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IPO REVIEW

K Sera Sera looks promising to bet on growing film business.

If you are a hindi movie buff, you would surely know K Sera Sera. It's the company that produced movies like 'Sarkar', 'Darna Mana Hai', 'James'.

Now the company has made a follow on public offer for 50 lakh shares of Rs 10 each. The price band has been fixed at Rs 64 "� 70 per share which results in an issue size of Rs 32 "� 35 crores. The offer price is at a discount of 14.04 per cent at the lower end and 5.98 per cent at the higher.

A content production house engaged in movies and television content production along with distribution of movies, K Sera Sera intends to use the proceeds of the issue for setting up infrastructure facility, distribution activities and meet working capital requirements for movie production.

The company has produced nine movies like 'Sarkar', 'Darna Mana Hai', 'James' under its own banner and jointly with entities like Sahara India Mass Communication Ltd., Varma Corporation Ltd., Percept Picture Company Pvt. Ltd., etc.

Rather than having in-house hub of directors and technicians, KSSPL engages the services of the best in the industry on a contractual basis.

"Until now we have been producing small to medium movies mainly for a niche audience. But now we hope to produce medium to large movies across all genres aimed at a wider audience," says Kacon Sethi,CEO.The company has a target of 28 projects for the coming year.

Primarily a production house, K Sera Sera now plans to focus on distribution activity also. Apart from derisking the business model, this would also provide the company a better undestanding of the trends in the market. Currently, it distributes not only its own movies but also movies produced outside the banner.

It has a partnership agreement with PVR Pictures Ltd for distribution of movies in Delhi, Uttranchal and UP. For overseas distribution, it has entered into agreement with Neptune Enterprises.

As per an MOU, the company will be able to pre-sell the satellite rights of four of its forthcoming movies to Sahara for an assured sum of Rs 2.67 crores per film.

It has also entered into an agreement with VSNL to deliver content in cinematographic forms which will be exhibited on the broadband network by VSNL in form of clippings, trailors, music videos,etc.

One of the increasingly popular distribution channel is the mobile phone through which consumers are downloading movie clips, games, ringtones, etc.

This market presents a huge opportunity for companies like K Sera Sera. It has tied up with applications company People Interactive Pvt. Ltd. (Mauj.com) for delivering ringtones, singtones, wallpapers and games based on their content.

Having said that, in film production companies like K Sera Sera, earnings tend to be lumpy since they are determined by movies release timing. Besides, earnings depend largely on the box-office performance. 
 

Valuations
	PE
Balaji Telefilms	19.68
BAG Films	16.55
K Sera Sera Production Ltd	10.28
Pritish Nandy Communications	9.89
K Sera Sera	11.9-13.01

Besides showing a dip in 2005, its profits have shown an upward trend from 2003. The net profits of the company for the six month period ended September 2005 were Rs 5.25 crores. Assuming the earnings to grow at the same pace for next two quarters the post issue earnings per share (EPS) works out to be Rs 5.38. Based on this, its PE multiple would be in the range of 11.9-13.01.

Overall, the entertainment industry is one of the fastest growing sectors of the Indian economy. Valued at over Rs 20,000 cr, it is expected to grow at a compounded annual growth rate (CAGR) of 18 per cent over the next five years to reach over Rs 45,000 cr by 2009.

The Indian Film Industry is largest in the world in terms of the number of movies produced. Since K Sera Sera looks like a promising candidate to capture this huge opportunity.