2011 Result Update
Research Team Tel: 022 - 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make
investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this
document are those of the analyst, and the company may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or
other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in
the past.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.
Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have
investment positions in the stocks recommended in this report.
Disclosure of Interest Statement DCHL
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to 15%) Sell (< -15%)
August 13, 2010 10
