Stock Review: Midvalley Entertainment

Investors can wait until Midvalley Entertainment gets listed in the secondary market

CHENNAI-BASED entertainment company Midvalley Entertainment is coming out with an initial public offering of 85 lakh equity shares to raise 60 crore. The company will use the proceeds to upgrade existing infrastructure and expand its exhibition reach. It's present in every stage of the value-chain of entertainment business from production and distribution to exhibition of films. It also holds rights of television serials, films and music, which in the long-term, will be sold to television channels. In future, Midvalley plans to emerge as a leading exhibition company in the Southern region of the country.

BUSINESS: Midvalley Entertainment is into production, distribution and exhibition of films. At present, around 65% of its turnover comes from exhibition business. Production and distribution are yet to emerge as big contributors to its topline. With this IPO, it intends to increase its screen count from 46 to 300 in the next 6-8 months. After acquiring these screens, it would solely focus on producing its films.
    At present, the company has a library of 651 films in various regional languages. The company also has secured distribution rights of notable films like Pirates of Caribbean, Dead Man's Chest and Dead or Alive and various Tamil films such as Thambi, Erandu and Patchikili Muthucharam. Of the total IPO proceeds, it plans to use around 26 crore for renovation and upgradation of infrastructure of its 100 screens. It would use around 15 crore for entering into screening agreements with 300 theatres. The entertainment company also intends to use around 12 crore for acquisition of screening rights from companies.

INDUSTRY: In recent years, the media and entertainment industry in India has emerged as a significant contributor to mass awareness and consumption. According to a report by KPMG, the media and entertainment industry in India is estimated to grow at a compounded annual growth rate of 13% to reach the size of $24 billion by 2014. Several factors have contributed to these optimistic estimations. First, the number of films in a year is increasing as it is estimated that around 3,000 films were produced in 2009. Of this, around 1,300 films were feature films. This makes Indian film industry one of the largest producers of films. Second, the provision of 100% foreign direct investment in Indian film market has coaxed big film studios like Warner Brothers, 20th Century Fox and Walt Disney to enter into India. In this scheme of things, media and entertainment firms in South India }guage dia is counterparts northern have , of , around the performed films total and of 50 . films One western South % better are reason released India regional than for . This in their this lan In- provides entertainment companies in South India a huge revenue market. Midvalley Entertainment has huge revenue market to tap into.

FINANCIALS & VALUATION: It follows May-April financial year. For the six month period ended October 2010, the company posted a PAT of 2.5 crore and a topline of 12.5 crore. Considering fully-diluted equity after the issue on annualised basis, it is trading at a P/E of 11 times. This is lower than valuations of its peers PVR and Inox Leisure, which are trading at P/Es of 23 and 13 times, respectively.

 

However, PVR has more diversified business model than Midvalley Entertainment. A lot would depend on how quickly Midvalley adds screens to its overall screens. The fact that the company is debt-free is a big plus for it as the industry is capital-intensive in nature. Long-term investors should consider investing in the company after it gets listed in the secondary market.