A Case Study on Deccan Chronicle Holdings Limited: A Tragic Story of a Publisher
Second Edition of JIDNYASA : Thirst for Knowledge 2014 A Case Study on Deccan Chronicle Holdings Limited: A Tragic Story of a Publisher Why FDI in Retail ? A Study with Reference to Select Stakeholders
A Case Study on Deccan Chronicle Holdings Limited: A Tragic Story of a Publisher
Prof. Swati Khatkale (Assistant Professor, Symbiosis School of Banking Management)
Abstract and converted into a daily. In 1976, congress While celebrating its platinum jubilee (75 years of politician and businessman T Chandrashekhar establishment), Deccan Chronicle Holdings Limited Reddy acquired the company. T C Reddy had a (DCHL) faced a gamut of problems. DCHL, one of variety of businesses like bottling plants, aluminum the top English Newspaper Publishing House in foil, hotels etc. His son, Mr. VenkattaramReddy took Southern India, recently ventured into other over as the chairman of the family business at the age businesses like IPL franchise -Deccan Chargers & of 21. He had Diploma in Printing Technology and Life Style Retail-Odyssey . Mismanagement and was well versed with printing & publishing business. unrelated diversification led to default on its non- But he was more known for his extravagant style of convertible debentures. It faced legal action from having expensive cars, fine cigars and keen interest banks & other financial institutions for non- in horserace bidding. His brother, Mr. Vinayak Ravi repayment of debt and misrepresentation of balance Reddy was co chairman of the company. Mr. sheet. Kotak Mahindra Bank even took actual Vankattaram Reddy's wife, Manjula Reddy worked possession of its Hyderabad based Kodapur plant as senior features editor and their daughter Gayatri under SARFASIAct 2002. This case goes into depth Reddy as features editor. Their son T Vijay Reddy to find out the causes of financial distress. It also was the Vice President (finance) of the company. illustrates various options available to bankers & other financial institutions to recover its loan. This case can also be used in the class for finding out options left for a defaulted company to get back its profitability.
Deccan Chronicle Holdings Limited Deccan Chronicle Holdings Limited (DCHL) was established as a printing & publishing company in 1938. It started publishing its flagship English newspaper Deccan Chronicle as weekly newspaper Figure 1: Deccan Chronicle Newspaper 21 Second Edition of JIDNYASA : Thirst for Knowledge 2014 Volume 1 of JIDNYASA : Thirst for Knowledge 2014 Why FDI in Retail ? A Study with Reference to Select Stakeholders
Vinayak Reddy's daughter Archana was marketing million per day. It ventured into the arena of financial head of the company. newspapers in April 2008, by launching Financial Chronicle. Financial Chronicle was published from Core Business Operations Hyderabad, Chennai and Bengaluru. In the same year DCHL made an alliance with International As the name suggests, Deccan Chronicle's Herald Tribune to publish business section of operations dominated in Southern part of India. It Deccan Chronicle. Thus Deccan Chronicles grew published various newspapers & magazines namely leaps & bounds with time. Deccan Chronicle (English Daily), Financial Chronicle (English Financial Newspaper), Andhra Bhumi (Telugu Newspaper),AsianAge etc. In 2012, Diversification of Business Deccan Chronicle was the fourth largest English With the growth, DCHL started diversification by newspaper in India. Deccan Chronicle was venturing into other businesses. On 5th September publishing thirteen editions from Hyderabad, 2005, DCHL acquired 100% shares of lifestyle retail Chennai, Bengaluru, Viishakhapatnam, Vijaywada, chain Odyssey by paying Rs 61.2 crore in cash. Rajamundry, Nellore, Karimnagar, Coimbatore, Odyssey was having a chain of retail stores selling Kochi, Thrivantapuram, Kozhikode and Anantpur. gifts, toys, stationary, books, music, multimedia etc. The circulation of newspaper in Hyderabad was the The deal was considered highly overpriced as the top highest around 5 lakh daily. It was followed by other line of Odyssey was only Rs 20 crore in 2005. The newspapers like The Hindu (5 lakhs), The Times of