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Wednesday, September 17, 2014

Shemaroo Entertainment Ltd. IPO Review


Issue Highlights

Price Band
Rs.155-170
Issue Period
16/9/14-18/9/14
Issue Type
100 % Book Building
Face Value
Rs. 10
Issue Size
Rs. 120 crore/(70.58 lakh shares) #
Minimum Bid Lot
85 shares
Maximum Retail Subscription
Rs. 1,95,075 or 15 lots
Industry
Media & Entertainment
Listing
BSE,NSE
Registrar
Link Intime India Pvt. Ltd.
Retail Discount
10% of the issue price
BRLM
Yes bank, ICICI Securities

# Approx.

Company Profile


Shemaroo Entertainment Ltd (SEL) was incorporated in 1962 and it works as an entertainment-content provider.  Shemaroo’s content library consists of around 2,900 movie titles with complete/limited ownership rights. Complete ownership rights a.k.a perpetual rights enable the company to distribute movies worldwide while titles with limited rights are restricted by period of usage, distribution platforms, medium and geography.
This company earns revenues by distributing the content acquired by various sources on fixed term basis. A few buzzing titles like Queen, Bhag Milkha Bhag,The Dirty Picture, Dedh Ishquiya to old classics like Zanzeer, Amar Akbar Anthony, Namak Halal are part of SEL’s content library.
Besides Hindi movies, SEL also provides film and non-film contents in regional languages like Marathi, Gujarati, Punjabi, Bengali etc.


The business model of SEL can be easily understood by the following snap.


The company runs 32 channels on YouTube and provides content to Reliance Communication’s Rel WAP store and devotional contents to Airtel’s iDarshan.
SEL uses various distribution platforms like MVAS (Mobile Value Added Service), DTH, IPTV, Internet and a nationwide home entertainment distribution networks.

Concerns

(1)    Seasonality of the business :  Ad spends are on larger side during festivals, national holidays, big events and remain subdued in the remaining period thus causing variations in SEL’s quarterly results
(2)    Raman Maroo –independent director of Orbit Corp-was declared Willful defaulter
(3)    Pirated stuff available on the net put a big cut on the company’s revenue 



Financial Profile

Parameter
FY 2014 Post Issue #

P/E
16.8

P/B
2.6

PEGEPS  (3 Year Period)
1.8

ROCE (%)
33.9 (Pre Issue)

ROE (%)
15.6%
NPM (%)
10.3 %
EBITDA MARGIN (%)
24.7 %
OCF/Sales
-7.3
EV/EBITDA
8.7 (Pre Issue)

Sales/Cash
287

Inventory T/O
1.3
Total Debt/Equity
1.4
Z Score
2.27
Working Capital Days
175
AR Collection Period
145

# consolidated results at upper price of the band

Objects of the issue

(1)    To fund working capital requirements: Rs. 106 crore
(2)    General corporate purposes: NA

Inference

This company is reeling under working capital mismanagement and to avoid the financial distress arising out of it, present issue has been rolled out. WCD as high as 175, Inventory T/O ratio of meager 1.3 and Sales to Cash ratio as high as 287, vouch for the same. Good returns and profits are on paper but not being reflected in cash flows due to poor WC management.
Even if we believe that IPO proceeds shall take care of the aforesaid problems, there are other concerns like declaration of its promoter Mr. Raman Maroo, who is an independent director on the board of Orbit Corp, as a willful defaulter.
The home video market is declining (remember what was the last time you bought/hired a disk? Thanks to the high-speed internet!) and only hopes now lie on MVAS, TV distribution through satellite (DTH & cable) & terrestrial broadcast and legal Internet stuff.
SEL has lesser perpetual rights and more limited rights and perpetual right too are of older movies that generate comparatively lesser revenue than their newer counterparts.
The company faces a strong competition from other players like UTV, Yashraj, EROS, Reliance ADAG etc. in the theatrical segment where focus is on new releases and this segment is a potential revenue generator but SEL is not that active in this segment and rather concentrates on relatively older stuff.
The issue has attracted two anchor investors-Birla MF & HDFC MF- and the duo has been allotted 21.17 lakh shares @ Rs. 170 per share.
I shall go for this issue to catch some listing gains only and shall de-board on the listing day whatever be the outcome.

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