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Tips: Singing a sad tune

Jul 2, 2001

Tips Industries Ltd. has missed its IPO projections for FY01, by a wide margin. Consider this. While the company was expecting a net profit of Rs 352 m for FY01, the actual net profit is only 20% of what was projected. The operating margins of the company have come down drastically from 41% in FY00 to 29% in FY01. Finally, the company achieved an EPS of Rs 6 as against IPO projections of Rs 29.

(Rs m) FY00 FY01 % change Projected % change*
Sales 1,158 1,041 -10.1% 1514 -31.2%
Other Income 26 16 -37.6% 77 -79.4%
Expenditure 679 736 8.4% 905 -18.7%
Operating Profit (EBDIT) 480 306 -36.2% 609 -49.8%
Operating Profit Margin (%) 41.4% 29.4% 40.2% -27.0%
Interest 18 3 -83.1% 12 -75.0%
Depreciation 246 240 -2.4% 268 -10.6%
Profit before Tax 242 79 -67.3% 406 -80.6%
Tax 8 7 -16.7% 54 -87.0%
Profit after Tax/(Loss) 233 72 -69.2% 352 -79.6%
Net profit margin (%) 20.1% 6.9% 23.2%
No. of Shares (eoy) (m) 9.0 12.0 12
Diluted Earnings per share* 25.9 6.0 29.3
P/E (at current price) 2.8 12.2
%Performance as a % of projections

The company has cited various reasons for drop in profitability viz, Gujarat Cyclone, heavy sales return, sluggish demand and failure of three titles (including Mukta Arts promoted Rahul). The other income of the company is also surprisingly lower considering that it raised Rs 975 m in September'00 and only part of the funds where utilised. The company should ideally have generated much more treasury income even on a conservative basis.

In a related development, Tips has recently signed a three-year exclusive licensing deal with the multi-billion dollar global music conglomerate Warner Electra Atlantic International Inc. U.S.A (WEA). The agreement gives Tips the rights to manufacture and market Warner and its affiliates titles within India as well as the neighboring countries. Tips will pay a 20% royalty on the total sales net of excise duty to Warner.

At the current market price of Rs 73, the stock is trading at a P/e of 12 times its FY01 earnings.The current market price is 78% discount to its IPO price of Rs 325. All eyes are now hooked on the performance of Mukta Arts forthcoming release 'Yaadein'. Tips has acquired domestic and international music rights for the film.

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