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DQE’s stock plunges amid provisioning for bad debt

MUMBAI: Hyderabad-based DQ Entertainment received a setback during the fiscal ended March 2014, owing to a steep drop in revenues and provisioning for bad debts.

The company said it had to spend Rs 23.0 crore (Rs 230 million) towards provisioning of bad debts. Moonscoop SA, France, which has filed for bankruptcy, owes DQE Rs 5.50 crore (Rs 55.0 million), while Rs 17.5 crore (Rs 175 million) is due from SMC international Group Inc.

SMC is DQE’s licensing agent for Jungle Book 1 TV series for North American territory. After SMC committing serious material breach of the terms of contract, DQE terminated its contract with the company.

Provisioning of such an amount has adversely impacted its cash flow. DQE’s net cash inflow for the fiscal ended 31 March 2014 declined to Rs 21.14 lakh (Rs 2.11 million), compared to previous fiscal’s Rs 255.33 lakh (Rs 25.53 million). A company generating lower cash inflow is not a preferred stock on the bourses and has to contend with lower valuation.

This fact is evident in the company valuation. Following the disclosure to exchanges, DQE’s equity shares came under heavy selling pressure. The counter settled Tuesday’s session at Rs 27.45 per share, down 15.2 per cent. This is supported by daily volume rising almost three times to its two-week average of 93,000 equity shares, which is indicative of increased selling pressure and consequent build-up of negative forces.

Standalone quarterly performance

Standalone performance showed a sign of impeding stress on the company’s operations from aberrant revenue, which is an outcome of the uncertain times the sector is going through.

For the fourth quarter and fiscal ended 31 March 2014, revenues softened marginally. In the fourth quarter, revenues dropped 24.7 per cent to Rs 66.3 crore (Rs 663 million). However, it is the cut in employee costs and foreign exchange that helped the company safely cross the line.

A hefty 34.7 per cent drop in employee expenses to Rs 13.26 crore (Rs 132.6 million), production costs halving to Rs 0.52 crore (Rs 5.2 million) and 46.4 per cent drop in other expenses to Rs 2.63 crore (Rs 26.3 million) came in handy to post an operating profit of Rs 15.86 crore (Rs 158.6 million), which is 53 per cent lighter than the corresponding year-ago period.

In spite of higher amortisation expenses, the company could report net profit of Rs 17.84 crore (Rs 178.4 million) due to lower interest outgo and tax credit.

Full-fiscal showing

DQE’s standalone financial performance remained almost identical to what it had achieved in the fourth quarter except for showing on the bottom line. Net profit in FY2014 at Rs 36.36 crore (Rs 363.6 million) is 34.3 per cent higher than that of the previous fiscal.

Operating revenues, on the other hand, came in 10 per cent softer at Rs 179.81 crore (Rs 1.79 billion) over its year-ago level.

Production costs nearly halving to Rs 3.74 crore (Rs 37.4 million), followed by employee expenses dropping 18 per cent to Rs 71.62 crore (Rs 716.2 million) and foreign exchange gains of Rs 18.02 crore (Rs 1.80 million), lifted the company’s operating profit 27 per cent to Rs 53.41 crore (Rs 534.1 million).

On a consolidated basis, DQE’s FY2014 revenues edged up 4.5 per cent to Rs 239.68 crore (Rs 2.39 billion) while net profit advanced 14.6 per cent to Rs 42.77 crore (Rs 427.7 million).

Interestingly, DQE’s outstanding trade receivables stood at Rs 259.8 crore (Rs 2.60 billion), of which Rs 132.0 crore (Rs 1.32 billion) has been outstanding for more than 180 days.

Owing to the slower pace of debt repayment, the company is hard pressed to meet its working capital requirements. Hence, it is contemplating various funding options to add liquidity and is closely monitoring the situation.

DQE is in talks with various strategic and financial investors to refinance the business which it expects to show steady growth.

As of FY2014, the company has a strong order book position at Rs 563.4 crore (Rs 5.63 billion) compared to previous fiscal’s (FY2013) Rs 658.8 crore (Rs 6.59 billion). These contracts are forward production revenues and entered into licensing as well as distribution deals to be honoured in the next thirty months.