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Post Deccan Chronicle Holdings’ (DCHL) 3QFY2011 results, we have revised our
estimates downwards primarily to factor in lower revival in advertisement volume.
The company posted dismal results for the quarter, with top-line de-growth of
14.5% yoy and earnings decline of 54.7% yoy impacted by margin contraction of
1,648bp yoy. Owing to attractive valuations, we maintain a Buy on the stock.
Top-line, bottom-line below estimates: DCHL reported top-line decline of 14.5%
yoy/15.7% qoq to `200cr (`233cr/`237cr) and below our estimate of `258cr
(~11% yoy growth), despite 3QFY2011 recording the complete festive season.
On the operating front, DCHL registered margin contraction of 1,648bp
yoy/1,204bp qoq, impacted by gross margin contraction and lower operating
leverage. Earnings for the quarter declined 55% yoy/57% qoq to `35cr
(`78cr/`83cr), impacted by increase in interest expense, depreciation charge and
margin contraction, though cushioned by higher other income.
Outlook and Valuation: We are lowering our target P/E multiple from 12x to 10x
owing to concerns relating to the merger of its 100% subsidiaries, Deccan
Chargers Sporting Ventures, Odyssey Indian and Netlink Technologies with itself
and high volatility in garnering advertisement volumes owing to the political
instability in Andhra Pradesh. At `81, the stock is trading at attractive valuations
of 8.2x FY2013E EPS of `9.9. We maintain a Buy on the stock, with a SOTP
Target Price of `128 based on: 1) 10x FY2013E earnings for its core print
business fetching `98/share, and 2) `30/share value for the IPL Team (30%
discount to the per share value calculated, based on US $225mn floor price for
new teams’ auction).
Earnings decline as OPM contracts on low operating leverage
On the operating front, DCHL registered margin contraction of 1,648bp
yoy/1,204bp qoq, driving a 40% yoy/36% qoq decline in EBITDA to `75cr
(`127cr/`118cr), impacted by gross margin contraction and low operating
leverage. The quarter saw an increase in raw material cost (up 919bp yoy/802bp
qoq), staff cost (up 344bp yoy/191bp qoq) and other expenses (up 385bp
yoy/210bp qoq). Going ahead, management has indicated an increase in
newsprint prices to US $650/tonne. We have modeled in a CAGR of ~6-7% rise in
the total newsprint cost (~10% rise in FY2011E) for the company over
FY2010-13.
Earnings for the quarter, declined 55% yoy/57% qoq to `35cr (`78cr/`83cr),
impacted by increase in interest expense, depreciation charge and margin
contraction, though cushioned by higher other income.
Investment Rationale
Buyback to be EPS neutral but sentimental positive: The DCHL board has
announced a buyback of shares at a price not exceeding `180/share and up
to an aggregate of `270cr, which is within the 25% limit of total paid up
capital and free reserves as on March 31, 2010. The stipulated price is based
on a premium of ~34% over its last three month’s average price. At the higher
end of the capped buyback price and outlay, the company would be able to
purchase up to ~15mn equity shares of the outstanding 243.4mn shares or
roughly ~6% of the equity. We believe the buyback would be EPS neutral
owing to reduction in other income (on account of usage of cash). Hence, we
believe that the move would be a sentimental booster to the stock price.
IPL – huge value un-locking potential: Deccan Chargers Sporting Ventures
(DCSVL) houses the Hyderabad IPL team, Deccan Chargers (100% stake),
which won the second season of IPL. Based on the floor price of US $225mn
for the recent new teams auction (Kochi and Pune teams), we had calculated
`43/share value for DCHL’s IPL team. However, on account of the negative
publicity with regards to IPL makes us tread caution, and we have given 30%
discount to the per share value for the IPL team and arrived at a value of
`30/share for DCHL’s IPL team. Potential stake sale of the team (as indicated
by management) will trigger re-rating of the DCHL stock.
Attractive valuations: DCHL is currently trading at 8.2x FY2013E EPS, which is
at a steep discount to its peers due to scalability issues as it is characterised as
a single publication company with limited reach (only South). However, fading
balance sheet concerns (debt and receivable days both stand reduced) and
rising profitability in IPL (possibility of un-locking) instills confidence.
Outlook and Valuation
Post the 3QFY2011 results, we have revised our estimates downwards to factor in
low advertisement volume revival. Over FY2010-13, we expect DCHL to post
muted CAGR of 2.5% in revenues driven by 2.3% CAGR in advertising revenues
and 5.2% CAGR in circulation revenues on account of higher circulation volumes.
We have downgraded our advertisement revenue estimates to factor in the volatility
in advertisement volume on account of political unrest in Andhra Pradesh (future
impact on account of Telagana issue cannot be ruled out).
DCHL’s earnings estimate is impacted by lower top-line estimate. Hence, over
FY2010-13, we expect the earnings to de-grow by 2.8% on a compounded basis
with operating margins stable at 45-46% over the mentioned period.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Deccan Chronicle Holding – 3QFY2011 Result Update
Angel Broking maintains a Buy on Deccan Chronicle Holding with a Target Price of Rs. 128.
Post Deccan Chronicle Holdings’ (DCHL) 3QFY2011 results, we have revised our
estimates downwards primarily to factor in lower revival in advertisement volume.
