A long-term pick

Amid the hoopla of big budget initial public offerings, the IPO from integrated media and entertainment company UTV Software Communications (UTV) may not generate too much excitement.

For starters, the company hopes to raise only Rs 80.5 crore to Rs 91 crore to part-finance its plans to expand business. The IPO includes an offer for sale of 24.99 lakh shares by CPQD, a Canadian private equity investor.

UTV has been behind the production and/or distribution of Hindi movies like Lagaan, Mission Kashmir, Chalte Chalte and Lakshya and the recently released Swades apart from serials like Shanti and Shakalaka Boom Boom.

One can dissect UTV's business into three sections: television, movies and allied content and services. The television business includes content production (both fiction and non-fiction), animation and airtime sales.

The movie business comprises production and distribution. The broadcasting business, which is handled by associate company United Home Entertainment, primarily manages the children's entertainment channel, Hungama, while allied content and services include making ad films and dubbing besides post-production activities.

Currently, television contributes around 40 per cent of UTV's revenues.

The fact that the television software business is expected to do well going forward is a clear positive for UTV.

Analysts expect the content industry to rise to be a Rs 550 crore one and UTV - being a player catering to different genres of programming - is likely to be one of the key beneficiaries.

UTV's film production arm was recently in the news for its partnership with Fox Searchlight for Mira Nair's forthcoming film The Namesake based on the popular novel by Jhumpa Lahiri.

It will also produce the Aamir Khan starrer Rang De Basanti, to be directed by Rakesh Mehra. The company has also acquired distribution rights of 130 titles from international movie house Miramax Studios which boasts of a number of English movie hits.

Besides, it has tied up with the Star Group to produce two movies by March 2006 and has recently taken steps to integrate its movie making business, from production to distribution.

"This help us realise a better price for our movies than what distributors would normally pay us after production," says Ronald d'mello, chief investment officer, UTV. d'mello adds that the diversified nature of movie projects means that the division would more than break even, even if half of the movies produced by the company may not do well.

To move to the cons, the company has been witnessing a steady deterioration in EBITDA (earnings before interest, tax, depreciation and amortisation) margins.

EBITDA as a percentage of total income has declined from 22.48 per cent in 2001 to 12.56 per cent in 2004. The company says it maintained its margins around the 16-17 per cent level in the past and 2001 margins were an aberration due to the success of Fiza.

The present drop in EBITDA is attributed to setting up of its domestic and international movie distribution network. However, analysts are concerned about the lumpiness of revenue flows from the movie business and Hungama.

Pricing is another issue. Analysts feel that as per H1FY05 numbers, the company has an annualised EPS of Rs 7 per share which, taken at the upper band of Rs 130, would translate into a P/E of around 19x. 

ISSUE SNAPSHOT
Issue opens	February 21
Issue closes	February 25
Shares on offer	69.99 lakh shares with face value of Rs 10
Price band	Rs 115-130
Book running lead manager	Enam Financial Consultants
Registrar to the issue	Karvy Computershare
Listing	NSE and BSE

This would put it on a par with the likes of Zee and NDTV. They feel that given the prospects in the television, animation and movie production fields, the stock may be a good bet for the long term.

But given the present financial performance, the current pricing is just a bit too aggressive.

Flying start
FOLLOW-UP

The IPO from Jet Airways elicited good response and has been subscribed 4.23 times on Friday which was the first day of the bidding process. According to data posted on the website of the National Stock Exchange (NSE), the IPO received bids for 7.32 crore shares against the offer for 1.72 crore shares.

There had been concerns from some quarters of the IPO being priced aggressively. However, bids for over 6.46 crore shares have been made at the maximum price of Rs 1,125 per share.

FIIs seemed to have made a beeline for the stock and submitted bids for 5.12 crore shares, accounting for nearly 70 per cent of the subscription.

Mutual funds bid for 2.10 crore shares, accounting for nearly 29 per cent of the bid quantity. Insurance companies were next, bidding for 4.46 lakh shares while individuals bid for 1.40 lakh shares.

However, employees bid for only 120 shares so far as against a reservation of 12 lakh shares.

The company had held road shows in Hong Kong, Singapore, US and Europe to sell 17.26 million shares in the Rs 950-1,125 band. Based on the price band, the issue size is around Rs 1640-1,942 crore.

Of this, around Rs 1,350-1,600 crore will enter the company's books in lieu of fresh equity. Post-issue, the company would have an equity capital of 8.63 crore shares, 80 per cent of which will be held by the promoter.

The company would be having a market-cap of Rs 8,201-9,712 crore.