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Deccan Chronicle: Operating expenditure continue to rise - Views on News from Equitymaster

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  • Feb 16, 2012 - Deccan Chronicle: Operating expenditure continue to rise

Deccan Chronicle: Operating expenditure continue to rise
Feb 16, 2012

Deccan Chronicle has announced its 3QFY12 results. The company has reported a 16% YoY increase in topline and a 39.4% fall in net profit during the quarter. Here is our analysis of the results.

Performance summary
  • Topline registers a 16% YoY growth during the quarter. For the 9 months period, the sales actually fell by 1.3% YoY.
  • Operating expenditure has jumped by 46% YoY thereby resulting in a drop in operating profits of 33.4%. For the year till December 2011, the operating profits reduced by 56.4% YoY.
  • Interest costs have been higher, growing by almost 28% YoY while the depreciation charges increased by 22.6% YoY.
  • The net profits of the company registered a fall of 39.4% YoY. For the 9 month ended December 2011, these were down by a staggering 73.9% YoY.


Financial performance snapshot *
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Net sales 1,996 2,316 16.0% 6,681 6,592 -1.3%
Expenditure 1,242 1,814 46.1% 3,549 5,228 47.3%
Operating profit (EBDITA) 754 502 -33.4% 3,132 1,365 -56.4%
EBDITA margin (%) 37.8% 21.7%   46.9% 20.7%  
Other income 97 124 28.4% 280 359 28.4%
Interest 138 177 28.5% 389 520 33.9%
Depreciation & amortisation 111 137 22.6% 331 407 23.0%
Profit before tax 602 313 -48.1% 2,693 797 -70.4%
Profit before tax margin (%) 30.1% 13.5%   40.3% 12.1%  
Tax 250 99 -60.3% 603 251 -58.4%
Profit after tax 352 213 -39.4% 2,090 546 -73.9%
Net profit margin (%) 17.6% 9.2%   31.3% 8.3%  
No. of shares (m)         209.0  
Diluted earnings per share (Rs)*         0.4  
P/E (x)         132.7  
(*trailing twelve month earnings)

* The numbers for the third quarter and the 9 month period are not strictly comparable with corresponding periods in the previous year because the company's wholly-owned subsidiaries have been merged with the company.

What has driven performance in 3QFY12?
  • The company's topline reported an increase of 16% YoY during the quarter and a fall of 1.3% during the year till December 2011.

  • Employee costs were up by 21% and constitute 11.5% of the sales of the company. These were up by 25.5% for the 9 month period.

  • Raw material consumed went up as a percentage of sales from 40.7% to 50.6%. Other expenses registered a huge jump of 78.5% YoY during the quarter. Overall operating costs were up by 46.1% YoY in December quarter.

  • Net profits fell drastically by 39.4% YoY during the quarter and by 73.9% YoY during the 9 month period ended December 2011.

    Cost break-up...
    (% of sales) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw materials consumed 812 1,173 44.5% 2,334 3,394 45.4%
    % sales 40.7% 50.6%   34.9% 51.5%  
    Staff cost 220 267 21.0% 619 777 25.5%
    % sales 11.0% 11.5%   9.3% 11.8%  
    Other expenses 210 375 78.5% 597 1,057 77.2%
    % sales 10.5% 16.2%   8.9% 16.0%  
    Total expenditure 1,242 1,814   3,549 5,228  

What to expect?
Our target price for the company stands at Rs 110 per share. We would like to reiterate that in view of the increased risk profile, it will not be wise to average out at the current price. The idea is to have only a small percentage of one's portfolio invested in the company.

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