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Chronicles of DCHL : Is it worth buying at Rs. 10

, September 20, 2012, 0 Comments

Is DCHL stock worth buying at Rs. 10

Like any fallen angel problem of Hyderabad based Publisher and owner of IPL team ‘Deccan Charger’, DCHL is far from over. Its latest attempt to monetize assets in order to overcome huge pile of Debt has failed with only bidder VP ventures INR 900 cr worth of bid is rejected by Banker.

Bankers felt that at this value it is not worth considering sale transaction particularly if Pune worriors entry price taken in to account.

DCHL story so far

It tooks everybody by surprise when It suddenly came to light when IFCI filed a winding up petition in the Andhra Pradesh High Court against Deccan, claiming non-payment of debts worth about Rs. 450 crores. and Hyderabad based Karvy lodged a complaint against promoters of DCHL accusing of forgery. It has been claimed that promoters tried to pledge same shares twice with different lenders.

Till March 2012 it was wild guess by any analyst that in the next six month company’s solvency will be questioned. Investors and Analyst are worried particularly after mid of June as rumor mills were abuzz about its astonishing debt, that was followed by series of event such as Karvy’s complaint, TATA Capitals charge of 100 crore by attaching bank accounts and prime property to even failure to meet Future Capital’s margin requirement on pledged shares as value of shares were continuously eroding.

It has lost more that 80% of its market value in last 12 months. Extension of financial year from March to Sep 2012 have even raised more questions than answers.

Why DCHL is Under performing

One would wonder that a group who has 75 years of presence and a very dominant market position in south belt can suffer so badly. Actually analyst with local brokerage firm point out that its core business of Publishing is a cash generating at operating as well as net level but sue to rackless and non-core expansion that has led DCHL to land up in this mess.

Non Core Expansion

It has acquired IPL team by paying USD 107 Million to acquire the franchise and incurred huge recurring expenses. Buyingin to IPL team sucked away huge sums of cash. The cash crunch was so evident that some IPL players complaint about pending dues and BCCI instructed franchise to clear the dues.

Besides this its Book store venture called “Odyssey” is facing a stiff competition from the players such as Flipkart which offers discount in order to prop up sales and acquire market shares. Even operating cost is also running quite high due to rent to be paid for maintaining such stores in reputed places.

Another venture which did not generated value was an aviation venture with Aviotech. Aviotech a chartered flight service venture is in the news now a days for completely different reasons. Media report clearly indicates about the lavish, extravagance and aggressive lifestyle of Mr. T. Venkattram Reddy, co-promoter of DCHL, the man who insider regarded as humble and very low profile rose to stardom after buying IPL team.

Early this year along with DCHL promoter Aviotech borrowed Rs 170 cr from  Future Capital by share pledging. Due to this Lien was cre ated on 60.4 million shares held by Karvy on promoters’ behalf. At the time of pledge price was in excess of Rs 30-32 but now valuation has come down drastically due to fall in market price of share.

Management’s argument of domestic and global depressed mood and its counter effect on functioning of company has very little or no buyer. As one analyst from domestic broking outfit puts it forward that if Business sentiment is down that is applicable for whole industry and not a company specific phenomenon. In last 18 months no new expansion in core area of publishing has taken place then where is the question of excess stress. Comparing to it peers in the industries price of DCHL is constantly under performing by a wide margin. (Chart comparing DCHL price performance with DB Corp will clearly explain the situation)

What is the way ahead

The current developments are not very encouraging and there is no end to the tunnel, not just yet. Even if DCHL able to raise a reasonable amount of money through IPL team, Sale proceeds will go to lender and share holders again have to bare the brunt of balance debt and weaker Balance sheet.

It is prudent to stay away from the counter (No need to commit your money even at Rs. 11 per share) even though it has lost 80% there is no sense in risking balance 20% (which may represent 100% of your capital).

It seems to be a cheap stock but as we say in market parlance “Good stock don’t come cheap and Cheap will be more Cheaper”. The existing shareholders who have suffered most in this case have to live with it and face the truth that there is no alternative to it.

About author
Sumeet is Mumbai based Chartered Accountant, having 10+ years of Strong Experience across Finance & Taxation domain. His expertise includes setting up Finance & Accounting Function and Managing team of professionals to deliver end to end spectrum of F&A, Statutory & Management Audits, Taxation, Costing, Treasury & Funds Management & Finalization of Financial Statements etc. While working with ICICI Prudential, Rajasthan Royals he had the experience in Strategy Planning & Decision making support, implementing financial strategies. ...more