Midvalley Entertainment Limited IPO : Analysis

by khalid on 11/01/2011 · 2 comments

Chennai based multinational Media & Entertainment company Midvalley Entertainment Limited is entering into primary market with an Initial Public Offer (IPO) of 9,375,000 Equity Shares of Rs 10 each. The IPO is opening on 10th Jan 2010 and the shares will be available for subscription up to 12th Jan 2010. The premium of the issue will be decided through a 100% Book Building Process. The price band for the issue has been fixed at Rs. 64 – Rs. 70 Per Equity Share.The Issue Size is Rs. 60.00 Crores. Midvalley Entertainment is a multinational Media & Entertainment company operating from Chennai. Midvalley’s major businesses are Exhibition and Concept Theatres, Film Production, Distribution, Hospitality and Cine Advertising, etc.

Promoters of the company are Datuk K. Ketheeswaran, Unigold Pacific Limited, Global Motion Pictures & Ventures Pvt Ltd and Kiara Enigma Sdn.

Objects of the IPO are to entering screening agreements with cinema theatres, renovation & Up-gradation of cinema infrastructure, acquisition of company and acquisition of screening rights, general corporate purposes and achieve the benefits of listing on the Stock Exchanges. The money raised will also be used for entering into screening agreements with 300 cinema theatres amounting to Rs 15 crore, renovation and upgrading of cinema infrastructure with digital equipment and other related assets for select 100 screens amounting to Rs 25.95 crore, acquisition of company, acquisition of screen rights of a company in similar line, range and objects of business amounting to Rs 12 crore; and rest for general corporate purpose and IPO expenses.

Company Financials:-
(Rs in Crores)

For the year ended 30-Apr-10For the year ended 30-Apr-09For the year ended 30-Apr-08For the year ended 30-Apr-07
Total Income129.47211.64736.29488.24
Profit After Tax (PAT)0.39(4.70)88.6672.72

Risk Factors:-
1. The company’s business is seasonal and the results of operations fluctuate from quarter-to-quarter.
2. It has incurred negative operating cash flow of Rs 7.56 crore and Rs 1.46 crore for FY ended 2007 and 2009, respectively.
3. The exhibition industry is highly competitive. Also the Indian film exhibition sector is highly regulated by both the central and the state governments.
4. It has in past defaulted and failed to pay loan taken from City Union Bank amounting to Rs 3 crore, which was latter settled with one-time settlement. But this can hinder its future fund raising activities.
5. It does not own part of the premises of the Registered and Corporate Office from where it operates. The lease agreement has expired and not renewed due to a dispute with the lessor.

Positive Factors:-
1. The company has presence in the entire value chain of the film industry, like production, distribution and exhibition.
2. Media and entertainment is one of the booming sectors in India due to its vast customer reach, the growing middle class with high disposable income, change in lifestyle and spending pattern.
3. It has a library of 651 movies in various languages, consists of 417 Tamil movies, 107 Telugu movies, 52 Kannada movies and 75 Malayalam movies.

Valuation and Recommendation :-
At the lower price band of Rs 64 per equity share of Rs 10 face value, the P/E works out to 39 times the annualized EPS of Rs 1.6 (on post-IPO equity) for the quarter ending July 2010 (its year-end is April). At the upper band of Rs 70, P/E works out to 41.8 times the annualized EPS of Rs 1.7 (on post-IPO equity) for the quarter ending July 2010. Asking price is highly unrealistic for such a small player with a pathetic financial and governance record. As the company seeks high premium despite volatile operations so be curious and better ‘AVOID’ this IPO.

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{ 2 comments… read them below or add one }

Investologic January 12, 2011

But these small IPO’s have become good for Speculative Gains…

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khalid January 12, 2011

You are right , most of them are giving speculative gains but there is risk also in speculation.

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