New ‘Chronicle’ launches could squeeze margins

New ‘Chronicle’ launches could squeeze margins
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First Published: Wed, Jan 30 2008. 11 49 PM IST

Updated: Wed, Jan 30 2008. 11 49 PM IST
Hyderabad: The publisher of the Deccan Chronicle newspaper, Deccan Chronicle Holdings Ltd (DCHL), which announced the launch of a business newspaper on Monday, is also looking to launch the paper in Bangalore and New Delhi, and sell some stake in a subsidiary that sells advertising space in the Chronicle, according to a company executive familiar with the developments.
The executive, who did not wish to be identified, said the company plans a Bangalore edition of the Chronicle, which is currently available in Andhra Pradesh and Tamil Nadu, by March. DCHL “has already imported printing machinery and completed recruitments for marketing department at Bangalore,” the executive said, adding that the Delhi edition would “take time.”
DCHL also owns 90% of Asian Age Holdings Ltd, the company that publishes The Asian Age, a daily with editions out of New Delhi, Mumbai, Kolkata, Bangalore and London.
DCHL chairman T. Venkattram Reddy, vice-chairman Vinayak Ravi Reddy and executive director P.K. Iyer did not respond to emails and phone calls requesting information.
The company also plans to divest a minority stake in Sieger Solutions, its space-selling subsidiary, to institutional investors. The executive said the company expects to sell 24% in Sieger for Rs450 crore and the timing of the sale “would depend on market conditions and valuations offered.”
Prabhudas Lilladher Pvt. Ltd, a Mumbai-based equity research firm, in a report on 8 January 2007, said that the valuation of Sieger Solutions was not arrived at by independent valuation experts as is usually the practice, but “as per the management’s estimate of Rs1,500 crore to Rs1,800 crore.”
The stake sale is significant because in 2006-07, Sieger contributed Rs511 crore to DCHL’s total revenues of Rs585.19 crore. Effectively, Sieger is DCHL’s growth engine—it buys advertising space from the parent and sells it to advertisers. This gives DCHL a predictable and risk-free revenue stream. It also means the company always ends up selling all the space it has on offer, irrespective of actual demand.
The average rate at which DCHL sold space to Sieger in 2006-07 and the average rate at which Sieger, in turn, sold it to advertisers isn’t known.
DCHL ended 2006-07 with a net profit of Rs161 crore compared with Rs68 crore in 2006-07. Sieger, which was formed in July 2006, ended 2006-07 with revenues of Rs254.74 crore and a net profit of Rs3.86 crore. In the same period, DCHL’s receivables increased from Rs135 crore to Rs303 crore. And of this number, debt from subsidiaries, including Sieger, went up to Rs109 crore from Rs10 crore.
Details of the other subsidiaries were not available.
“Increasing ‘trade receivables’ is a matter of concern. However, the management has indicated it would discount the receivables with the banks. I believe the increase in receivables is primarily due to DCHL giving lenient credit terms to its customers after the launch of Chennai edition in order to boost its sales,” said Sulabh Agrawal, an analyst with Mumbai-based Angel Broking Ltd.
In 2007-08, the company has already sold Rs200 crore of receivables to ICICI Bank. Such debt is usually sold at a discount, but Mint could not ascertain the amount of discount. An ICICI Bank spokesperson said the bank buys such receivables from various companies, adding, “As a policy, the bank does not comment on individual deals.”
The rise in receivables has also had an impact on DCHL’s cash flows. The company’s cash flow from operations in 2006-07 was a negative Rs31crore compared with a negative Rs26 crore a year earlier. This is despite the increase in net profit.
On Monday, DCHL released details of its revenues and net profit for the three months ended December 2007. In this period, the company’s revenue was Rs226.45 crore and net profit Rs102.94 crore. DCHL did not provide details of Sieger’s financials, or its own cash-flow position in this quarter.
Agrawal of Angel Broking said that in the near term, launch of its new Bangalore edition is expected to exert pressure on margins. “Also, success of this publication would be crucial for the company’s revenue growth.”
The DCHL executive said the company entered the Chennai market hoping to sell between 100,000 and 200,000 copies a day, but ended up selling about 300,000 copies. “The management wants to repeat similar success in the Bangalore market as well,” he added.
DCHL shares ended Wednesday at Rs223.20 on the Bombay Stock Exchange, down Re0.50, or 0.22%, on a day the exchange’s benchmark index lost 1.84%. The shares have a 52-week high price of Rs270.10 and a low of Rs140. In October 2007, the company announced it would buy back shares worth Rs250 crore at a maximum price of Rs250 per share.
HT Media Ltd, the publisher of Mint and the Hindustan Times, has interests in the same businesses as DCHL.
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First Published: Wed, Jan 30 2008. 11 49 PM IST