deccan chronicle holdings ltd share price Management discussions

DECCAN CHRONICLE HOLDINGS LIMITED ANNUAL REPORT 2010-2011 MANAGEMENT DISCUSSION AND ANALYSIS The financials of theyear under review are not strictly comparable to that of previous year as Netlink Technologies Ltd., Odyssey India Ltd., and Deccan Chargers Sporting Ventures Ltd., the subsidiaries of the company, were amalgamated with the company from the appointed date of 1.04.2010. The year 2010-11 was difficult and challenging for the company as the continued uncertain situation in the markets in which the company operates has led to a decreased spend on advertisements thereby affecting the advertisement revenue growth. Consequently, there was fall in the profitability with profit after tax at Rs.16,258.30 lakhs compared to 26,091.81 lakhs in the previous year. Operations Review Deccan Chronicle, the flagship newspaper of the company continues to be the leading newspaper of South India. During the year under review, your company launched editions of Deccan Chronicle from Coimbatore as a measure of consolidating its position in Tamil Nadu and from Kochi in Kerala to make its maiden foray in that state. While Coimbatore edition of the paper has received good response, that in Kochi is promising.The above launches are expected to increase the readership and reach. Your company plans to consolidate its leadership in South India by launching few more editions starting with Thiruvananthapuram shortly and also increase the circulation and readership in the existing centres. The circulation of Deccan Chronicle grew over 3%; as per Audit Bureau of Circulations (ABC) for the period Jul-Dec 2010 the average daily circulation is 14.23 lakhs copies as against Jul-Dec 2009 circulation of 13.79 lakhs copies. The breakup of averagedaily circulation (in lakhs) is asunder: Jul-Dec 2010 Jul-Dec 2009 Hyderabad 5.94 5.72 Rest of Andhra Pradesh 2.61 2.51 Chennai 3.15 3.11 Bengaluru 2.53 2.45 Total 14.23 13.79 The Hyderabad IPL Franchise Deccan Chargers owned by the company is expected to enhance the brand value of the company and visibility. This is further indicated by the addition of two new teams in the league, the highest at a price of nearly Rs.1700 crores. In IPL 3 the team qualified to the semi finals level though could not reach the same in IPL 4. The IPL 3 home matches were not played in Hyderabad due to local conditions, however the IPL 4 home matches conducted in April-May 2011 were played in Hyderabad. The financials for the year under review include the resultsoflPL3. The performance of Odyssey chain of leisure stores of your company offering consumer lifestyle products of books, music, stationery and gifts during the year under review was impacted owing to reduced margins, decrease in consumer spend on leisure and lifestyle products on account of inflation, increase in the real estate and staff costs. The company is taking effective steps to rationalize stores, reduce costs to have positive impact on overall performance. Industry Overview During the year under review, the Indian Economy continued to show resilience. However higher inflation of commodity and food prices continues to be a key concern, due to which Reserve Bank had to raise interest rates multiple times during the year. The Indian Economy is expected to maintain its growth rate in the coming years not with standing external shocks, which is likely to translate to an increased advertisement spend, and the print media being a preferred medium is likely to derive a major benefit of the same. Financial Review Share Capital Share capital as at March 31,2011 is 4,869.44 lakhs comprising of 24,34,72,219 Equity shares of 21- each fully paid up. The Equity share capital has increased during the year from Rs. 4,844.46 lakhs to 4,869.44 lakhs on account of allotment of 12,49,435 Equity Shares of Rs.2/- each upon conversion of 3,000 Foreign currency convertible bonds. Reserves and Surplus Reserves and surplus as at March 31,2011 is Rs.1,23,145.03 lakhs as againstRs. 1,20,957.03 lakhs in the previous year a net increase of Rs. 2,188 lakhs. Retained Earnings accounted 57.57% of the Reserves and surplus. Debt Secured long term debt as at March 31,2011 is 31,311.61 lakhs as against Rs. 32,886.56 lakhs in the previous year a decrease of Rs.1,574.95 lakhs. Fixed Assets and Capital workin progress The net block of fixed assets and Capital work in progress is Rs.92,671.31 lakhs as against 80,773.05 lakhs in the previous year the increase in block of assets is on account of amalgamation, expansion/modernization of the printing facilities. Investments There are no investments as at March 31, 2011;all thesubsidiary companies have been amalgamated and the other investment was sold. Inventories Inventories as at March 31, 2011 is 13,340.94 lakhs as against Rs. 6,203.71 lakhs in the previous year, the increase in inventory is on account of inventory of amalgamated subsidiaries. Debtors Debtors as at March 31, 2011 is 25,836.15 lakhs as against Rs. 19,554.84 lakhs, increase in debtors is due to uncertain market condition. Cashand Bank balances Cash and bank balances as at March 31,2011 is 70,379.60 lakhs as againstRs. 59,164.38 lakhs. Loans and Advances The loans and advances decreased to Rs.15,161.89 lakhs from Rs.18,551.13 lakhs in the previous year, primarily on account of amalgamation of subsidiaries. Current liabilities and Provisions The Current liabilities and Provisions increased to Rs.49,736.98 from 37,305.91 lakhs in the previous year, primarily on account of amalgamation of subsidiaries. Printing and Other Operative Expenses The increase in printing and operative cost from 31,758.25 lakhs to Rs.42,608.55 lakhs is primarily an account of cost of merchandise and franchisee fee paid of amalgamated subsidiaries. Overheads Overheads comprise personnel cost, sales and administrative expenses, Interest and financial charges. The overheads for the year areRs. 31,636.97 lakhs compared to Rs.16,846.70 lakhs for the previous year. The current year financials includes the operating costs of theamalgamated subsidiaries. Depreciation The Company provides depreciation on straight-line basis at the rates prescribed in Schedule XIV of the Companies Act, 1956. The depreciation charge has increased from Rs.4,224.85 lakhs to Rs.5,157.35 lakhs due to amalgamation, expansion/modernization. Tax Charge The total tax charge (including deferred tax) has decreased from Rs.13,272.93 lakhs to Rs.7,430.31 lakhs on account of reduced profits. Internal Control Systems The Company has adequate internal control systems to monitor all aspects of operations and managerial functions.There are well defined procedures and policies laid out to perform the various functions. All functions are regularly reviewed and the results of the same are discussed by the senior management and Audit Committee. The recommendations are duly implemented. Risk Management All businesses are subject to internal and external risks. The internal risks are controllable risks and the senior management has identified such risks and formulated such actions to mitigate the effect of such risks. The external risks like change in government policies are not within the control of the management. Industry Risk The print media industry is enjoying growth on the basis of the growing economy, high-income levels and increasing literacy amongst the people. Any variations in these can have an impact on the industry. Raw Material Risk Newsprint constitutes the major raw material for the newspaper industry. Therefore continuous supply of newsprint at competitive price is essential for the business. Operational Risk The Company has appointed good quality reporters who provide on daily basis proper and authenticated information. The Company has also deployed good quality machines for printing the newspaper without any breakdowns. Outlook The fundamentals of higher economic growth remaining intact notwithstanding concern on inflationary pressures, the economy is expected to maintain its current growth rate which will further lead to increasing standards of living and literacy level which will fuel growth. As such print media sector is considered to have a robust future within I ndia for a number of years to come. Cautionary Statement Readers are cautioned that this section may contain forward looking statements by the management that involves certain risks and uncertainties.This section should be read in conjunction with the Companys financial statements and relevant notes attached thereto.