price was more than 3 times of the turnover of India (2.5 lakh- 3 lakh) and The New Indian Express Odyssey. DCHL expanded Odyssey from 12 stores (0.5 lakhs). According to a media consultant K in 6 cities to 46 stores in 13 cities in Andhra Pradesh, Satyanarayana Deccan Chronicle dominated local Tamilnadu, Maharashtra and Karnataka. In spite of advertising in English print media in Hyderabad the expansion, the Odyssey recorded losses. It with 60% share. reported net loss of Rs 11.57 lakhs in 2010 against profit of Rs 2.03 crore in 2009. Expansions On January 24th 2008, DCHL sported a new business On 1st April 2003, it merged with another publishing of Indian Premium League (IPL) franchise. DCHL house – Nandi Publishers Private Limited. In the bought Hyderabad cricket team of IPL, Deccan year 2003-04, it expanded its business by developing Chargers for $107 million (around Rs 589 crore). a colour printing centre in Hyderabad. All this The team was able to bring international cricketers increased its publishing capacity from 3,15,000 on the board likeAdam Gilchrist,Andrew Symonds, copies per hour to 4,35,000 copies per hour. In 2004, Chaminda Vaas, Herschell Gibbs & Shahid Afridi. DCHL brought its Initial Public Offer (IPO) in the The team did not perform well in first season and market. The IPO was 9.3 times oversubscribed, scored last. In the next session, it won the title. But in raising 179 crores for the company. DCHL acquired 2012, once again it stood the last. Asian Age Holdings in May 2005. It was a publisher DCHL also expanded its wings into Aviation of English newspaper, The Asian Age, printed from Industry by starting Aviotech. Aviotech commenced Delhi, Mumbai, Kolkata and London. Soon in 2007, its business in the arena of chartered flight services to Deccan Chronicle's circulation reached average 1 grab untapped private business aviation business in
22 Second Edition of JIDNYASA : Thirst for Knowledge 2014 A Case Study on Deccan Chronicle Holdings Limited: A Tragic Story of a Publisher Why FDI in Retail ? A Study with Reference to Select Stakeholders
India. Aviotech ordered 10-12 airplanes from Sukhi 2012, it even delayed the mandatory disclosure of Civil Aircraft. According to Kapil Arora of Earnest annual financial statements and published it only & Young “Chartered Flight services are in very after September 2012. The financial statements in nascent stage in India and any volume & profits 2012 showed a net loss of 1040 crores against last can be seen only after 5 to 8 years.” With civil year's profit of 162 crores. An year ago in 2011, the aviation sector facing various difficulties of rising company's balance sheet reported a strong liquidity fuel cost, depreciating Rupee, high taxes, high position with a debt of only Rs 313 crore and cash airport costs; there is very thin hope that Aviotech position of Rs 264 crore and receivables of 258 will churn any profits in the coming few years. crores. Still the CEO & chairman of the company stated the problems rose due to liquidity crisis, “The real issue is a liquidity crisis that has arisen due to Financials: significant reduction in ad (advertisement) With increased diversification & expansion, the firm spending by domestic and multinational could not sustain its profitability. DCHL reported companies in India.” Astonishingly the debt losses of Rs 166.24 crore inApril- June 2012 quarter increased more than 10 times within a year to 3902 from net profit in the same quarter in the earlier year. crores in 2012 from 313 crores in 2011. In the suspicious situations after default, managing Table1:Quarterly Results director N. Krishnan resigned from the company on 25th July 2012. In December 2012, three more board Particulars Quarter Ended of directors resigned. Jun. 2012 Jun. 2011 % Var. Sale of Deccan Chargers Sales 145.43 201.84 -28 DCHL failed to pay Rs 100 crore to BCCI resulting OPM % -44.23 18.48 -339 expulsion of Deccan Chargers. Therefore DCHLhad PBDT -153.34 31.47 PL to sell Deccan Chargers to Sun TV at a price of mere Rs 425.2 crores on October 25th 2012. During the PBT -166.24 18.02 PL distress, the sale price of Deccan Chargers was even NP -166.24 12.18 PL less than its acquisition cost of 589 crores.
