It started sometime around 2005, the borrowing. The amounts were small to begin with. A Rs 20 crore here from ICICI Bank, Rs 25 crore there from Canara Bank.
Like a drug coursing through veins, hiding sorrows and boosting happiness, so too did the money, smoothening cash flows, masking operational inefficiencies and funding loss-making ventures.
At annual interest rates ranging from 6 to 10 percent, the drug was cheap, too. And before it knew it, Deccan Chronicle Holdings, one of South India’s largest newspaper publishers, was hooked.
Soon even those sums started to appear trifling, so they went up. About Rs 100 crore from IL&FS, Rs 400 crore from Canara Bank and Rs 550 crore from Andhra Bank. They came with various names—working capital advances, credit facilities, term loans, non-convertible debentures, foreign currency convertible bonds. As the amounts went up, so did the interest rates, which now ranged between 13 and 16 percent.
To keep the cash flowing, practically everything that could be mortgaged was mortgaged.
The parcels of land scattered across states, the offices, the newsprint inside warehouses, the receivables from vendors and advertisers, the machinery and even the printing presses.
It was the printing presses, though, that defined the three-decade-long legacy of Tikkavarapu Venkattram Reddy, the company’s 53-year-old flamboyant and impulsive chairman.
He began work at the newspaper as a 20 year old in 1979, just two years after his late father T Chandrasekhar Reddy bought it from its original founders who had been printing it for nearly four decades in Hyderabad.
From dumping letterpress printing in favour of the sharper and cleaner offset printing in 1980 to introducing high-quality colour printing using heat-offset in 1998 to buying highly automated multimillion dollar Goss presses in more recent years, Reddy believed modern printing presses were key to success in the newspaper market.
Yet today his beloved presses, from Hyderabad and Visakhapatnam in Andhra Pradesh to Coimbatore and Chennai in Tamil Nadu, lie mortgaged with banks. Meanwhile Reddy and his younger brother and equal partner in the business, T Vinayak Ravi Reddy, rush from one lender to another, borrowing from one, paying back the next.
All the shares representing the Reddys’ ownership of Deccan Chronicle are mortgaged with lenders, maybe even twice over in some cases as alleged by a complaint of forgery by the Karvy Group. One of its lenders, the Industrial Finance Corporation of India (IFCI), has filed for the company to be wound up in order to receive an overdue loan amount of around Rs 28 crore. Newspaper reports estimate the size of the company’s overall debt at around Rs 1,500 crore.
The Reddys are staking every asset—personal or otherwise—to stave off what many might consider an inevitability: A total collapse of their media empire and sale to a rival.
A Business Model in Peril
In hindsight, while many are saying Deccan Chronicle had it coming for years, fact is, till as recently as 2010 the company was considered a textbook example of how to run a modern newspaper business.
Within a decade, it went from being primarily a one-city newspaper in 2000 with a circulation of roughly 150,000 copies and annual revenues of Rs 55 crore to nearly 10 times the circulation and roughly Rs 1,000 crore in revenue by 2010.
For much of that period, it threw out spectacular numbers—EBITDA (earnings before interest, taxes, depreciation and amortisation) profit margins upwards of 50 percent; apparently successful edition launches in new markets like Chennai and Bangalore; advertising rate hikes ranging from 30-35 percent every year, and substantial net cash flows (Rs 215 crore in 2009 and Rs 399 crore in 2010).
Along the way, it also bought or created numerous other businesses of which the two largest ones were Odyssey, a retail bookstore chain it acquired in 2005, and Deccan Chargers, an IPL cricket franchise it bid for and won in 2008.
Its share price kept appreciating, shooting from Rs 162 upon launch in December 2004 to Rs 900 in just over two years before going for a five-for-one split.
Yet, behind the headlines and under the hood, its core business was slowly losing its edge over the last three-four years.
Ironically, one of the reasons for that might have been Venkattram Reddy’s unshaken faith in his beloved printing presses.
The presses—modern machines churning out tens of thousands of copies every hour with minimal human intervention—were the linchpin of Deccan’s growth strategy. Printing newspapers faster and more efficiently than its competitors allowed Deccan to claim spectacular increases in ‘circulation’ each year, in both existing and new markets.
That is both rich and generous to a fault, considering that Deccan Chronicle has, even five months on, yet to publish its audited financial results for the year ending March 2012. Last year, it spent 19 percent of its total debt just on interest payments, up from 13 percent the year before.
In just the six months from July 2007, when he was ‘gifted’ 20 percent of the company, to January 2008, Iyer crafted a dizzying number of strategies—a Rs 250 crore share buyback plan when its total debt just three months back stood at Rs 528 crore; a decision to solicit private investments in the group’s wholly owned ad-sales arm Sieger Solutions at a valuation of between Rs 1,500-1,800 crore; a joint venture with WPP-owned media agency Group M to do sports and events marketing; a $107 million winning bid for the ‘Deccan Chargers’ IPL cricket team; and the decision to launch Financial Chronicle, the group’s financial daily.
