Stock Review: Ashtavinayak Cine Vision

 

 

Co's Future Performance Will Largely Depend On The Success Of Next Film

 

CATAPULTED by the success of the latest Salman Khan starrer 'Dabang', the stock of Shree Ashtavinayak Cine Vision (SACVL) gained nearly 85% in a month to close at 34.20 on Wednesday on BSE. As per industry estimates, the movie grossed around 50 crore in its first week itself. Ibosnetwork.com, an independent website that tracks box-office collections, has estimated Dabang's collection till date at 174 crore.

   Although not officially announced, market sources claim SACVL and Arbaaz Khan Productions paid 40 crore to bag the distribution rights of the film. With the film making extraordinary business, the market's expectations about the company's the September quarter performance have gone up.

   This should come as a relief to the company which had not performed on par with its peers in the first half of FY11. For the June quarter, although the company reported profit, it was on account of 11.6 crore of foreign exchange gains.

   The company is currently producing another big-budget film Golmaal 3, lined up for release in November. A large chunk of SACVL's revenues — 85% according to the latest available audited numbers of FY09 — comes from producing films. Hence, the company's future performance will largely depend on the success of this film.

   Debt remains a major concern for the company going forward. As on March 31, 2009, the company carried debts of 340 crore on its book with a debt-equity ratio in excess of 2.5. The company paid nearly 20.5 crore as interest alone in FY10, which was almost equal to its annual profit.

   Since the success of movies is an uncertain event, the company will continue to be in the high-risk, high-profit category. Investors should not base their investment decisions based on traditional valuation methodologies such as priceto-earnings multiple (P/E), which cannot be applied to the business model of SACVL.