Monday, November 24, 2008

Deccan Chronicle Earnings Revision ; Revenue & cost pressures hit earnings ; BUY ; Target : Rs78

Deccan Chronicle's Q209 results came as a big disappointment due to sharp rise in the newsprint prices and higher operating expenses owing to the launch of Financial Chronicle and Bangalore edition. The Q209 net sales increased by 20.6% YoY to Rs2264mn despite the 30% ad-rate hike effected at the beginning Q109 (implying volume de-growth). EBIDTA declined 34.3% YoY to Rs773mn due to severe operating cost pressures. While rising newsprint price has led to increase in the production cost (up 2200bps), the launch of Bangalore edition and Financial Chronicle have led to rise in the employee cost (up 260 bps) and admin cost (up 400bps). Higher tax provision in Q209 at 31% of PBT v/s 20% of PBT in Q208 led to 45% drop in net profit to Rs453mn.

Considering the disappointing results, slow down in the economy and sharp rise in the operating costs, we have reduced our revenue estimates by 17.5% and 24% and EPS estimates by 49.5% and 49.8% for FY09 and FY10E respectively. Our revised EPS estimates are at Rs7.6 and Rs9.7 for FY09E and FY10E respectively. We maintain BUY rating with revised price target of Rs78 (v/s Rs225 earlier) based on 8x FY10 EPS of Rs9.7. Acceleration in GDP growth and fall in newsprint prices remain upside risks.

Technical Comments

Continuing its southbound journey Nifty opened the week on a negative note and on 20th Nov it made a low of 2502. Thereafter it took support and on Friday it opened on positive note and remained in green through out the day. Finally Nifty closed at 2693 with a loss of 4.16% w-o-w basis. In sectoral indices, last week, the BSE Realty index (-18.20%) followed by BSE Metals index (-10.18%) BSE Bankex index (-10.81%) was the top-loosers. While other indices also closed negative on w-o-w basis.

Last week Nifty opened on a negative and continued its southbound journey. On 17th Nov it made a it tested the lower band of the "Channel" and made a low of 2694, but again on 18th Nov huge selling pressure was witnessed which lead Nifty to fell sharply and broke the lower band of the "Channel" and further fell sharply, and on 20th Nov it filled the mentioned "Gap" of 2539, and made a low of 2502. Thereafter it took support and on Friday it opened on a positive note and made a high of 2718 in intraday. On the daily chart "Stochastic" and "RSI" oscillators had given a buy signal. Thus in the coming days, we will witness further recovery in the nifty and it can test 2754 and 2832, which are 38.20% and 50% retracement level of the recent fall from 3161 to 2502. In the immediate term level of 2502 will play as an important support for Nifty. However the short-term trend will change only when nifty starts trading below 2252.

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