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(This story appears in the 14 September, 2012 issue of Forbes India. To visit our Archives, click here.)
To an observer of the state politics, it\'ll be evident that the decline of the Reddy bros., just like the demise of Reddy bros. from Bellary was the fallout of the untimely demise of YSR, the most charismatic CM of undivided AP. Even this Forbes article kisses the matter, if even just so lightly. Wish the causality was attributed more accurately. Of all the causalities of untimely demise of YSR, the fall of DC Reddy bros. is trivial and trifling when compared to the sad division of an entire state, inflicting untold, unheard of fallout to each and every household of residual AP state.on Aug 1, 2014
Nice story... how Deccan Chronicle to run a modern newspaper business....within a decade, it went from being primarily a one-city newspaper in 2000 with a circulation of roughly 150,000 copies and annual revenues of Rs 55 crore to nearly 10 times the circulation and roughly Rs 1,000 crore in revenue by 2010.on Apr 23, 2013
Rohin Dharmakumar and Pravin Palande - Much has happened since you people wrote this good article..DC is still being published with not much being written about them..how about a follow-up story tracing as to where all the money went and the way company defrauded the Banks and investors..on Apr 22, 2013
Quick Money, Quick Positions, Quick Fame does not last long. People have to work their way hard and come up in life. Unfortunately, Mr. PK Iyer and the Deccan Chronicle brothers were up for Quick Fame, Get Rich Quick Scheme. So, that is why all this. Infact, Mr. P Karthik Iyer strategy was this. He did this in 1991 - 1995 and nothing worked out, and he did several other frauds, now he is facing the brunt of his life. Karthik, learn that there is no easy way to make money. Hard work, sincerity, dedication and honesty is the most important. If you remember the LANTrain you sold in 1991 for 70K and how you defrauded people. Everyone pays the price one day when they cheat. For several years, I have worked hard and the last 20 years and my hard work is still there and sincerity is still there, but I am happy that I did not cheat anyone and I make my earnings and my paycheck is a honest work days paycheck. Not just easy money.on Nov 4, 2012
@John and Anonymous.. Your comments on Iyer are very interesting. I would like to know more. Let me know how I can contact you.on Dec 18, 2012
P.K.Iyer is nothing but P.Karthik. He changed his name. He has defrauded before this with several companies when he was working for Chennai. When he sold LANTrain to companies to the price with lots of BS and he would not return back to the customer. I have been one of the victims. I was surprised when I went to India and met my old friends and how they bragged about PK Iyer and his money etc... Yes, there are many facts true about his educational background, he sold me the product saying he was an MBA from XLRI. Unfortunately, he just has a BA or BSc that\'s all. Nothing more. He is just a big talker and he will sell his way out, but he has no stuff. I was surprised how he fooled these two brothers.on Nov 4, 2012
Forbes has done a very good job. What an analysis. So real they were hooked by real time white collar criminals and the Reddy brothers became easy prey. At one stage they have become slaves of the hookers. It is lesson for all in Corporate India. It is the Reddy brothers who are real loosers and not the hookers. They will go scot free leaving them bleeding.on Oct 8, 2012
Do not try to save culprits telling white collar criminals and so on. what happened to the so called flashy and show off Reddy brothers' common sense. It is only these guys and family members basked in pseudo aristocracy with Aston Martins and Rolls Royces. Vulgar display of easy money identified who they are and their bloodline. All know they are not alone in Indian corporate scene. They have Satyam Raju, lately Mallaya. Poor Indians.on Oct 12, 2012
DC fudged circulation figures everywhere. In every town and city. Advertisers were always apprehensive because, the newspaper never had the visibility to match the circulation figures they claimed outside Hyderabad. The figures stated in the news story about the growth have I believe been obtained from their official claims, which are dubious to say the least. In fact, The Hindu were the first to dispute these figures and took them to court in Chennai.on Sep 21, 2012
@rangaraj , no body will be taking the risk of buying DC at this stage as no one knows exactly the amount DC owns to various banks and others . If the liability is much more , they the new buyer also will be in soup .on Sep 11, 2012
A below standard paper meeting it\'s rightful fate. DC always believed in style over substance. I will even stick my neck out and say that it is worse than TOI. Full of Page 3 razzmatazz and sick editorials. Never takes or advocates strong views on issues unlike the Hindu. The less said about the guest columns the better. Only the average hyderabadi who is blInd with love for hIs city can tolerate such a paper.on Sep 10, 2012