Source: Moneycontrol.com The Rating DCHL's troubles increased when Deccan Chargers' Since 25th July 2008, Deccan Chronicle Holdings ex CEO, Tin Wright sued the company in a London Limited had an investment grade A1+ rating of Court for breach of contract. DCHL faced huge CARE. On 1st July 2012, it paid Rs 300 crore debt but compensation payment of £10.53 million to Tin failed to pay Rs 150 crore non-convertible Wright. debentures to institutional investors like Pramerica Mutual Fund and Canara Bank. Pramerica Mutual The Default Fund invested money of 1.3% of its liquid fund, The Company defaulted on the payment of Non- 3.3% of ultra-short term bond fund, 6.2% of credit Convertible Debentures (NCD) on July 2, 2012. In opportunities fund, 23 Second Edition of JIDNYASA : Thirst for Knowledge 2014 Volume 1 of JIDNYASA : Thirst for Knowledge 2014 Why FDI in Retail ? A Study with Reference to Select Stakeholders
Reasons of Failures According to various analysts & newspapers, the acquisitions of DCHL went soar. According to the Karvy brokers “money raised for the media company went into other areas for example Rs 50 crore went to Aviotech from Rs 170 crore raised from Future Capital. ” V Sundar Raja, founder, www.sundartrends.in commented on DCHL, "It looks like the company made an investment of more than Rs 1,000 crore in the last few years. In my opinion, they must have invested in Deccan Chargers. Recently they have interests in aviation and in fact it is a surprise where they have invested all this amount." According to financial analysts in equitymaster.com, “All in all it is not a very happy situation especially since some of the company's investments appear to be made for reasons not based on sound business acumen. The return on these investments is not yet showing up in the accounts.” Similarly Satish Kantheti, head of the equity research division of Zen Securities Ltd commented “In my opinion, the current problem of Deccan Chronicle is due to unrelated diversification and the management's loss of focus.” Figure 2: DCHL's default to Pramerica's Mutual Funds Aftermath of Default: Bleeding balance sheets of 4.8% of dynamic monthly income fund and 5% of banks & Legal Battles dynamic fund in Deccan Chronicle Holdings based In July 2012, IFCI Ltd filed a petition in Andhra on the credit rating. The rating agency CARE was Pradesh High Court for winding up operations of blamed to have A1 rating before default. The stance DCHL due to non-redemption of NCD. With the of CARE was Deccan Chronicle had Rs 372 crore financial distress and default, the repayment of Rs cash/ FD balance and Rs 20 crore accruals and Rs 5000 crore bank loans also became questionable. 500 crore was raised by company from institutional The depth of problems were estimated when it was investors by December 31, 2011. Other argument found out by Karvy Stock Broking Company that CARE officials made that the basic business of DCHL has pledged shares twice for taking loans Deccan Chronicle Holdings was running from Karvy as well as Future Capital of Kishore successfully but it diverted funds to other Biyani Group. According to Karvy Officials “It is unsuccessful businesses. After default, CARE very clear from the documents, that the depository downgraded the rating to D Grade on 2nd July 2012. account holders, by using a forged letter, 24 Second Edition of JIDNYASA : Thirst for Knowledge 2014 A Case Study on Deccan Chronicle Holdings Limited: A Tragic Story of a Publisher Why FDI in Retail ? A Study with Reference to Select Stakeholders
