Den Networks Ltd: Result Analysis and Future Price Targets 

Den Networks Ltd came out with flat set of numbers for the June, 2021 quarter. The total income of the company came as Rs. 322.23 Cr in Q1FY22 Vs Rs.331.87 Q1FY21. The net profit of the company came as Rs.43.35 Vs Rs.66.16 crore in Q1FY21. Photo: The News Glory. 

However, interestingly according to BSE Website data, the CEPS for the June,  2021 quarter came as Rs. 1.39, while FY21, CEPS was Rs.8.49.

Also,  the OPM of 23.54% and NPM of 15.01% during the highly lethal 2nd wave of Covid - 19 driven June quarter, shows the resilience of the company to withstand sudden shock waves and proves that it indeed belongs to Mukhesh Ambani group.

The Company has investments of Rs.4,853.86 million (net of provision for impairment of Rs.192.21 million) in subsidiary companies and associate companies as on 30th June, 2021. Of these, net worth of investments with carrying value of Rs.2,679.98 million (net of provision for Impairment of Rs.192.21 million) and balances of loans/ advances of Rs.173.99 million as at 30th June, 2021 have fully/substantially eroded. Of these, Investments aggregating to Rs. 194.87 million (net of provision for Impairment of Rs. 4.16 million) in companies whose net worth is fully/substantially eroded have earned profits for the quarter ended 30th June, 2021. Based on the projections, the management of the Company expects that these companies will have positive cash flows to adequately sustain its operations in the foreseeable future and therefore no further provision for impairment is considered necessary.

During the year ended 31st March 2019, the Company had allotted on preferential basis 28,14,48,000 equity shares of Rs.72.66 each at a premium of Rs.62.66 per share aggregating to Rs.20,450.00 million. The proceeds of preferential allotment amounting to Rs.20,450.00 million have been temporarily invested in liquid mutual funds and fixed deposits, pending utilisation for the same. This is a huge amount and in this bull market we can safely assume that the value of this gargantuan fund must have significantly shot up during the last couple of years, adding to the cash flow in the already profitable Den Networks Ltd (Rs.55.15).

Another interesting point is the acquisition of Just Dial which maintains a physical presence in over 11 cities, apart from having a strong sales presence and traffic in tier-2 and tier-3 cities, by the Mukhesh Ambani controlled Reliance group. 

The mammoth business database of Just Dial is ubiquitously its chief USP that is certain to be used by RIL to further it's ambitious plans of digitally connecting kirana (grocery) and other stores (B2B) across India, which will in turn serve as a back-end for B2C commerce. 

Lastly,  Just Dial remains profitable venture. It has been turning reasonable revenues (7% up YoY in FY20) and making profits (Net profit 31.7% up; EBITDA margin 30.4% up) consistently, even during Nationwide Lockdowns.

Conclusion: Post acquisition of Just Dial, all the Mukhesh Ambani group companies are likely to get Re - rated. 

We can therefore expect a significant price appreciation of the shares of Den Networks Ltd in the next few months. 

I'm looking for targets of Rs.170/180 in the next 9/12 months time frame,  especially in view of the fact that its investments in the subsidiary companies are likely to help them generate positive cash flows and adequately sustain their operations in the foreseeable future. 

Also, the OFS story, which softened the share price is over. The public holding is now 25% , while the Promoters' holding is now 74.90%.

Buy the shares of this debt free company, during market dips and keep holding.