Hyderabad: Bad news is supposed to help sell newspapers. In the case of Deccan Chronicle Holdings Ltd, all the bad news in the past two weeks has been about the newspaper publisher itself.
By all accounts, the Hyderabad-based publisher of the English-language Deccan Chronicle, Financial Chronicle and The Asian Age and Telugu daily Andhra Bhoomi is battling the worst crisis faced by an Indian media company in recent years— laden with debt, its owners facing fraud and forgery charges, its stock in free fall and its survival uncertain.
Analysts say the rapid and unforeseen decline in the fortunes of the company, which also owns the Indian Premier League franchise Deccan Chargers, a chain of book stores under the Odyssey brand name and has ventured into aviation, is at least partly a cautionary tale about the perils of debt-funded diversification.
Financial woes: Deccan Chronicle Holdings chairman T. Venkattram Reddy in a 2008 photo.(Mint)
“In my opinion, the current problem of Deccan Chronicle is due to unrelated diversification and the management’s loss of focus,” said Satish Kantheti, head of the equity research division at Hyderabad-based brokerage house Zen Securities Ltd.
It has all come apart very quickly for the Mumbai-listed company, which was acquired by the present owners, the Reddy family, in 1976 after the founders declared bankruptcy and has in recent years expanded beyond its home state of Andhra Pradesh.
The publisher of Deccan Chronicle is in deep trouble after expanding into other businesses and accumulating debt. We ask experts what went wrong and what lessons the saga has for other newspapers.
The first hint of trouble brewing at the publisher, which traces its origins back to 1938, was a 25 July announcement to BSE Ltd that its managing director N. Krishnan had resigned and would be leaving the company effective 29 July.
Two days later, more disclosures surfaced on BSE. The company’s proprietors —chairman T. Venkattram Reddy, his brother and vice-chairman T. Vinayak Ravi Reddy and vice-chairman (and new managing director) P.K. Iyer—who together held 63.37% of the company, pledged a 54% stake to Future Capital Holdings Ltd to raise a Rs 170 crore loan.
Then followed news that financial institution IFCI Ltd had filed a petition in the Andhra Pradesh high court to wind up the operations of Deccan Chronicle Holdings for failing to redeem non-convertible debentures (NCDs) worth about Rs 25 crore. Although the company paid about Rs 2.8 crore in interest, IFCI sought the appointment of a liquidator to recover the principal.
Multiple ventures: The Deccan Chronicle office building in Secunderabad
The NCDs, part of a Rs 150 crore fund raising programme in June 2011, had matured on 26 June.
IFCI made serious allegations in its petition, which set off alarm bells among investors. IFCI said Deccan Chronicle Holdings had debt “running into thousands of crores of rupees”. It also accused the publisher of defaulting on other liabilities and said it expected winding up petitions would be filed by other creditors.
“The petitioner therefore (fears) that such liabilities may lead to the erosion of the entire net worth of the respondent and ultimately make the respondent commercially unviable and insolvent,” IFCI said in the petition.
More bad news was to come.
On 31 July, Karvy Stock Broking Ltd (KSBL), which provides depository services, filed a complaint with the Central Crime Station in Hyderabad alleging that Deccan Chronicle Holdings’ promoters forged documents to misrepresent the total number of shares they held in order to raise loans.
According to Karvy, the promoters took a loan from Future Capital after pledging their stake as collateral. But when Karvy received requests from Future Capital seeking confirmation of additional shares available as top up (for additional security), Deccan Chronicle Holdings’ promoters informed Karvy that they were terminating the loan arrangement with Future Capital and that the shares were free from encumbrance.
The promoters also requested Karvy to transfer some of their shares to Religare Finvest Ltd, which it complied with. Karvy said it was not provided with documents on the termination of the agreement between Deccan Chronicle Holdings and Future Capital despite repeated reminders.
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On 2 July, when Deccan Chronicle Holdings promoters requested Karvy to pledge some of their free shares with IDFC Ltd, Karvy complied, believing the shares were free from any encumbrance, according to Karvy’s first information report (FIR).
Then Future Capital faxed Karvy a letter on 17 July stating that it had loaned Rs 120 crore and Rs 50 crore to Deccan Chronicle Holdings and Aviotech Pvt. Ltd, promoted by the publishing company, in lieu of 11.28 crore Deccan Chronicle shares. Future Capital also furnished a copy of a letter purported to be from Karvy confirming an additional 1.74 crore shares in the accounts of the promoters. Karvy said this letter was forged and denied issuing such a letter to Future Capital.
“It is very clear from the aforesaid documents, that the depository account holders, by using a forged letter, committed a fraud on us and misrepresented the facts that a higher number of shares existed in their accounts for availing a loan against them, thereby committed a breach of trust and forgery,” Karvy contended in the complaint.
Deccan Chronicle has denied pledging the same shares twice, in a communication to the exchanges.