committed a fraud on us and misrepresented the NPA. As the financial statements did not show any facts that a higher number of shares existed in their weaknesses a year ago, suspecting a fraud, Canara accounts for availing a loan against them, thereby Bank started forensic audit of DCHL by Deloitte. committed a breach of trust and forgery.” Other Banks, who were planning 2300 crore DCHL's largest lender ICICI Bank created a Corporate Debt Restructuring, halted restructuring consortium with other three private sector lenders in the view of possible fraud. Religare Finvest filed Axis Bank, IDFC & Religare Finvest to recover the an FIR after two cheques amounting 6 crores st st loans. Canara Bank's 358 crore loan turned into an bounced on 1 July and 1 August 2012. Bailable warrants were issued against the directors of DCHL. Kotak Mahindra Bank took extreme step after giving two notices to DCHL in October 2012 and January 2013. The Bank took actual possession of Deccan Chronicle's Kodapur plant, building & machinery on May 16th , 2013. This was the first legal possession of DCHL's assets under Securitization and Reconstruction of FinancialAssets and Enforcement of Securities Interest (SARFASI) Act 2002. DCHL faced another charge in July 2013 from Central Bureau of Investigation (CBI) for fabrication of false balance sheet and hiding actual borrowings. It is sad story that how a publishing unit became tragedy by Figure 3: Kotak Mahindra Bank's notice on itself. Deccan Chronicle had to think hard to find out the gates of Deccan Chronicle's press a way back to its profitability & regain its lost at Kondapur, Hyderabad. reputation.
Figure 4: Worried Bankers for loans given to DCHL
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Figure 5: Fall in share prices of DCHL Source: Moneycontrol.com
Table 2: Balance Sheet of Deccan Chronicle Holdings
Standalone Balance Sheet ------inRs. Cr. ------
Sep '12 Mar '11 Mar '10 Mar '09 Mar '08 18 mths 12 mths 12 mths 12 mths 12 mths Sources Of Funds Total Share Capital 41.79 48.69 48.44 48.98 48.98 Equity Share Capital 41.79 48.69 48.44 48.98 48.98 Reserves -31.78 1,231.45 1,209.57 1,100.89 1,018.12 Networth 10.01 1,280.14 1,258.01 1,149.87 1,067.10 Secured Loans 3,070.90 313.12 328.87 354.5 792.7
26 Second Edition of JIDNYASA : Thirst for Knowledge 2014 A Case Study on Deccan Chronicle Holdings Limited: A Tragic Story of a Publisher Why FDI in Retail ? A Study with Reference to Select Stakeholders
Standalone Balance Sheet ------inRs. Cr. ------
Sep '12 Mar '11 Mar '10 Mar '09 Mar '08 18 mths 12 mths 12 mths 12 mths 12 mths Unsecured Loans 832 0 13.46 13.46 13.46 Total Debt 3,902.90 313.12 342.33 367.96 806.16 Total Liabilities 3,912.91 1,593.26 1,600.34 1,517.83 1,873.26 Sep '12 Mar '11 Mar '10 Mar '09 Mar '08 Application Of Funds Gross Block 1,037.53 1,074.09 916.58 840.99 646.41 Less: Accum. Depreciation 260.12 210.21 146.53 103.47 67.02 Net Block 777.41 863.88 770.05 737.52 579.39 Capital Work in Progress 3,092.92 62.83 37.68 85.6 57.89 Investments 0 0 210.62 240.92 190.92 Inventories 21.08 133.41 62.04 129.91 30.15 Sundry Debtors 144.78 258.36 195.55 194.25 244.69 Cash and Bank Balance 15.87 264.2 41.56 59.59 2.75 Total Current