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Wednesday, December 20, 2006

Ashtavinayak Cine Vision IPO


Shree Ashtavinayak Cine Vision (SACVL) was incorporated on 23 October 2001 to produce television serials. It was taken over by current promoter 24-year-old Dhilin Mehta on 1 April 2002. The company discontinued producing television serials and commenced production of full-length films and subsequently entered film distribution with a strong hold in the Mumbai territory, i.e., Mumbai city, Gujarat, Western Maharashtra and Northern Karnataka. It has also distributed a film in the Delhi territory. SAVCL has entered exhibition with tie-up with 31 theatres across Mumbai Territory. The company has distributed 23 films, the last being Jaan-e-man, and produced five films including Bhagam Bhag releasing on 22 December 2006.

SAVCL had earlier entered into an agreement with K Sera Sera Production to produce 10 films. The tie-up was terminated on 16 October 2006 due to non-compliance of obligations. The company had to repay Rs 3.05 crore. Similarly, the company has a memorandum of understanding (MOU) with Studio 18 to produce four films.

The net proceeds from the issue are to finance the estimated expenditure of Rs 45.90 crore to produce three films of about Rs 45.90 crore, to purchase Rs 14.12-crore equipment for film production, and for general corporate purposes and prepayment of debt.

Strengths

  • The Indian film Industry’s is expected to double its present valuation of Rs 6800 crore by 2010. The country has about 12,000 single-screen theatres. Multiplexes are expected to grow from 328 screens in 2005 to over 1,000 screens by 2008. The revenue of the film industry is expected to grow at a CAGR of 18%. Territorial break-up of domestic theatrical sales of the industry shows that the Mumbai territory contributes the highest, at about 36%, and the northern territory 33%.
  • The management is targeting producing at least one film in every quarter. SAVCL’s recent production Bhagam Bhag will be released on 22 December 2006. The company plans to produce eight films over a period of two years and has signed some directors, writers and actors for the same. The management has indicated it will release one more movie in March 2007.

Weaknesses

  • The revenue and profitability are dependent on movie releases. The revenue tends to rise/fall depending on the number of films released and the success of these films in a financial year. Investors should be prepared for sharp volatility in revenue and profit quarterly as well as yearly.
  • The shelf life of a commercial theatrical screening of films has reduced from more than a year to less than six weeks. With many players planning large-scale production of films, value and success rate of films are bound to come down.

Valuation

In FY 2006, SAVCL produced one film and distributed eight films. Film production accounted for 52%, distribution 45%, and exhibition 1% of the sales revenues. In the four months ended July 2006, the company produced one film and distributed three. Film production contributed 60% and distribution 40% of the revenue. Going forward, the release of Bhagam Bhag on 22 December 2006 will drive the production revenue in the remaining part of FY 2007. Financials of FY 2006 and the four months ended July 2006 were impacted by loss in securities trading: Rs 97.59 lakh and Rs 2.64 lakh, respectively. The company has indicated this would not recur.

The FY 2006 EPS on post-issue equity works out to Rs 10.6. At the price band of Rs 140- Rs160, PE works out to 13.2–15.1. Though this is substantially lower than TTM PE of around 40 for the entertainment and media sector, one should bear in mind the volatile nature of its profit. Stock market’s experience with similar companies in the past has been far from encouraging. Mukta Arts, Pritish Nandy Communications and K Sera Sera are trading below their IPO offer prices.