Mukta Arts

 A Hero or Khalnayak?

 Instead of subscribing to the current issue, it will be better to wait till any major deal of sale of its existing rights is finalised or a new movie is launched

 Mukta Arts (MAL) is promoted by the well known film director Subhash Ghai who has a track record of 25 years in film direction. On his own, Subhash Ghai has directed 14 motion pictures so far, of which 9 have enjoyed the silver jubilee status. Two were golden jubilee hits and one, platinum. The company can take the credit for having successfully introduced new talents such as Jackie Shroff, Madhuri Dixit, Manisha Koirala and Mahima Chaudhary.

 Mukta is tapping the primary market with Rs 100 cr issue. The book-built portion of Rs 75 cr has already been susbscribed and the issue price was fixed at Rs 165 (Face value : Rs 5), which is at 10% premium to the floor price of Rs 150. Now on offer is fixed portion of Rs 25 cr.

 The funds raised through the issue will be utilised to set up a 1.5-lakh sq. ft. comprehensive infrastructure in the form of an integrated studio (including a theatre) and a training centre. The company also proposes to expand and upgrade its existing 13000-sq. ft. studio facility, Audeus, at Andheri, in Mumbai, by acquiring an additional 13000 sq. ft in the same premises. The studio is equipped with modern cinematic equipment and facilities which are hired out.

In addition to this, the company proposes to purchase music recording equipment, a mixing theatre, cameras and accessories which will also be hired out. It also plans to acquire the rights for movies, music albums, etc.

Mukta is high on the successes of Pardes and Taal.It claims to have earned Rs 14 cr(approx) in foreign exchange from their release overseas. Hence it plans to set up distribution centres in the United States, the UK and Middle East apart from centres across India in order to broaden its geographical reach and strengthen its marketing operations. The company feels that direct control on distribution and marketing will help it market its software rights more effectively.

Till date, the company has funded its films through advances from distributors. But now it plans to handle distribution itself and, hence, Rs 10 cr has been provided for working capital.

Sensing the significant opportunities for the creation and use of entertainment software in the form of production and exhibition, MAL plans to set up a portal for web broadcasting which will cover various aspects of the industry. The company will lay special emphasis on software content — movies, serials, music albums, information, live programmes and events, star chats, etc.

Besides venturing into television serials, MAL plans to produce two categories of films, high budget low budget.

The cost of a high budget film will be around Rs 15 cr. The film will be directed by Subash Ghai himself. The low budget films will be directed by hired resources with whom Ghai will be having tie-ups.

Since the formation of MAL in Sept. 1982, it has produced seven motion pictures (in 18 years), namely, Hero, Karma, Saudagar, Khalnayak, Trimurti,Pardes and Taal. All except Trimurti have been commercially successful and have been widely accepted by audiences both in India and abroad. Notably, Trimurti was the only film which was not directed by Subhash Ghai.

Besides these seven films, the company also has rights for films like Ram Lakhan, Prem Dewane, Jaan, Sham Ghansham and Karz. It has successfully utilised the archieval value of the above 7 films by selling the telecasting or viewing rights for various periods in India as well as overseas.

On an average, it takes eighteen months to two years for the completion of a big budget film. As such, it is natural that there is a great degree of fluctuation in the revenue earnings in the year in which movies are released and the year in which the movies are not released. Moreover, if a movie is released and if it fails to attract viewers, there would be another wait of one to two long years for the company to show a good performance that, too, by having another hit movie.

Though MAL has grown from Rs 9.76 cr in 9603 to Rs 22.73 cr in 9912, because of the nature of the business, its total earnings have been volatile. In 9503 it earned a total income of Rs 76.84 lakh which increased by 1270% to Rs 9.76 cr in 9603. In 9703, revenues fell by 93% to Rs 91.42 lakh. Again, in 9803, revenues increased by 1655% to Rs 15.13 cr which fell 71% to Rs 4.41 cr in 9903. And in 9912 (9 months) MAL’s revenue increased by 718% (on an annualized basis) to Rs 23.77 cr. For the first quarter ended Mar. 2000, revenues are just Rs 92 lakh.

Net profit fluctuated from Rs 5.26 lakh in 9503 to Rs 60.53 lakh in 9603. In 9703, it recorded a loss of Rs 11.16 lakh. In 9803, net profit stood at Rs 2.93 cr and in 9903 MAL reported a net profit of Rs 1.21 cr. In the latest FY (9 months) ended Dec.’99, MAL has reported a net profit of Rs 6.57 cr. For the first quarter ended Mar.2000, net profit is only Rs 32 lakh.

Going against its tradition of registering a heavy fall in earnings in the subsequent year after showing quantum jump, the company has projected its total revenues to rise from Rs 23.77 cr in 9912 (9 months) to Rs 37.50 cr (Rs 32.5 cr stated in the prospectus is net of direct expenses) for the FY ending Dec. 2000. This is despite the fact that there is no new movie release in the current year. The company’s new movie named Yadein is slated to begin its production in Aug. 2000 and is expected to be released sometime in 2001.

A major portion (Rs 15 cr) of the current year’s projected revenue is expected to come from the sale of rights of its existing software library. The company is negotiating a sale of satellite rights of its eight movies for a period of three years for Rs 14 cr. However, this is the company’s expectation and the actual revenues may be more or less and may or may not come in the current year. Moreover, this item is a sort of extraordinary item. Around Rs 7 cr is budgeted to be realised from hire charges of equipment. This fetched only Rs 32 lakh in the first three months. Both these revenue streams are such that the market will give a poor discounting. The balance Rs 15.5 cr is projected from low budget movies, TV serials, sponsorship, advertisements, web casting, distribution receivables, etc. Notably, group firms engaged in TV serials and movie distribution have made losses and now the company wants to get into these activities. Considering the current status of the company’s progress on low budget films, TV serials, etc, the actual revenues from these sources are likely to fall far short of projections. Hence, the projected net profit of Rs 20 cr is likely to remain a dream.

Even if the dream comes true, the projected EPS of Rs 8.9 (on an equity of Rs 11.28 cr based on issue price of Rs 165) is discounted 18.5 times by the issue price of Rs 165. This seems low compared to the sky-high P/Es in the entertainment industry. But look again. TV software companies like Cinevista have a regular, year-long stream of income. Film industry revenues are highly fluctuating. And one has to pay a multiple of 17 at peak earnings (projected). Though, the company has excellent brand equity and the industry is exciting, only time will tell whether one has a Taal or a Trimurti in hand.