Assets 181.73 655.97 299.15 383.75 277.59 Loans and Advances 165.48 151.62 185.51 98.49 190.03 Fixed Deposits 0 439.6 550.09 300.09 791.94 Total CA, Loans & Advances 347.21 1,247.19 1,034.75 782.33 1,259.56 Current Liabilities 293.89 567.87 435.98 315.81 170.52 Provisions 10.75 12.77 16.77 12.74 54.59 Total CL & Provisions 304.64 580.64 452.75 328.55 225.11 Net Current Assets 42.57 666.55 582 453.78 1,034.45 Miscellaneous Expenses 0 0 0 0 10.61 Total A ssets 3,912.90 1,593.26 1,600.35 1,517.82 1,873.26 Contingent Liabilities 142.35 0.57 0 0 0 Book Value (Rs) 0.48 52.58 51.94 46.96 43.58
Source: http://www.moneycontrol.com
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Table 3: Profit & Loss account of Deccan Chronicle Holdings ------in Rs. Cr. ------Sep '12 Mar '11 Mar '10 Mar '09 Mar '08 18 mths 12 mths 12 mths 12 mths 12 mths Sales Turnover 786.08 976.16 892.5 814.94 782.37 Net Sales 786.08 976.16 892.5 814.94 782.37 Other Income 57.33 3.38 29.45 42.68 37.52 Total Income 843.41 979.54 921.95 857.62 819.89 Expenditure Raw Materials 417.37 329.6 261.89 396.56 206.28 Power & Fuel Cost 17.18 11.76 7.21 0 0 Employee Cost 138.83 96.82 65.47 49.39 26.14 Other Manufacturing Expenses 233.38 84.73 48.49 46.18 28.01 Selling and Admin Expenses 0 149.89 50.98 48.58 30.41 Miscellaneous Expenses 344.92 10.64 6.89 5.98 2.33 Total Expenses 1,151.68 683.44 440.93 546.69 293.17 Operating Profit -365.6 292.72 451.57 268.25 489.2 PBDIT -308.27 296.1 481.02 310.93 526.72 Interest 733.88 59.01 45.13 70.93 76.79 PBDT -1,042.15 237.09 435.89 240 449.93 Depreciation 81.23 51.57 42.25 32.06 27.99 EBIT -389.5 244.53 438.77 278.87 498.73 Profit Before Tax -1,123.38 185.52 393.64 207.94 419.05 PBT (Post Extra-ordinary Items) -1,123.67 185.52 393.64 207.94 419.05 Tax -83.27 74.3 132.73 67.86 147.11 Reported Net Profit -1,040.40 162.58 260.92 140.07 271.94 Total Value Addition 734.32 353.84 179.04 150.13 86.89 Equity Dividend 0 0 72.93 48.98 73.38 Corporate Dividend Tax 0 0 12.39 8.32 12.47 Per share data (annualized) Shares in issue (lakhs) 2,089.72 2,434.72 2,422.23 2,448.78 2,448.78 Earnings Per Share (Rs) -49.79 6.68 10.77 5.72 11.11 Equity Dividend (%) 0 0 150 100 150 Book Value (Rs) 0.48 52.58 51.94 46.96 43.58 Source: http://www.moneycontrol.com 28 Second Edition of JIDNYASA : Thirst for Knowledge 2014 A Case Study on Deccan Chronicle Holdings Limited: A Tragic Story of a Publisher Why FDI in Retail ? A Study with Reference to Select Stakeholders
References: hyderabad-ipl-sun-tv-bcci-kumar- 1. Appaji Reddem, “Deccan Chronicle's NCD default sangakkara/1/238830.html scares investors”, moneycontrol.com, 31st July 10. Moitra Sumit, “Concast drags Deccan to court over 2012, 10:43 pm, http://www.moneycontrol.com/ default”, 23rd December 2012, DNA, http://www. news/cnbc-tv18-comments/deccan-chronicles- dnaindia.com/money/1781051/report-concast- ncd-default-scares-investors_738283.html drags-deccan-to-court-over-default 2. Business Lines, “Banks may decide on Deccan 11. Sinha Shirish, “Deccan Chronicle: Private lenders Chronicle debt rejig after forensic audit”, plan to team up to recover dues”, Business Lines, September 12, 2012, http://www. M a y 2 , 2 0 1 3 , thehindubusinessline.com/ companies/ banks-may- http://www.thehindubusinessline.com/companies/ decide-on-deccan-chronicle-debt-rejig-after- deccan-chronicle-private-lenders-plan-to-team-up- forensic-audit/ article3889580.ece to-recover-dues/article4677221.ece 3. Business Standard, “Deccan Chargers is now 12. Sukumar C R & Menon Shailesh, “Deccan Sunrisers”, 21st December 2012 Chronicle Holdings defaults on loan payments.”, 4. Firstpost.business, “Deccan: Chronicle of a flawed The Economic Times, July 5, 2012, diversification model”, August 9, 2012, Website: http://articles.economictimes.indiatimes.com/2012 http://www.firstpost.com/business/deccan- -07-05/news/32551547_1_pramerica-dynamic- chronicle-of-a-flawed-diversification-model- fund-liquid-fund-fund-house 412047.html 13. Sukumar C R, “Kotak Bank seizes Deccan 5. Goyal Rajesh, “Titanic Defaults are likely to Chronicle's Hyderabad press assets”, The Economic Do Irreparable Damages to Indian Banking Times, May 15, 2013, web link: http://articles. Industry”, Allbankingsolutions.com; http://www. economictimes.indiatimes.com/ 2013-05- allbankingsolutions.com/Press-Release-Views/ 15/news/39282075_1_dchl-pvp-capital-deccan- Kingfisher-Deccan-loot.htm chronicle-Holdings-ltd 6. IBN Live, “Deccan Chargers changed to Sun 14. The Hans India, “Deccan Chronicle printed press Risers”, December 18, 2012, http://ibnlive.in.com/ s e a l e d ” , May 16, 2013, http://www. news/ cricketnext/ipl-6-deccan-chargers-changed- thehansindia.com/2013/05/16/deccan-chronicle- to-sun-risers/368632-78.html printing-press-sealed/ 7. KalavalapalliYogendrs& Pilla Viswanath, “Deccan 15. The Hindu, “Bank takes over Deccan Chronicle Chronicle-Hitting the headlines”, livemibt, 10th press”, May 16, 2013, http://www.thehindu.com/ August 2012, http://www.livemint.com/ business/Industry/bank-takes-over-deccan- Companies/ faicytUH784pSz3k0t4CZI/Deccan- chronicle-press/article4718786.ece Chronicle--Hitting-the-headlines.html 16. The Hindu, “Kotak Mahindra Bank serves 8. Menon Amarnath K “Hyderabad gets new IPL possession notice on Deccan Chronicle Holdings”, th franchise, Deccan Chargers are now Sunrisers”, 8 January 2013, http://www.thehindu.com/ Business Standard, 22nd July 2013, http://www. business/companies/kotak-mahindra-bank-serves- business-standard.com/article/ companies/deccan- possession-notice-on-deccan-chronicle- chargers-is-now-sunrisers-112122100110_1.html Holdings/article4287502.ece 9. Menon Amarnath K, “Hyderabad gets new IPL 17. The Hindu, “Taxmen 'inquire' into banking th franchise- Deccan Chargers are now the Sunrisers”, transactions of Deccan Chronicle”, Hyderabad, 25 India Today, Hydeabad, December 21,2012, June 2013, http://www.thehindu.com/ business/ http://indiatoday. intoday.in/story/sunrisers- Industry/taxmen-inquire-into-banking-
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transactions-of-deccan-chronicle/article http://www.sunday-guardian.com/investigation/ 4850398.ece banks-face-bad-debts-as-corporates-default 18. The Indian Express, “Deccan Chronicle Holdings 20. The Times of India, “Kotak Bank takes possession promotors' properties attached”, 29th March 2013, of Deccan Chronicle Press”, May 16, 2013, http://www.indianexpress.com/news/deccan- http://timesofindia.indiatimes.com/business/india- chronicle-Holdings-promoters-properties- business/Kotak-Bank-takes-possession-of- attached/1094799/ Deccan-Chronicle-press/articleshow/ 19. The Sunday Gaurdian, “Banks face bad debts as 20075498.cms corporate default”, 23r d March 2013,
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