Costly offer

Though there is little doubt about the industry prospects, it will be prudent not to get carried away and bid for Cinevista’s shares

Cinevista Communications (CCL) is approaching the market with an issue of 25,33,500 equity shares with a face value of Rs 10. The issue consists of a book building portion of 19,00,000 equity shares (bidding closed on Feb. 11) and a fixed price portion of 6,33,500 equity shares. The book building portion had an indicative price band of Rs 175-Rs 200 per share with the maximum permissible bid of Rs 300 per share. The book building portion forms 75% of the total issue size, with the fixed price portion forming the the balance 25%.

CCL has been promoted by Prem Krishen Malhotra and Sunil Mehta. The former is the son of actor Prem Nath and actress Bina Rai. He started his career as an assistant director with Raj Kappor and Vijay Anand and has also acted in over 40 films. Sunil Mehta was in the film distribution business.

CCL is engaged in the production of television software mainly for Doordarshan. It has now started production for other cable and satellite channels. The strength of the company is that it has a presence in all the processes right from conception to getting the programmes telecast on the channels and marketing airtime on Doordarshan. CCL has produced soaps (Junoon, Gul Gulshan Gulfam, Ghutan and Saahil), short stories (Katha Sagar); comedies (Chhoti Si Baat, Jaane Bhi Do Paro), action, detective, musical countdowns and a whole lot of other programmes. The major programmes which will have an impact on the financials of the company in the near future are Noorjahan, a historical drama and Jai Mata Ki, a mythological programme.

The present issue is for setting up an integrated studio and a web-casting service on the Internet, procurement of web rights for TV programmes and movies, overseas production centres and to augment the long-term working capital of the company.

The proposed integrated studio is expected to cost Rs 6 cr with the equipment costing around Rs 3 cr. The web-casting service and web rights will need another Rs 6 cr. The overseas production centres will cost Rs 4 cr with two centres planned for the next two financial years, with the first one being established in Sri Lanka. The long-term working capital will amount to Rs 21.97 cr.

The company has good plans, but its financial performance is not up to the mark. Between 9903 and 9703, its revenues fell at a CAGR of 6% to Rs 21.51 cr. However, profits have increased especially in FY 9803 when cost control helped the company to push OPM from 9% to 14% and tax provision dipped 64% leading to a 39% rise in net profit to Rs 2.26 cr. In FY 9903, net profit increased only 1% to Rs 2.29 cr on the back of an increase in OPM to 16.7%. The OPM is still much lower than over 40% reported by Sri Adhikari Brothers and TV 18.

The company has forecast a profit of Rs 6.3 cr (EPS of Rs 6.2) on revenues of Rs 43.97 cr for the FY ending Mar. 2000. In the first-half ended Sep.’99, it reported revenues of Rs 15.62 cr and a profit before tax of Rs 2.13 cr on the back of an OPM of 16.7% (same as last year). The prospects of achieving the projected revenues and profits for the full year will depend largely on the success or otherwise of its two new recent projects — Noorjahan and Jai Mata Ki. We do not feel that these two serials can lift the company’s performance to the projected levels.

However, the company is one of the few well-established players in the media industry with a library of 1300 hours of programming (most of which can be used for re-runs, translation and exports), in-house airtime marketing capability and good contacts and relationships. This is what is looked for by investors as the media industry offers tremendous growth opportunities.

Due to the unbridled fancy for media stocks, the maximum bid price of Rs 300 has been fixed as the offer price. At this price, the company’s post-tax annualized first-half EPS of Rs 3 is discounted 100 times. In Dec.’99, TV 18 (which is comparatively on a better footing than CCL) had offered its shares at a P/E of 39 times its FY 9909 EPS (on fully diluted equity). At present, Sri Adhikari Brothers is available at Rs 1900 ie a P/E of 95 times its 9-month annualized EPS on fully diluted equity (after the recent private placement). Sri Adhikari Brothers recently placed its 9.1 lakh shares on a private placement basis at a price of Rs 1250, ie, a P/E of 62.5 times. The industry composite P/E is mainly influenced by Zee Telefilms’ P/E of over 700 times. However, Zee’s size and potential is no way comparable to other companies in this industry. Considering all this, the offer price is a bit stiff.