Fame India

 

Industry Ready For Consolidation; Stock Price Likely To Appreciate Further

 

THE slow but undiminished aggression shown by the Anil Dhirubhai Ambani Group (ADAG) in acquiring a controlling stake in Fame India has served the investors of the exhibition company well. Fame India's stock price has more than doubled in the past six months to Rs 82, even as the benchmark Bombay Stock Exchange (BSE) Sensex remained unchanged during the period.

   Reliance MediaWorks through its several subsidiaries and associates such as Reliance MediaWorks, Reliance Capital Partners and Reliance Capital has so far acquired a 15.71% stake in Fame India through open market purchases.

   For investors, this acquisition has immense significance. Especially, when one considers this acquisition in the light of the fact that only a few months ago, Inox Leisure had acquired a 43% stake in Fame India and subsequently increased its stake to 51% through open market purchases. Because of this duel, the whole concern over the takeover of the entity still remains unresolved. The reason being that at present, there is an open offer from both Inox Leisure and Reliance Media-Works. Inox Leisure has proposed an open offer to acquire 20% at Rs 51 a share, while Reliance Media-Works is offering Rs 83.4 per share to Fame India shareholders. But since the whole issue is with the Securities and Exchange Board of India (Sebi), there is still no clarity over the entity that will take over Fame India. Investors of Fame India, however, are advised to hold onto their investment, as there is still scope for the company's stock price to appreciate.

   In case of Fame India, it has two advantages in the form of locations and a better film-distribution network. More so, being a smaller player with an already established infrastructure, it will help its acquirers —either Reliance MediaWorks or Inox Leisure — to significantly scale up their network.

   The multiplex industry in India is currently fragmented with a large number of small and regional players. This has set the stage for consolidation either through mergers or hostile takeovers as is happening in the case of Fame India. The reason being that for most multiplex owners, the recurring capital expenditure and working capital continue to be higher than the cash profit generated by the business. This results in a perennial shortage of funds, which is met through external financing and leads to constant equity dilution or debt overload. This is financially unsustainable. Consolidation is likely to give these multiplex owners better negotiating power with the producer-distributor lobby besides reducing the intensity of price competition in the industry.