Neutral on Deccan Chronicle - Motilal Oswal

Deccan Chronicle (DECH IN; Mkt Cap USD0.4b, CMP Rs81, Neutral)

Deccan Chronicle's 3QFY11 results were significantly below our expectations, with PAT declining 55% YoY and 57% QoQ to Rs352m.

Revenue declined 15-16% YoY and QoQ to Rs2b (v/s our estimate of Rs2.5b). EBITDA declined 40% YoY and 36% QoQ to Rs754m. EBITDA margin declined 16pp YoY and 12 percentage points QoQ to 37.8% (v/s our estimate of 51%).

Deccan Chronicle recently announced the merger of subsidiaries - Deccan Chargers Sporting Ventures and Odyssey Retail (no significant impact on PAT).

The company is awaiting SEBI approval to commence buyback (up to Rs2.7b; price cap of Rs180) which could provide downside support to the stock.

Ad revenues are likely to remain soft in the near-term due to continued local aberrations and seasonal weakness. Newsprint prices have stabilized at higher levels and are expected to be range-bound in CY11. We are downgrading our FY12/13 earnings estimates by 40-50%. We expect EPS decline of 21% in FY11 and flat earnings over FY11-13. We downgrade the stock to Neutral with a revised target price of Rs82 (10x FY13E EPS; 35% discount to the average multiple).

Source : Equity Bulls

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