Deccan Chargers' owners on a sticky wicket
After rejecting the sole bid for Deccan Chargers, the team's cash-strapped owners are on a sticky wicket.
Uncertainty is growing over the fate of the Deccan Chargers, the IPL cricket team owned by the cash-strapped Hyderabad media company Deccan Chronicle Holdings Ltd (DCHL). As if the poor response to the bids for the Indian Premier League's franchise in the September 13 auction was not enough, the Bombay High Court directed the Board of Control for Cricket in India (BCCI) not to invite bids for Deccan Chargers until the final hearing of a related case on September 24. What is unfolding could have implications for not just the Deccan Chargers but also the IPL brand.
Analysts say valuations in cricket have taken a beating, much like those in other sectors such as infrastructure. Nikhil Vora, Managing Director and joint head of research, IDFC Securities, describes the business model as challenging. "The equity value of the model is yet to be proven, though there is a brand value," he says. He adds that it is still unclear why DCHL rejected the Rs 900 crore offer by PVP Ventures, the lone bidder.
Vora says the best part of IPL's momentum has already passed, and a new buyer would find the going extremely challenging because the return on investment would take longer. Finding a new owner is crucial for DCHL, which bought the franchise in 2008 for $107 million (more than Rs 500 crore). Sources knowledgeable about the bidding process say PVP's bid was rejected because of failure to agree on payment terms: PVP wanted to stagger payment, which some interpret as a lower current valuation.
As for DCHL, the markets have seen its stock decline steadily. From a 52-week high of Rs 62.40 on September 21, 2011, the scrip (with a Rs 2 face value) hit a 52-week low of Rs 9.36 on September 20, 2012. "It is likely to fall further, considering the uncertainty about its future," says Rajendra Naniwadekar, Director, Kellton Financial Services. He adds that DCHL's huge borrowings could mean losses in the current quarter due to interest outflows. He points out that although the company has not yet declared financial results, the trend is worrying - its net profit declined from Rs 21.33 crore for the quarter ended December 2011 to Rs 6.08 crore for the quarter ended March 2012. For the 2011/12 financial year, the company posted a net profit of Rs 60.68 crore on revenues of Rs 869.4 crore.
Analysts say valuations in cricket have taken a beating, much like those in other sectors such as infrastructure. Nikhil Vora, Managing Director and joint head of research, IDFC Securities, describes the business model as challenging. "The equity value of the model is yet to be proven, though there is a brand value," he says. He adds that it is still unclear why DCHL rejected the Rs 900 crore offer by PVP Ventures, the lone bidder.
Vora says the best part of IPL's momentum has already passed, and a new buyer would find the going extremely challenging because the return on investment would take longer. Finding a new owner is crucial for DCHL, which bought the franchise in 2008 for $107 million (more than Rs 500 crore). Sources knowledgeable about the bidding process say PVP's bid was rejected because of failure to agree on payment terms: PVP wanted to stagger payment, which some interpret as a lower current valuation.
As for DCHL, the markets have seen its stock decline steadily. From a 52-week high of Rs 62.40 on September 21, 2011, the scrip (with a Rs 2 face value) hit a 52-week low of Rs 9.36 on September 20, 2012. "It is likely to fall further, considering the uncertainty about its future," says Rajendra Naniwadekar, Director, Kellton Financial Services. He adds that DCHL's huge borrowings could mean losses in the current quarter due to interest outflows. He points out that although the company has not yet declared financial results, the trend is worrying - its net profit declined from Rs 21.33 crore for the quarter ended December 2011 to Rs 6.08 crore for the quarter ended March 2012. For the 2011/12 financial year, the company posted a net profit of Rs 60.68 crore on revenues of Rs 869.4 crore.
