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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.

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