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IPO REVIEW

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Manasvi Mehta Mumbai
Given its high dependence on film production, Shree Ashtavinayak Cine's IPO makes sense for risk-takers.
 
The entertainment and media industry is one of the fastest growing sectors of our economy. The fact that over 300 crore movie tickets are sold in a year, the highest in the world, just shows our love for movies.
 
To gain from this lucrative scenario, Shree Ashtavinayak Cine Vision is entering the markets with an IPO to mop up around Rs 60 crore. The price band has been fixed at Rs 140 to Rs 160 per share.
 
Shree Ashtavinayak Cine Vision produces, distributes and exhibits Hindi movies. The company has produced four films and distributed 23 films in 1,151 theatres in the last two and a half years.
 
But the stock market is not excited about the company as analysts believe that the business model is risky.
 
Companies like Shree Ashtavinayak face the risk with respect to acceptability of their content and the fate of their products at the box office. But this company has a good number of films in the pipeline and even if a few of these do well, the earnings of the company could shoot up.
 
A major chunk of the proceeds of the issue"�Rs 46 crore, will go towards financing three forthcoming films of the company. The rest would be utilised for purchasing equipment needed for film production. Having own equipments will ensure operational convenience.
 
It is estimated that producers can reduce the costs by around 10-12 per cent if they own studio infrastructure and equipment, sign long-term contracts with creative talent and multiple contracts with distributors and exhibitors. The company wishes to do all these three things going forward.
 
Shree Ashtavinayak produced TV serials earlier but has discontinued the business after November 2005. The company started film producing with low-budget films like Fan2ssh dudes in the 10th century and Agnipankh before moving on to bigger ones like Maine Pyar Kyon Kiya and Golmaal. While the earlier two movies did not do well, the bigger ones met success at the box office.
 
In addition to films solely produced by Shree Ashtavinayak, the company has also entered into agreements for co-production with others like K Sera Sera Productions and Studio 18, the holding company of the TV 18 group.
 
With K Sera Sera, the agreement as joint producer is for ten films with a total estimated budget of Rs 200 crore with sharing of cost of production in the ratio of 60:40 by K Sera Sera and the company respectively.
 
On the distribution side, the company also distributes films of other production houses along with its own films to broad-base its revenues. The company believes that distribution helps it to understand audience tastes and preferences and build relationships in the industry. It is strong in the Mumbai territory at present.
 
For other territories, it enters into distribution agreements with other distributors. But going forward, the company wishes to add other territories to its kitty.
 
Getting into exhibition, the company believes, assures screening and also assists in better exploitation of theatrical rights for films, which the company distributes.
 
Shree Ashtavinayak has tied up with 31 theatres across Mumbai territory based on their locational advantage, revenue collection, and entertainment facilities being provided to viewers.
 
In film production, the company plans to make family entertainers which have a larger appeal entailing spend of Rs 15-22 crore. To de-risk the business model, the company wishes to cover the cost of production through pre-sales of a part of the rights.
 
The company is also looking at other revenue streams like overseas rights, satellite telecast rights, in film advertising and ring tone downloading rights to improve profitability and reduce risk to an extent.
 
Shree Ashtavinayak has incurred losses of Rs 21,000 and Rs 5.31 crore in FY03 and FY04 respectively. But after that, the company has made profits.
 
In FY06, sales grew 126 per cent to Rs 60.34 crore. Film production chipped in 52 per cent, distribution contributed 45 per cent and exhibition just 1.4 per cent to FY06 revenues. 
 
FINANCIALS
(Rs crore)FY07*FY06FY05
Sales124.8060.3426.65
Y-o-Y growth (%)106.83126.42-68.20
Operating profit100.8644.530.51
Y-o-Y growth (%)126.508631.37368.42
OPM (%)80.8273.801.91
Net profit18.0910.622.36
Y-o-Y growth (%)70.34350.00144.44
NPM (%)14.5017.608.86
*annualised
 
The net profit was up 350 per cent to Rs 10.62 crore for the same period. The stock would trade at 7.8 times at the lower end and 8.9 times at the higher band on annualised earnings of FY07.

Issue Opened: December 14
Issue Closes: December 20

 

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First Published: Dec 18 2006 | 12:00 AM IST

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