“We still do not know how many shares there are yet,” a senior executive at Future Capital said on condition of anonymity. “It is not right to say Future Capital has been cheated. These are allegations and not established yet.”
Asked whether the company is contemplating legal proceedings or filing a police complaint, he said: “There are many courses of action we are thinking (of).”
Future Capital has transferred its loan exposure to Deccan Chronicle Holdings to Future Group founder Kishore Biyani “to safeguard the interests of the stakeholders of the company”, it said on 7 August.
Deccan Chronicle Holdings’ last reported results gave no signs of a company that is in deep financial turmoil. Profit fell sharply in the year till March, but even then the company generated more than sufficient earnings to cover its financial costs. Interest costs amounted to Rs 70.95 crore last year while operating profit stood at Rs 212 crore, giving the company a three-fold interest cover.
The company hasn’t provided its balance sheet for the year ended March 2012, so its assets and liabilities position as on 30 September 2011, have to be relied upon. Back then, it reported a debt of just Rs 298 crore and a cash position of Rs 398 crore. And this just was after completing a buyback of equity shares worth Rs 227 crore. Rather than being in financial trouble, Deccan’s reported financials show that it has been flush with cash.
However, based on Registrar of Companies data posted on the ministry of corporate affairs website, the company now has debt of more than Rs 1,500 crore, most of which has come on its books in the past few months.
An Odyssey outlet in Chennai
“We are yet to get a clear picture of the actual debt position of the company,” said Kantheti of Zen Securities. “If the debt position is beyond Rs 1500 crore, as indicated by media reports, then there is a problem.”
“Time is running out” for Deccan Chronicle Holdings, he said. “The immediate solution is to sell off their non-core assets and get a strategic investor into their core business, as soon as possible.”
As the company’s stock plumbed life-time lows, chairman T. Venkattram Reddy published a front-page statement on Thursday (2 August).
“DCHL would like to clarify that the real issue is a liquidity crisis that has arisen due to significant reduction in ad spend by domestic and multinational companies in India,” the statement read. “The debt that the company has incurred is in usual course of business, and the amount stated in a section of media, that it is to the tune of thousands of crores, is false.”
Like most newspapers of the time, Deccan Chronicle, the flagship newspaper of the company, started off as a weekly in 1938, and transformed itself into a daily in 1947.
Venkattram Reddy’s late father T. Chandrashekar Reddy, a Congress politician and a businessman with interests ranging from aluminium foil to bottling plants and hotels, acquired the company in 1976. Venkattram Reddy took over the reins of his family business at the age of 21, and went on to hive off most of the family’s businesses interests to focus on the newspaper, which he wanted to expand beyond Andhra Pradesh .
In 2004, Deccan Chronicle Holdings sold shares to the public in an initial offering that was over-subscribed 9.3 times, raising Rs 179 crore. Shortly afterwards, the company ventured further south into Chennai, the bastion of The Hindu, the English-language newspaper published by Kasturi and Sons Ltd.
Six months into the Chennai operations, Deccan Chronicle claimed a circulation of 300,000 while the 134-year-old The Hindu was selling 264,000 copies a day at the time.
Venkattram Reddy is known as a flamboyant businessman who drives expensive cars (at one point he owned a Porsche Cayenne S and a Rolls-Royce Phantom in a fleet of luxury automobiles), with a taste for fine cigars and an abiding interest in horse racing. His horses have participated in races across the country and have won him several trophies, which he showcases in his Secunderabad office.
A graduate in commerce, Reddy knows his machines well: he holds a diploma in printing technology.
Venkattram Reddy is also the regional chairman of the Andhra Pradesh unit of the Indian Newspaper Society. A senior media executive who worked closely with him at the Indian Newspaper Society described Venkattram Reddy as arrogant and blunt.
“He definitely over-expanded,” this executive said. “He went to Chennai, where he probably dumps copies for ABC numbers,” he said.
Deccan Chronicle Holdings was unavailable for comment. Repeated phone calls and an email containing a questionnaire sent to the office of vice-chairman and new managing director P.K. Iyer did not elicit a response. A person who took the call on former managing director Krishnan’s phone disconnected on being told the call was from Mint. He did not respond to subsequent calls and text messages. Mint could not contact Venkattram Reddy.
Deccan Chargers’ batsman Kumar Sangakkara during an IPL-5 cricket match in April 2012
Deccan Chronicle Holdings competes with HT Media Ltd, publisher of Hindustan Times and Mint, in some markets.
“It is difficult to say” what impact Deccan Chronicle Holdings’ current troubles will have on the newspaper (in terms of circulation and readership), said N. Ravi, former editor-in-chief of The Hindu.
Like most Indian companies, Deccan Chronicles Holdings’ management is dominated by the family. Venkattram Reddy is the chairman of the company, his brother Vinayak Ravi Reddy the vice- chairman, his wife Manjula Reddy is the senior features editor at the newspaper, his daughter Gayatri Reddy is the features editor.
