Skip to main content

Deccan Chronicle Holdings


Deccan Chronicle Holdings operates mainly in the newspaper business and owns the ‘Deccan Chronicle’ (DC) newspaper.

It also owns other assets including the ‘Deccan Chargers’ IPL team.  The company recently amalgamated all of its subsidiaries, which resulted in lower profits at the entity-level as a result of subsidiary losses.

DC is one of the leading newspapers in south India, particularly in Andhra Pradesh.  The company expanded into Kerala recently but hasn’t broken into the market in any significant way despite giving away free newspapers at certain locations.

The IPL franchise is not recognised as an asset on the balance sheet due to conservative accounting but this may well have substantial value over cost of acquisition as evidenced by fees paid by newer franchises (and despite the Chargers’ poor recent performance).

The company reported fluctuating operating profits on growing revenues in the last five years – reporting just under 300cr of operating profits on revenues of about 975cr in the last financial year.  It operated with net cash of about 100cr as at 30th September, 2011.

The primary risk facing the newspaper business is the internet and notably, this has not been mentioned at all in management’s discussion of business prospects.  Readers are increasingly moving to the internet to obtain their news, mostly for free, and do not see the need to subscribe to a traditional newspaper.  Admittedly, the rate of change is slower in India as compared to the rest of the world because of a large older population and ingrained habits but the trend of secular decline appears to be clear.

Perhaps as a consequence, DC is experiencing slowing advertising revenue growth.

The profits are dependent on ever increasing newsprint (forming the largest constituent of costs) and other costs as a result of inflation.

Management have invested in several unrelated ventures apart from the IPL in the areas of lifestyle retail, technology, etc. indicating a lack of focus and questionable commitments with minority shareholders’ funds.

Furthermore, management’s financing decisions appear to be sub-par – issuing foreign currency convertible bonds, and shares for acquisitions; share buybacks at historically high prices (with no buybacks at lower prices); and no declaration of dividends after amalgamation of its subsidiaries despite adequate cash flows.

Comments

Popular posts from this blog

Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:          ...

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today...

Nelcast

Nelcast manufactures iron castings for use in the automotive industry. The company plans to expand into supplying to manufacturers of earth moving equipment and trailers.  It also intends to focus on exports and supplying to OEMs. The company reported declining operating profit margins on moderately growing revenues – reporting about 30cr of operating profits on revenues of about 500cr in the last financial year.  It operated with a moderate net debt load. The business is dependent on the fortunes of the auto industry, which is cyclical.  Moreover, it faces stiff competition from players in the unorganised sector and new foundries that have come up.  It is exposed to metal price rises and a strengthening INR since it’s a net exporter.