Deccan Chronicle -Results below estimates, Catalyst exist - BUY:: Emkay

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Deccan Chronicle

Results below estimates, Catalyst exist - BUY

BUY

CMP: Rs 129                                       Target Price: Rs 175

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n     Q2FY11 headline profit declined by 17% yoy to Rs826mn, below our estimate of Rs1.05bn affected by 5.7% yoy decline in revenues

n     Shift of festivities to Q3 and high base led to ad-revenue decline of 6% yoy

n     Cut EPS estimates by 6.5% and 5.5% to Rs12.1 and Rs15 for FY11E and FY12E respectively

n     Target price cut to Rs175. Retain BUY rating on attractive valuations. Buyback upto Rs180/share and IPL franchise stake sale are near term triggers

Q2FY11 profits below estimates

Q2FY11 revenues fell by 5.7% yoy to Rs2.4bn, affected by 6% decline in advertisement

revenues. Although the ad-rate hike is getting absorbed, the ad-volumes continue to

decline, impacted by shift of festivities to Q3 and lack of recovery in career segment.

EBIDTA fell by 15% yoy to Rs1.2bn and EBIDTA margins declined by 550bps to 49.8%.

EBIDTA margin decline was primarily on rise in admin costs and employee costs. Profit

fell by 17.3% yoy to Rs826mn v/s our estimate of Rs1,050mn. Since tax provision was

at 19.7% v/s 20% in Q2FY10, the profits are comparable.

Buyback at Rs180/share to limit downside

DCHL has announced buyback of equity shares at price not exceeding Rs180/share

with total outlay not exceeding Rs2.7bn. The company has proposed to buyback

minimum of 10mn shares and maximum of 34.5mn shares through the buyback

process. We view the buyback as positive move given minimal capex requirements over

the next couple of years and strong cash generation in excess of Rs3bn annually.

EPS estimates cut by 6.5% /5.5% for FY11E /12E

Post below estimated results led by slower than anticipated recovery in advertisement

volumes in southern states, we are reducing our revenue estimates by 2.7% and 3.2%

along with reduced margin assumptions due to employee and admin cost pressures.

Our EPS estimates are cut by 6.5% /5.5% to Rs12.1 and Rs15 for FY11E /12E. We

highlight that our estimates are based on standalone financials factoring only the print

business and does not include IPL & Odyssey.

Retain HOLD rating with target price Rs175

Although there has been buoyancy in ad-spends in the economy, the ad-volumes for

DCHL are yet to recover, due to sharp dip in few segments such as career chronicle

and lower recovery in southern markets. We highlight that volume growth recovery

remains key re-rating trigger for the stock, which as per management, would begin to

reflect post FY11.

We revise our target price to Rs175 (v/s Rs180 earlier) but retain BUY rating on the

stock given attractive valuations and strong cash generation. At CMP of Rs129, stock

trades at 10.7x and 8.6x our revised EPS estimate of Rs12.1 and Rs15 for FY11E and

FY12E, respectively. Retain BUY rating with revised target price of Rs175 (v/s Rs180

earlier). Buyback and IPL stake sale are near term triggers.