By having a low so called \' invitation \' price in every major city where it launched editions , Times of India caused heavy financial loss first to Hindustan times in Delhi and then Deccan Herald in Bangalore , Telegraph in Calcutta is reportedly hit hard . Deccan chronicle is facing closure due to its low price to face TOI competetion . But Hindu some how manages in Madras market with out increasing the cover price while it has Rs 4 or Rs 5 as cover price in its other editions . Madras is the mother edition for The Hindu and it should increase its price to Rs 5 on week days in Madras also . New Indian express is managing to survive inspite of TOI SPREADING ALL OVER INDIA due to its editor Prabhu chawla but Indian express is in bad shape . Toi should be challenged by Indian express and papers like Telegraph , Hindu etc by launching edition in western and northern india . Unless Hindu and express have local editions in Calcutta leaving aside printing just their Delli edition , and also launch / strengthen their editions in western india , TOI will have a free run every where .on Sep 7, 2012
Deccan Chronicle will perhaps have to indulge in soft-porn like Times of India its competitor. If the Reddys dont have stomach for it -- they should sell it to perhaps Mallya. The problem is Mallya is also in deep trouble.on Sep 10, 2012
Talk about credit rating agencies or rating agencies in general and the finance function of any organization which turns into a bomb from a rose all of a sudden, I can think only of two negative human values - greed and ego. Greed many times lead leaders to be over ambitious, making investments at each and every corner possible and going full steam on expansions. Greed by finance function leads to wrong doings in all the possible transactions and also in misrepresenting the vital stats of the company to all the shareholders as well as stakeholders. Greed by rating agencies lead them to colluding with the organization and keep on fooling the outsiders with a stamp of credibility. Ego forces all of them to ward off any well intended advice during this entire process. And the list of such organizations keeps on growing all the time.on Sep 7, 2012
Very well written...and good analysison Sep 7, 2012
Deccan's fall was crafted by it's Shakuni, Mr.Iyer! He made money from Odyssey's sale, and experimented with DC without vision and integrity. It's a pity that Hyderabad will be left to the mercy of a third rate national daily like TOI now :(on Sep 7, 2012
I for one am happy that more trees would survive... :) adapting what slim shady said \"they were newsprint abusers\". Good riddance to bad rubbish. Waiting for times too to meet a similar end.on Sep 13, 2012
I have been a fan of DC since times immorial. I believe that the price war started by TOI is the root cause of this tragedy. Be that as it may, can I hope to have my DC day after day even after the exit of Reddy brothers?on Sep 6, 2012
DECCAN CHRONICLE would have survived had they not bought over ASIAN AGE , sacked M.J AKBAR AS EDITOR , not launched Bangalore , coimbatore editions till Madras edition was stabilised , not launched FINANCIAL CHRONICLE AT ALL AND NOT bought over ODYSEE BOOK STORE , DECCAN CHARGERS etc . They should have gone for professional management like TOI , HT , HINDU etc .on Sep 6, 2012
Right from day one of DC\'s IPO issue , BUSINESS LINE has been advising against buying DC shares . The Hindu was all the time telling that in Madras DC had a circulation of around only 50,000 and not 3 lakhs . They filed a case in Bombay high court against audit bureau of circulation declaring its periodical circulation data every 6 months but lost the case . But every one in media industry knew that the claims by DC were over estimated . New Indian express also had the same view as the Hindu . .TOI knew every thing and kept up the low price in Hydrabad / AP market to squeeze not only DC but also EXPRESS and THE HINDU .Hindu , a hard nut to crack , ,not only increased the prices in all markets all over Indiaon Sep 6, 2012
A good business house taken for a ride by criminal gang ....Naive and innocent Reddy Brothers were really pitiable folk and a lesson to all. Lure of easy money by white collar criminals neatly flattened the Reddys and in turn the criminals have become filthy rich and they are sure will roam free leaving the Brothers to bleed. A good lesson for the whole corporate community in India !on Sep 6, 2012
Oh Please! They were taken for a ride? How about inflating share price without direct reflection for PAT and EBITDA? And what about all the lavish spending and the 3 of the board of directors owning more Bentleys than anyone in India? Surely they were taking a \'ride\' in them. Let\'s not defend them, these businessmen need to be run to the ground and have to learn how to do business well.on Sep 6, 2012
Seems like the lowly media planners are smarter than the financial whiz kids! There is no substitute for correlation. Between circulation, readership and market value should have indicated the reality. Instead of depending on mere excel sheets. Even if the owners recover, 20.6% will be a bonus over the money for the \'would have been a Davis Cupper\' :)on Sep 5, 2012
pathetic. one should know when to get out of the loosing business. treat this as a lesson to business communityon Jan 4, 2013