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Channel 9: On The Way to Get Listed On SME

By Priyanka Kumari | 2/1/2013 12:36 PM Friday

Channel Nine Entertainment (Channel 9) is coming up with an initial public offering (IPO) to issue 46.68 lakh fresh equity shares with a face value Rs 10 each, on the BSE SME. The issue price for one share in this IPO will be Rs 25. The company is expecting to raise an amount of Rs 1,167 lakh through this IPO. Channel 9 currently has 108.40 lakh outstanding equity shares. After the issue on BSE SME, the company’s total outstanding equity shares will be 155.08 lakh.

Channel 9 is a company based in New Delhi and operates in the entertainment and media industry since 2002. The company works in the segment of films production, distribution of television serials, corporate films, documentaries and feature films. It is also engaged in marketing of sports and entertainment events. The processing services like content development, editing, multimedia and sound recording are outsourced from the media development centres in Noida.

The entertainment company has also invested in the distribution of multi-dimensional cinemas like American Desi, Insomnia, American Pie, etc and TV serials like Terra Quiz, Talk Positive etc. 

The purpose of raising the amount of Rs 1,167 lakh is to carry out its expansion plans. The company is going to produce two films for which the estimated investment is Rs 700 lakh. The remaining amount would be invested in the company's brand building i.e online marketing, outdoor media and radio advertising. Along with all this, Channel 9 wants to strengthen its distribution network and fund the expenses of the issue.

Moreover, as on Oct 31, 2012, the company has reported a net worth of Rs 905 lakh as compared to Rs 556 lakh on March 31, 2012. Channel 9 has reserves and surplus of Rs 832 lakh, as on Oct 31, 2012. The company has generated a net profit of Rs 4.17 lakh and the expected profit for March FY13 is Rs 7.15 lakh.

On the valuation front, Channel 9 has quoted an offer price of 500x times at EPS of Rs 0.05 for TTM. For FY12 also, the company had quoted the same value on the same EPS. The big, experienced and listed players like Mukta Arts, Sri Adhikari Brothers Television Network and Prime Focus Ltd are trading at 4.97x, -9.62x and 6.69x times respectively of their FY12 EPS. The issue price of Rs 25 per share for Channel 9 equity shares is too expensive as compared to the big players in industry.

CompaniesEPS FY12EPS TTMP/E FY12P/E FY13 MARKET PRICE






Channel 9 0.05 0.05* 500.00 500.00 25.00
Mukta arts 7.29 3.37 4.97 10.76 36.25
Sri adhikari BTNL -9.37 0.72 -9.62 125.14 90.10
Prime focus Ltd 7.15 17.06 6.69 2.80 47.80
Eros international 16.16 5.46 12.77 37.80 206.40

*Annualised EPS


With this issue, Channel 9 wants to move from small-budget films production to slightly big-budget film productions. Currently, the company operates in small-budget films and serials and it has no experience in the field of film production. Since 2007, the company has not done any substantial business, which makes it a weak player in the industry. Eros International Media Ltd, an international player with a presence in over 50 countries, is currently trading at 12.77x times of EPS Rs 16.16, and will give a tough competition to Channel 9.

The entertainment and media industry is a very competitive industry and is dominated by big players. Nowadays, more number of new production houses are entering the industry and making the market more competitive. The major reason behind this tough competition is that there is no entry barrier for the new players in this industry. The entertainment business is totally dependent on seasonal basis like festivals, holidays and vacations as also on the movie brand.

As per the company’s valuations, the offer price of Rs 25 is quite expensive as compared to the listed players and we recommend our readers not to go for this issue.

 

Find More Articles on: Markets, DSIJ Mindshare, IPO, IPO Analysis, Product, Mid Cap, Small Cap, DSIJ Magazine, New Issue Analysis

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