Deccan Chronicle Holdings:Struggling for ad volumes: ICICI Sec

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Deccan Chronicle Holdings



Struggling for ad volumes…
On a standalone basis, Deccan Chronicle reported a disappointing set of
results for Q2FY11. The topline stood at | 236.7 crore, which was below
our expectation of | 272.5 crore. The topline was up 21.0% QoQ while it
declined 5.7% YoY. The decline was led by de-growth of ~5.4% YoY in
ad revenues to | 221.7 crore. EBITDA declined to | 117.9 crore in
Q2FY11 from | 138.7 crore in Q2FY10 and | 138.7 crore in Q1FY11. The
EBITDA margin declined by 545 bps and 189 bps YoY and QoQ primarily
due to a rise in newsprint cost coupled with higher personal cost, which
increased 3.1% and 18.4% QoQ, respectively. PAT for the quarter stood
at | 82.6 crore (I-direct estimate of Rs 82.6 crore) vs. | 99.9 crore a year
ago.


􀂃 Highlights for the quarter
The company has been struggling for ad volumes in the last two
quarters. Despite double digit ad rate hike, the company was unable
to generate better ad revenues. On the back of lower ad volumes,
Deccan reported de-growth of ~5.4% YoY in ad revenue to | 221.7
crore. The high base effect was not an exception for Deccan that led
to a YoY decline in ad revenues. Deccan is the only print media
company under our coverage that reported decline in ad revenue as
compared to its national counterpart HT Media and other regional
peers like DB Corp, Hindustan and Jagran. EBITDA margins during
the quarter declined to 49.8% as compared to 51.7% in Q1FY11.

Valuation
At the CMP of | 129, the stock is trading at 10.8x FY11E EPS of | 12.0 and
8.7x FY12E EPS of | 14.8. We have valued the stock (ex-IPL) at 10.5x
(~45% discount to Jagran Prakashan) FY12E ex-IPL EPS of | 14.3 to
arrive at a value of | 149 per share. The IPL team has an additional value
of | 18/ share. We are not including the IPL value in our target price till
controversies come to an end. We have valued the stock at | 149,
implying an upside of 16% over its current market price of | 129. We are
assigning a BUY rating to the stock.