Gayatri Reddy is co-owner of the Deccan Chargers team; Venkattram Reddy’s son T. Vijay Reddy is the vice-president (finance) at the company. Vinayak Ravi Reddy’s daughter Archana looks after marketing at the paper.
Venkattram Reddy purchased Asian Age Holdings, publisher of The Asian Age newspaper, in May 2005. Next came gifts and stationery retail chain Odyssey India Ltd, which he bought in September 2005 for Rs 61.2 crore in an all-cash transaction. Odyssey had 12 retail stores in six cities at the time. A defining moment for the company came in 2008. Riding on Indian Premier League (IPL) frenzy, Deccan Chronicle Holdings bought the Deccan Chargers franchisee for $107 million (around Rs 589 crore today) and also bid successfully for star cricketers such as Adam Gilchrist, Herschelle Gibbs, Andrew Symonds, Chaminda Vaas and Shahid Afridi.
The franchise gave Deccan Chronicle a visible national brand, but the team’s first outing in the IPL was a disaster; it finished last in the league. After its sponsor Jaypee Group withdrew from sponsorship, the team revamped its administration, going on to win the second season of IPL. In the most recent edition of IPL, Deccan Chargers finished at the bottom.
The acquisitions haven’t been beneficial. Odyssey, with 46 stores in 13 cities, has been a drag on the company. Deccan Chargers is up for sale, with no clear takers emerging for the franchise. The company said in June that it had mandated Religare Capital Markets Ltd to advise it on the “suitability” of multiple offers it claimed to have received for the team.
In a setback to the company, a London court ordered Deccan Chronicle Holdings to pay £10.53 million, ruling in favour of Tim Wright, the former chief executive officer of Deccan Chargers. Wright sued his former management for breach of employment contract and won the case in the Royal Courts of Justice, London.
“All in all it is not a very happy situation especially since some of the company’s investments appear to be made for reasons not based on sound business acumen. The return on these investments is not yet showing up in the accounts,” financial analyst Luke Verghese wrote in equitymaster.com, in March. “Clearly then the management has its task cut out for it and they have to pull a rabbit out of the hat soon enough to raise revenues to match cost increases (a not so easy proposition) or cut down on galloping revenue expenses. But presumably there will be some light at the end of the tunnel. We will have to wait and see when that light emerges out of the tunnel.”
The company ventured into aviation with Aviotech, a chartered flight service, and placed an order for civilian planes with Sukhoi Civil Aircraft (SCAC).
“They were speaking about 10-12 aircraft. There was an LoI (letter of intent) signed by the parties. And there is preparatory work being done now,” SCAC said in an emailed response to queries from Mint. Chartered flight services is still at a “very nascent stage” and not “organised” at the moment, said Kapil Arora, partner, aviation and transportation practice, Ernst and Young. “It will take anywhere between five to eight years before we see any volume.”
“Civil aviation industry is experiencing financial distress” and given the high cost and the slowdown in the economy, viability is a major challenge for the new entrants.
Still, the company has some things going for it.
According to K. Satyanarayana, an independent media buying consultant, Deccan Chronicle’s circulation in Hyderabad is around 500,000, while that of The Hindu is 250,000-300,000. The Times of India sells 240,000-260,000 copies a day and The New Indian Express 50,000, he said
“The loyalty factor for Deccan Chronicle continues to be strong in Hyderabad,” said Satyanarayana. “In terms of ad-rates, Deccan Chronicle still commands a premium despite competition from The Hindu and The Times of India.”
Deccan Chronicle charges Rs 2,000 for a sq cm. of ad space compared with Rs 1,000 charged by The Times of India and Rs 500-600 charged by The Hindu. Satyanarayana said the high premium charged by Deccan Chronicle is because of its ability to attract the bulk of classified and local advertisements meant for the southern city.
“The local advertising market in Hyderabad could be around Rs 100 crore for English dailies, and Deccan Chronicle captures around 60% of that market,” he said.
Since the troubles surfaced at the company, its shares have fallen 48.9% to Rs 12.85 on Wednesday, and are down 80.53% in the year to date. That’s 93.28% below its listing price of Rs 191.5; it touched an all-time high of Rs 895.55 on 25 January 2007.
There has been speculation about the possible sale of Deccan Chronicle Holdings’ print business—speculation that the company has tried to quash. The news channel CNBC-TV18 reported this month that DB Corp. Ltd was in talks to buy the business. Deccan Chronicle said in a statement to BSE that it had “not been approached by anybody to acquire the print business and the company is in no way connected to the aforesaid news”.
Given the scale of the company’s troubles, some analysts say a sale seems to be the only way forward.
“There are a few players who might be interested in the core business of DCHL, to expand their presence in the South Indian market,” said Zen Securities’ Kantheti.
Aminah Sheikh and Mobis Philipose contributed to this story.