The company posted dismal results for the quarter, with top-line de-growth of
14.5% yoy and earnings decline of 54.7% yoy impacted by margin contraction of
1,648bp yoy. Owing to attractive valuations, we maintain a Buy on the stock.
Top-line, bottom-line below estimates: DCHL reported top-line decline of 14.5%
yoy/15.7% qoq to `200cr (`233cr/`237cr) and below our estimate of `258cr
(~11% yoy growth), despite 3QFY2011 recording the complete festive season.
On the operating front, DCHL registered margin contraction of 1,648bp
yoy/1,204bp qoq, impacted by gross margin contraction and lower operating
leverage. Earnings for the quarter declined 55% yoy/57% qoq to `35cr
(`78cr/`83cr), impacted by increase in interest expense, depreciation charge and
margin contraction, though cushioned by higher other income.
Outlook and Valuation: We are lowering our target P/E multiple from 12x to 10x
owing to concerns relating to the merger of its 100% subsidiaries, Deccan
Chargers Sporting Ventures, Odyssey Indian and Netlink Technologies with itself
and high volatility in garnering advertisement volumes owing to the political
instability in Andhra Pradesh. At `81, the stock is trading at attractive valuations
of 8.2x FY2013E EPS of `9.9. We maintain a Buy on the stock, with a SOTP
Target Price of `128 based on: 1) 10x FY2013E earnings for its core print
business fetching `98/share, and 2) `30/share value for the IPL Team (30%
discount to the per share value calculated, based on US $225mn floor price for
new teams’ auction).
Low ad-volume following release of Srikrishna report impacts
top-line
DCHL reported top-line decline of 14.5% yoy/15.7% qoq to `200cr
(`233cr/`237cr) and below our estimate of `258cr (~11% yoy growth), despite
3QFY2011 recording the complete festive season. We estimate a decline in
advertisement volume, impacted by – 1) fear of violence on account of release of
the Srikrishna report on the Telangana issue, and 2) advent of cyclone Jal (though
the impact on advertisement would be very minimalistic). Circulation revenue is
estimated to be stable at ~`15cr. The Coimbatore edition was launched with an
initial run of 30,000–40,000 copies, which also caters to the neighboring areas of
Selum, Trichi and Madurai.
Earnings decline as OPM contracts on low operating leverage
On the operating front, DCHL registered margin contraction of 1,648bp
yoy/1,204bp qoq, driving a 40% yoy/36% qoq decline in EBITDA to `75cr
(`127cr/`118cr), impacted by gross margin contraction and low operating
leverage. The quarter saw an increase in raw material cost (up 919bp yoy/802bp
qoq), staff cost (up 344bp yoy/191bp qoq) and other expenses (up 385bp
yoy/210bp qoq). Going ahead, management has indicated an increase in
newsprint prices to US $650/tonne. We have modeled in a CAGR of ~6-7% rise in
the total newsprint cost (~10% rise in FY2011E) for the company over
FY2010-13.
Earnings for the quarter, declined 55% yoy/57% qoq to `35cr (`78cr/`83cr),
impacted by increase in interest expense, depreciation charge and margin
contraction, though cushioned by higher other income.
Investment Rationale
Buyback to be EPS neutral but sentimental positive: The DCHL board has
announced a buyback of shares at a price not exceeding `180/share and up
to an aggregate of `270cr, which is within the 25% limit of total paid up
capital and free reserves as on March 31, 2010. The stipulated price is based
on a premium of ~34% over its last three month’s average price. At the higher
end of the capped buyback price and outlay, the company would be able to
purchase up to ~15mn equity shares of the outstanding 243.4mn shares or
roughly ~6% of the equity. We believe the buyback would be EPS neutral
owing to reduction in other income (on account of usage of cash). Hence, we
believe that the move would be a sentimental booster to the stock price.
IPL – huge value un-locking potential: Deccan Chargers Sporting Ventures
(DCSVL) houses the Hyderabad IPL team, Deccan Chargers (100% stake),
which won the second season of IPL. Based on the floor price of US $225mn
for the recent new teams auction (Kochi and Pune teams), we had calculated
`43/share value for DCHL’s IPL team. However, on account of the negative
publicity with regards to IPL makes us tread caution, and we have given 30%
discount to the per share value for the IPL team and arrived at a value of
`30/share for DCHL’s IPL team. Potential stake sale of the team (as indicated
by management) will trigger re-rating of the DCHL stock.
Attractive valuations: DCHL is currently trading at 8.2x FY2013E EPS, which is
at a steep discount to its peers due to scalability issues as it is characterised as
a single publication company with limited reach (only South). However, fading
balance sheet concerns (debt and receivable days both stand reduced) and
rising profitability in IPL (possibility of un-locking) instills confidence.
Outlook and Valuation
Post the 3QFY2011 results, we have revised our estimates downwards to factor in
low advertisement volume revival. Over FY2010-13, we expect DCHL to post
muted CAGR of 2.5% in revenues driven by 2.3% CAGR in advertising revenues
and 5.2% CAGR in circulation revenues on account of higher circulation volumes.
We have downgraded our advertisement revenue estimates to factor in the volatility
in advertisement volume on account of political unrest in Andhra Pradesh (future
impact on account of Telagana issue cannot be ruled out).
DCHL’s earnings estimate is impacted by lower top-line estimate. Hence, over
FY2010-13, we expect the earnings to de-grow by 2.8% on a compounded basis
with operating margins stable at 45-46% over the mentioned period.
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