Cinevista: Pays for DD dependence - Views on News from Equitymaster

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Cinevista: Pays for DD dependence

Jun 29, 2001

The dismal performance by Cinevista Communications for FY01 has come as a shock to investors. The company has infact reported an operating loss of 37%. While we had projected a 100% drop in EPS, the results declared by the company are much more disappointing. The sharp fall in operating margins can attributed to the fact that most of the air time slots which the company had bought from DD remained unsold due to slump in demand for advertising on DD.

(Rs m)FY00FY01% change
Sales 439 397 -9.7%
Other Income 71 39-44.9%
Expenditure 373 544 45.9%
Operating Profit (EBDIT) 67 (147)-320.9%
Operating Profit Margin (%)15.2%-37.1%
Interest 7 4 -46.2%
Depreciation 5 8 76.6%
Profit before Tax 126 (120)-194.9%
Extraordinary Income - -
Tax 38 0 -99.8%
Profit after Tax/(Loss) 88 (120)-236.4%
Net profit margin (%)20.0%-30.2%
No. of Shares (eoy) (m)10.110.1
Diluted Earnings per share8.7-11.8
P/E (at current price)4.7-

Further, due to the uneconomical rate structure of DD, the company had to withdraw some of its programs from air. While the company had to book the production and telecast costs in both the cases, the revenues did not match up resulting in an operating loss. Production and telecast costs have eaten up almost the entire revenues, as shown in the table below. The company had to write off cost of untelecast episodes pending litigation against DD.

(Rs m)FY99FY00FY01
Sales 215.1439.2396.7
Production/Telecast cost135.5261.3394.1
Production/Telecast cost as % of sales63.0%60.0%99.0%

Cinevista, has also missed out on all its IPO projections. While there have been cost overruns in terms of land & equipment purchase as well as on the issue expenses, the web casting and overseas production center projects have run into rough weather.

The current market price of Rs 41 is at 84% discount to its IPO price of Rs 255, leading to an erosion in market capitalisation of more than Rs 2.2 bn. Given that the company was heavily dependent on DD, the only way to mop up revenues in the current year, is to have reruns of existing software on other satellite channels.

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