>DECCAN CHRONICLE (MOTILAL OSWAL)

■ Concerns on balance sheet issues put to rest: Deccan Chronicle Holdings (DCHL) has been focusing on addressing balance sheet related issues that had gained prominence in FY07-08. Most of the operational issues with regard to high debtors, low dividend payout, securitization of debtors, and high debt levels have been addressed. Working capital to sales ratio has declined from 73.6% in FY07 to 20% in FY09. Net debt stands at Rs663m as at March 2009 v/s Rs2.7b as at March 2007. Dividend payout has increased from 16.9% in FY07 to 40% in FY09.

■ Has consolidated position in the South, maintains leadership in Andhra Pradesh: After the launch of Deccan Chronicle in Bangalore, DCHL has presence in all the key markets of South India. It maintains its leadership position in Andhra Pradesh and is a strong number-2 player in Chennai after Hindu. Deccan Chronicle's overall circulation is 1.3m copies/day and the management is targeting 1.5m copies/day. DCHL has also launched a financial daily, Financial Chronicle in Mumbai, Hyderabad, Bangalore and Chennai.

■ Advertising revenues to grow at 10% CAGR over FY09-10: DCHL's advertising revenues grew just 2.8% in FY09. Reduction in ad spends by key segments like autos, real estate and financial services impacted DCHL's advertising revenues. However, there are signs of recovery; DCHL's advertising revenues grew 11.9% YoY in 1QFY10. We estimate 10% CAGR in DCHL's advertising revenues over FY09-11.

■ Newsprint prices are below FY09 levels; expect savings of Rs800m in FY10: Increase in newsprint requirement due to the launch of the Bangalore and higher newsprint prices had led to a 90% increase (Rs1.9b) in DCHL's raw material cost in FY09. Newsprint prices have declined 35-40% from the peak. We estimate newsprint cost for FY10 at Rs30,720/ton down by 24.5% YoY. We believe DCHL would be able to achieve savings of Rs800m in newsprint cost in FY10.

■ Strong balance sheet, change in distribution policy could re-rate stock: We believe that change in debtor policy and increase in payout ratio is positive. We estimate revenue CAGR of 10% over FY09-11 and PAT CAGR of 50%. The stock trades at 11.9x FY10E EPS of Rs10.3 and 9.7x FY11E EPS of Rs12.6. Possible stake sale in Deccan Chargers or divestment of Odyssey Retail could help unlock value. We maintain Buy.

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