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Deccan Chronicle: Adv. realisations drive sales
Aug 17, 2010

Deccan Chronicle has announced its 1QFY11 results. The company has reported 7% YoY growth in sales, and a 18% YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Net sales grow by 7% YoY during 1QFY11. Growth driven by a 7% YoY increase in ad revenue.
  • Operating margins expand to 51.7% during the quarter, from 48.9% in 1QFY10. This is on the back of lower raw material costs.
  • On the back of stronger operating margins, higher other income and a lower effective tax rate, net profit grows by 18% YoY.


Financial performance snapshot
(Rs m) 1QFY10 1QFY11 Change
Sales 2,166 2,318 7.0%
Expenditure 1,107 1,119 1.1%
Operating profit (EBDITA) 1,059 1,199 13.2%
Operating profit margin (%) 48.9% 51.7%  
Other income 71 90 27.0%
Interest 111 118 6.4%
Depreciation 99 109 9.5%
Profit before tax 920 1,062 15.4%
Tax 150 150 0.0%
Extraordinary gain/(loss) - -  
Profit after tax/(loss) 770 912 18.4%
Net profit margin (%) 35.6% 39.4%  
No. of shares 244.9 243.5
Diluted earnings per share (Rs)*   11.3  
P/E ratio (x)*   11.9  
* On a trailing 12 months earnings

What has driven performance in 1QFY11?
  • The 7% YoY growth in Deccan Chronicle's net sales during 1QFY11 was a result of a 7% YoY growth in revenues from advertising. Though the volumes of ad space are yet to pick up, it was the increase in realisations that boosted revenues from advertising. The company expects that its advertising revenues will see a healthy growth going forward on account of the rising circulation of its daily newspapers. As per the latest certificate of Audit Bureau of Circulations (ABC), for the period January-June 2010 the company had an average daily circulation of 1.386 m for its daily newspaper.

    Cost break-up...
    (Rs m) 4QFY09 4QFY10 Change
    Raw materials 855 749 -12.3%
    % sales 39.5% 32.3%  
    Staff cost 141 182 29.5%
    % sales 6.5% 7.9%  
    Other expenditure 111 188 68.6%
    % sales 5.1% 8.1%  

    The operating margins of the company expanded during the quarter due to a big fall in raw material costs (as a percentage of sales). Its other two costs heads - employee costs and other expenditure - saw a rise though. Newsprint makes up a big part of the company's raw material costs. It holds 3 months of newsprint inventory on an average. After the recent rise in newsprint prices, the management expects prices to stabilise at slightly higher levels.

  • On the back of the expansion in operating margins, higher other income and a lower effective tax rate, Deccan Chronicle's net profits saw a rise of over 18% during the quarter.

What to expect?
At the current price of Rs 134, the stock is trading at a multiple of 9 times our estimated FY12 earnings. We remain positive on the long term future and maintain our ‘BUY' view on the stock.

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