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Deccan Chronicle: Tepid performance - Views on News from Equitymaster
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Deccan Chronicle: Tepid performance
Nov 16, 2010

Deccan Chronicle has announced its September quarter results. The company has reported a 5% drop in topline and 17% YoY fall in net profits for the quarter ended September 2010 on a consolidated basis. Here is our analysis of the results.

Performance summary
  • Topline registers a 5% decline during the quarter.
  • Contraction in operating margins leads to a 15% fall in operating profits.
  • Bottomline declines at an even greater rate of 17% YoY on account of adverse interest and depreciation charges
  • Half yearly bottomline falls 2% YoY on the back of a flattish growth in topline

(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales             2,509             2,367 -5.7%           4,675           4,685 0.2%
Expenditure             1,122             1,187 5.8%           2,229           2,307 3.5%
Operating profit (EBDITA)             1,387             1,179 -15.0%           2,446           2,378 -2.8%
EBDITA margin (%) 55.3% 49.8%   52.3% 50.8%  
Other income                   75                   93 24.3%              146              183 25.6%
Interest (net)                 111                 133 19.9%              222              251 13.2%
Depreciation                 102                 111 8.9%              201              219 9.2%
Profit before tax             1,249             1,029 -17.6%           2,169           2,091 -3.6%
Extraordinary items                    -                      -                      -                    -    
Tax                 250                 203 -19.0%              400              353 -11.9%
Profit after tax/(loss)                 999                 826 -17.3%           1,769           1,738 -1.7%
Net profit margin (%) 39.8% 34.9%   37.8% 37.1%  
No. of shares (m)             242.2             243.5             242.2           243.5  
Diluted earnings per share (Rs)*                     10.6  
Price to earnings ratio (x)*                     12.2  
(* on trailing twelve months earnings)

What has driven performance in 2QFY11?
  • Since the company generates most of its revenues from advertising, the 6% fall in topline during the quarter has meant that it has not been able to grow its overall revenues from this segment. This is surprising given the fact that most of the other print media companies have witnessed robust growth in advertising revenues. We hope the situation reverses in the next couple of quarters otherwise we may have to relook at our assumptions. For the record, we assume the company to clock 12% CAGR in topline between FY10 and FY12.

    Cost break-up...
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Raw materials                 835                 773 -7.5%           1,690           1,522 -9.9%
    % sales 33.3% 32.6%   36.1% 32.5%  
    Staff cost                 157                 216 37.7%              298              398 33.8%
    % sales 6.3% 9.1%   6.4% 8.5%  
    Other expenditure                 130                 199 52.8%              242              387 60.1%
    % sales 5.2% 8.4%   5.2% 8.3%  

  • As far as operating margins are concerned, they have a taken a hit to the tune of 5.5% and consequently, operating profits have fallen 15% YoY. The decline has been attributed mainly to rise in staff costs and other expenses, which have grown pretty strongly at 38% YoY and 53% YoY.

  • At 17%, the fall in net profits has come in slightly worse than the 15% fall in operating profits. This is mainly on account of jump of 20% in interest expenses and also adverse depreciation charges.

What to expect?
At the current price of Rs 130, the stock trades at around 9 times its expected FY12 standalone earnings per share. The dip in the company's performance, especially at a time when the other print media players are doing well, indeed needs some further explanation. We will try and get in touch with the management and would request our subscribers to continue holding on to the stock. Furthermore, the company's announcement that it would buy back shares at an attractive price is also an encouraging sign.

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