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Den Networks Equity Research

HomeCompanyDen Networks Equity Research

Date of Research – 14 January 2016

Price – Rs. 95.10

About the Company

Established on 2007, Den Networks Limited (“Den Networks” or the “Company”) is India’s leading cable TV distribution company reaching an estimated 11 million households in over 200 cities across India. As on December 2013, the Company has approx. 5.7 million digital cable subscribers. Den Networks is present in 13 key states across India including Delhi, Uttar Pradesh, Karnataka, Maharashtra, Gujarat, Rajasthan, Haryana, Kerala, West Bengal, Jharkhand, Bihar, Madhya Pradesh and Uttarakhand. The Company has a leading presence in the economically important Hindi Speaking Markets (HSM) belt.

DEN Digital – The Company’s digital cable services brand is one of the market leaders in India’s digital television space. DEN Digital offers a wide choice of channels and services spanning all major genres and languages along with cutting edge value added services (VAS).

Key Financial Figures

Consolidated (Rs. Cr)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations 914.05 1,116.69 1,129.64 1,258.58 1,157.34 
Expenses 695.97 814.52 1,037.23 1,132.21 978.53  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) 218.08 302.17 92.41 126.37 178.81  
Depreciation 81.12 147.40 185.95 230.65 277.50  
Finance Costs 47.08 88.97 82.30 84.89 65.16  
Other income 20.60 58.24 87.82 66.65 40.92  
Exceptional items 3.12 11.01 64.96 30.68  
PBT 107.36 113.03 (88.02) (187.48) (153.61) 
Tax 29.42 37.89 33.62 42.59 32.99  
PAT (before Minority Interest and share of Associates) 77.94 75.14 (121.64) (230.07) (186.08)
Profit/ (loss) attributable to Minority Interest 15.63 36.74 22.37 30.86 – 
Share of profit / (loss) of Associates 2.97  
Consolidated Profit / (Loss) for the year 62.31 38.40 (144.01) (260.93) (189.05) 

Profitability Analysis

Consolidated (%)
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Operating Profit Margin Ratio 23.86 27.06 8.18 10.04 15.45 
Net Profit Margin Ratio 8.53 6.73 (10.77) (18.28) (16.08) 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Share Capital 130.49 132.77 177.57 177.74 177.74
Preference shares issued by subsidiary 2.50 2.50 2.50 2.50 2.50
Share application money pending allotment 3.25 5.73 0.45
Reserves & Surplus 671.56 742.45 1,677.94 1,531.67 1,275.95
Net worth (shareholders funds) 807.80 883.45 1,858.45 1,711.91 1,456.20
Minority Interest 61.60 91.01 133.52 165.45 188.34
Long term borrowings 190.18 400.96 446.44 337.97 327.10
Current liabilities 454.93 891.68 1,109.54 1,130.79 1,169.65
Other long term liabilities and provisions 6.75 9.15 8.66 10.41 13.54
Deferred Tax Liabilities 2.62 4.78 5.11 5.64 5.33
Total Liabilities 1,523.87 2,281.03 3,561.72 3,362.17 3,160.16

 

Application of Funds / Assets (Rs. Cr)
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
Fixed Assets 358.82 816.86 1,174.10 1,236.40 1,503.10
Noncurrent Investments
Current assets 701.43 929.37 1,835.55 1,496.82 1,135.35
Long term advances and other noncurrent assets 147.67 208.72 231.87 287.97 197.40
Deferred Tax Assets 22.79 30.73 45.14 41.95 39.77
Goodwill on consolidation (net) 293.16 295.34 275.06 299.02 284.54
Total assets 1,523.87 2,281.03 3,561.72 3,362.17 3,160.16

Efficiency Analysis

 
Particulars FY 2012 FY 2013 FY 2014 FY 2015 FY 2016
ROCE 0.89 1.59 12.39 4.17 6.41
ROE / RONW 0.18 0.71 2.07 (8.41) (15.80)

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

Consolidated
Particulars FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Total Income from Operations (Rs. Cr.) 914.05 1,116.69 1,129.64 1,258.58  1,157.34 
Growth (%) (19.94 %) 22.17 % 1.16 % 11.41 %  (8.04 %) 
PAT (Rs. Cr.) 77.94 75.14 (121.64) (230.07)  (186.08) 
Growth (%) 319.94 % (3.59 %) (261.88 %) –  – 
Earnings Per Share – Basic (Rs. ) 4.68 2.38 (6.08) (14.64)  (11.35) 
Earning Per Share – Diluted (Rs. ) 4.68 2.38 (6.08) (14.64)  (11.35)  
Price to Earnings 40.36 72.00 –  – 

Dividend History

The Company has not given any dividend over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Den Network’s average current ratio over the last 5 financial years has been 1.43 times which indicates that the Company is comfortably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Den Network’s average long term debt to equity ratio over the last 5 financial years has been 0.23 times which indicates that the Company operates with very low level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Den Network’s average interest coverage ratio over the last 5 financial years has been 3.69 times which indicates that the Company can meet its debt obligations without any difficulty.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Den Networks reported a promoter holding of 36.78 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 23.86 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

 

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