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Mukta Arts: Concerns overshadow

Feb 7, 2002

Mukta Arts has finally closed FY01 with revenues of Rs 386 m, much lower than our expectations of Rs 527 m. The leap in revenues however, as compared to last year, was on account of the sale of theatrical rights of Subhash Ghai produced movie “Yaadein”. The revenues missed our target due to a medium project (Rs 120 m) “Badhai ho Badhai”, which was expected to be released by year-end remained in the pipeline.

(Rs m)FY01FY02% change
Sales100386287.1%
Other Income24121399.6%
Expenditure273221081.2%
Operating Profit (EBDIT) 72 63 -12.5%
Operating Profit Margin (%)72.6%63.6% 
Interest 11-19.2%
Depreciation1429111.2%
Profit before Tax 82 154 88.3%
Tax12 11 -3.9%
Profit after Tax/(Loss) 70 143 103.3%
Net profit margin (%)70.7%37.1% 
No. of Shares (eoy) (m)21.022.6
Diluted Earnings per share3.16.3 
P/E (at current price) 15.0 

Defying expectations, both the movies released by the company during the year didn't perform well at the box office. However, since the rights were sold in advance, the company managed to make profits on both of them. Mukta Arts plans to invest Rs 450 m in new movies for the current year and has signed various directors for these new releases. A high budget movie has also been flagged off and is slated to be launched in 2003. The company has also set up a story development workshop for creating a bank of stories and scrip’s, the first of its kind in Indian entertainment history.

Mukta Arts has a content library of 13 movies. The company’s first deal to sell its content library to B4U channel entered rough weather during the year. However, Mukta Arts now plans to include its latest released movies and sell it as a package. This package is expected to earn Rs 200-250 m for a two year right with one time telecast rights of latest movies and two time telecast rights for other movies. Besides, the company can also utilize these films library to sell DVD and VCD rights of the same. Considering that the cost of this contents has already been written off, the realisation from the same would directly have a positive impact on the bottomline.

The stock price of the company is reflective of the poor performance of the company at the box office. As against its high price of Rs 245 a year back, the stock is currently trading at 95. The performance of its movies has not affected the company's financials but could dent the high bargaining power of the company going forward. Volatility in financials also remains a cause for concern. The company’s entry into distribution of film may further add to the volatility. The TV content production and music album segments are also highly competitive. Content production for the small screen would actually test the company’s ability considering that it is a relatively new area. Considering these, a multiple of 15x seems to be on the higher side.

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