At one time, in the not-so-distant past, Deccan Chronicle was considered to be among the best stock buys thanks to its stranglehold in the print media space of the South. It was talked of in the same hushed tones as the market leaders Hindustan Media Ventures and Dainik Jagran.
Today, with winding up petitions having been filed by its creditors amidst criminal charges of forgery and fraud, Deccan Chronicle has become a pariah and its shares have touched an all time low of 11.65% after tripping the lower circuit breaker. On 26th July, the shares were quoting at Rs. 22.90. The news was announced that its promoters had pledged 54% of the stock to Future Capital Holdings to tide over the financial difficulties and all hell broke loose. In just a few trading sessions, the stock has lost 50% of its value.
The Company did some emergent fire-fighting by sending out a statement that the problem was only one of “liquidity” and that it would tide over the crises soon. However, invesrtors are not buying the stock.
Deccan Chronicles’ woes are directly related to the gigantic debt of Rs. 2,000 crores that it has accumulated. As the debt was not serviced in time and certain NCD’s were not redeemed on the due date, Industrial Finance Corporation of India (IFCI) rushed to Court for a winding up petition against Deccan Chronicle Holdings. This was followed in quick succession by a police complaint filed by Karvy Consultants against the promoters of DCHL alleging that they had committed fraud and forgery with respect to certain pledged shares.
At the root cause of Deccan Chronicle’s woes is the huge investment it has made in the godforsaken IPL cricket team “The Deccan Chargers”. It paid USD 107 Million to acquire the franchise and has to incur huge recurring expenses. That has sucked away huge sums of cash with no corresponding monetary benefit.
Another area where Deccan Chronicle is burning cash is the Odyssey chain of book stores. With patrons preferring to buy books at a cheaper rate from Flipkart or indiatimes shopping, Odyssey is paying huge rent for the space in the malls but not getting customers to bite.
And as if that wasn’t enough, Deccan Chronicle has also entered into an aviation joint venture with Aviotech, a chartered flight service. Everybody knows that the aviation industry is the biggest cash squeezing machine available and can lay a company bare in no time at all (ask Vijay Mallya).
In retrospect, one can’t help feel sorry for Deccan Chronicle’s investors. It had such a good thing going. A monopoly in the South. A strangle-hold over advertisers. A cash machine. And it had to give it all up for a stupid cricket team! Of course, now even Deccan Chronicle has realized its mistake and decided to dump Deccan Chargers. But the asking price: Rs. 1,500 crores (1.5 Billion). Will there be a bigger fool who will bail out the lesser fool is the million (nay, billion) dollar question.
Dear Madam,
Although the article sounds interesting, I would like to bring few things to your kind attention.
In my view, it is not possible for DCHL to incur debt of 2000 cr on its businesses in the balance sheet. i.e print, IPL, retail chain, and Netlink tech. My reasoning is as follows:
Although the IPL franchise cost is $105 million, it is paid in 10 tranches to BCCI, so $10.5 million each year. Out of which, some amount will be returned by BCCI in the form of sponsorship revenues, and revenues from broadcasting rights. So maximum DCHL can loose on IPL team is around 5o to 80 cr per year (last year they lost 50 cr as per annual reports). Interestingly as per IPL business economics, first 8 franchisees cannot make hell lot of money or loose hell lot of money as the amount to be spent on players are also capped at $9 million per yr. Similarly with 40 odd book stores, DCHL cannot lose more than 100 cr in a year (they lost less than 50 cr in 2011 on bookstores). Netlink is an insignificant business, and it is profit making in 2011.
Furthermore, DCHL net debt (long term debt + current liabilities assuming it is all debt – cash in hand) is around 300 cr as per 2011 September results.
So, if books are correct it is very difficult to incur debt of 1700 cr in less than a year. Therefore, if the debt figures are accurate, either they cooked the books or took loans for off-balance sheet items such as aviation business, which i guess is nothing to do with DCHL shareholders.
Does it make sense? Please let us know.
Best Regards,
-Satya
Dear Satyaji,
It appears Deccan Chronicles owes Rs. 3270 crores. I am reproducing a report from today’s Times of India:
Deccan Chronicle owes lenders over Rs 3,270cr?
Troubled Deccan Chronicle Holdings (DCHL) has outstanding dues of well over Rs 3,270 crore that it owes to nearly 28 banks, financial institutions and non-banking financial institutions, according to details that emerged at a joint meeting of DCHL lenders held in Mumbai on August 8.
These outstanding dues are understood to be by way of term loans, commercial papers and non-convertible debentures ranging from Rs 490 crore to Rs 10 crore. The meeting, which was chaired by Axis Bank president Sidharth Rath, is learnt to have been attended by representatives of IDFC, ICICI Bank, LIC, Yes Bank, Central Bank of India, Tata Capital, HDFC Bank, IFCI and Ratnakar Bank.
According to sources, DCHL lenders are mulling the possibility of forming a five-member committee of senior lenders, based on outstanding dues, to represent the interest of lenders and negotiate the recovery of their dues with the DCHL promoters. The lenders are also planning to hold a meeting with DCHL promoters and Religare representatives in a bid to pressurize them to share updates on the sale of assets of DCHL and Deccan Chargers.
The entire article is here:
http://timesofindia.indiatimes.com/business/india-business/Deccan-Chronicle-owes-lenders-over-Rs-3270cr/articleshow/15499151.cms?
Deccan Chronicle should come in the open and clarify the exact position instead of leaving matters to speculation.
Regards,
Meera Sanyal
Dear Madam,
Thank you for the information. If these allegations are true, this is a case of fraud rather than bad management, and promoters might be determined to share the empty cell vacated by Satyam’s Ramalinga raju. Even if the Debts are 1500 cr, it is just a fraud by promoters rather than mis-mismanagement. That’s what I was trying to convince you. Entire media is concentrating on mis-management bit rather than focusing on wrong intentions by promoters. No one has asked why DCHL needs so much debt when their sales it self is below 1000 Cr? Another element that was not all discussed is: What are the assets(if at all they used cash, otherwise recovery is very easy) that they bought with these debt? Most of these loans are taken in last six months.
Thanks anyways,
Best Regards,
-Satya
Satyaji,
I do agree with you that it may not be a simple “liquidity” problem as is sought to be made out by Deccan Chronicle’s promoters. Is it a question of a fraud? A number of people are already raising that flag. Wikipedia has an entry “Financial Fraud By Deccan Management”
http://en.wikipedia.org/wiki/Deccan_Chronicle#Financial_Fraud_By_Management and so does Sucheta Dalal “Fraud Allegation: Is Deccan Chronicle another satyam?” http://www.suchetadalal.com/?id=1d380c58-8037-4f2d-502200d0623d&base=sections&f
How did the lenders advance such large sums of money? Against what collateral? What was the money used for?
I suppose it is only a question of time before the truth tumbles out because the Debts Recovery Tribunal, Hyderabad, has already ordered the promoters of Deccan Chronicle Holdings Ltd (DCHL) to furnish the present position of the shares held by them in the company and disclose details of their personal assets. http://articles.timesofindia.indiatimes.com/2012-08-12/hyderabad/33167234_1_dchl-t-vinayak-ravi-reddy-deccan-chronicle-holdings
Dear Madam,
Thank you for the information. It would be interesting to watch the proceedings in the next few days. Do you have information on DCHL Q1 2012-13 results. They are supposed to be out yesterday.
Thanks & Regards,
-Satya
Satyaji, I suppose it will be released tomorrow as today is a holiday
Thanks for the information.