Stock Review: Deccan Chronicle

 

 

The amalgamation subsidiaries augur well for Deccan Chronicle considering the buoyancy in the underlying businesses of the subsidiaries

 

THE stock of Deccan Chronicle Holdings in the past six months has fallen by around 15%. The company has recently amalgamated its subsidiaries that will boost overall its revenue given the buoyancy in the underlying businesses of the subsidiaries. Given this, its stock looks attractively priced at the current levels.

BUSINESS:

Deccan Chronicle Holdings is one of the largest English language publications in the South having a flagship brand Deccan Chronicle. In the past few years, the company also launched a financial daily, Financial Chronicle. The company also owns Asian Age and AndhraBhoomi, a Telugu-language newspaper. The company has also bought an IPL team named Deccan Chargers.

INVESTMENT RATIONALE :

Three factors work in favour of investing in Deccan Chronicle Holdings. First, the imminent Champions League, which started in September 2010, would provide the company with decent revenues. Deccan Chargers will be one of the three teams participating from India in matches against teams from other continents in Champions League. In FY09, the Deccan Chargers venture had a sales turnover of 56 crore. This season after taking into account the cost of players, rights, ticket sales, amortisation and sponsorship, one can expect a profit of around 11 crore from its team.

   Second, the company's stock price has fallen in the past six months by 15%. Even in the past one year the company's stock has not appreciated much compared to the gains in the stocks of its peers, Jagran Prakashan and HT Media. Hence, the company's stock has enough legroom for investors to buy into. Also, the amalgamation of its subsidiaries — Odyssey, a retail outlet and advertising arm Seiger Solutions — would also serve it well in the coming quarters. Both these subsidiaries have decent revenue generation capabilities.

   In FY09, Odyssey and Seiger Solutions have sales turnover of 80 crore and around 50 crore, respectively. The company is targeting a sales turnover of around 100 crore at the end of this fiscal. Going forward, with the improvement in advertising situation and recession sentiments ebbing out, its advertising arm, Seiger Solutions and its retail outlet Odyssey would see increasing flow of revenues.

FINANCIALS :

For June 2010 quarter, the company's net profit jumped by 18% to 91 crore in the June 2010 quarter. Also its net sales increased by 7% to 231 crore on a year-on-year basis. Increase in realisations boosted the company's advertising revenues growth. More so, with circulation increasing as realisations improve, the company may see healthy advertising revenue growth. On the operational front, the company's net profit margin also increased to 39% in June 2010 quarter.

VALUATION:

Taking into account the consolidated business of the company, Deccan Chronicle's stock is trading at a priceearnings ratio of 11. This is better than its immediate peers, such as Jagran Prakashan and HT Media, whose stocks are trading at a P/E of 21 and 29, respectively. Long-term investors may buy into the company's stock at the current market price.