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Deccan Chronicle: A dismal performance - Views on News from Equitymaster

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Deccan Chronicle: A dismal performance
Nov 22, 2011

Deccan Chronicle announced the results for second quarter of financial year 2011-12. The company has reported a 4.6% YoY fall in topline and a 74.5% fall in net profits. Here is our analysis of the results.

Performance summary
  • Topline fell by 4.6% YoY growth during the quarter and by 8.7% during the 6 month period ended September 2011.
  • Owing to increased operating expenditure, the operating profits fell by 58.5% during the quarter and by 63.7% during the half year period.
  • Net profits registered a de-growth of 74.5% during the quarter. During the half year period, net profits were down by 80.9%.


(Rs m) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
Net sales 2,367 2,258 -4.6% 4,685 4,277 -8.7%
Expenditure 1,187 1,769 48.9% 2,307 3,414 48.0%
Operating profit (EBDITA) 1,179 490 -58.5% 2,378 863 -63.7%
EBDITA margin (%) 49.8% 21.7%   50.8% 20.2%  
Other income 93 124 33.4% 183 235 28.4%
Interest 133 174 30.7% 251 343 36.8%
Depreciation & amortisation 111 136 22.9% 219 270 23.2%
Profit before tax 1,029 304 -70.5% 2,091 484 -76.8%
Profit before tax margin (%) 43.5% 13.5%   44.6% 11.3%  
Tax 203 93 -54.1% 353 151 -57.0%
Profit after tax 826 211 -74.5% 1,738 333 -80.9%
Net profit margin (%) 34.9% 9.3%   37.1% 7.8%  
No. of shares (m)         209.0  
Diluted earnings per share (Rs)*         1.0  
P/E (x)         43.9  
(*trailing twelve month earnings)

* The numbers for the second quarter and the half year 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 2QFY12?
  • The company's topline fell by 4.6% YoY during the quarter. The same fell by 8.7% for the half year period. Total expenditure has gone up by 47% YoY. Raw material consumption now stands at 50% of sales as compared to the earlier figure of 32.6%. Other expenses as a proportion of sales have also increased to 16%.

  • Raw material consumption is up by 48% YoY as a result of higher newsprint prices. Other expenses have increased by a staggering 84% YoY during the quarter. This resulted in operating profits falling by 58.5% and the operating margins shrinking to 22%.

  • Higher depreciation charges (up by 23%) and increased interest outgo (up by 31%) resulted in net profits falling by 74.5% during the quarter. Net profit margins drastically reduced to 9.3% from 34.9% in 2QFY11.

    Cost break-up...
    (% of sales) 2QFY11 2QFY12 Change 1HFY11 1HFY12 Change
    Raw materials consumed 773 1,140 47.6% 1,522 2,221 46.0%
    % sales 32.6% 50.5%   32.5% 51.9%  
    Staff cost 216 263 21.6% 398 510 28.1%
    % sales 9.1% 11.6%   8.5% 11.9%  
    Other expenses 199 366 83.8% 387 683 76.5%
    % sales 8.4% 16.2%   8.3% 16.0%  
    Total expenditure 1,187 1,769   2,307 3,414  

What to expect?
At the current price of Rs 46 the stock is trading at a multiple of 43.9 times its trailing 12-months earnings. This makes it an expensive stock and we advise caution to investors. We are in the process of revising our estimates and shall soon update our views on the stock.

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