Pentamedia: Takes a dip - Views on News from Equitymaster

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Pentamedia: Takes a dip

Jul 12, 2002

Animation major, Pentamedia Graphics has reported a sharp drop in performance for FY02. Unlike FY01, the results for FY02 are on a consolidated basis with 7 overseas subsidiaries and 3 subsidiaries in the domestic market. Even post consolidation of subsidiaries revenues, the company has reported a 20% drop in revenues. Further, thanks to a sharp rise in interest expenses, net profits dropped more than 35%.

(Rs m)FY01FY02% Change
Sales 5,524 4,417 -20.0%
Other Income17820213.4%
Expenditure 3,592 2,840 -20.9%
Operating Profit (EBDIT) 1,932 1,577 -18.4%
Operating Profit Margin (%)35.0%35.7% 
Interest 13 255 1806.0%
Depreciation529.2 542 2.4%
Profit before Tax 1,567 981 -37.4%
Tax31.5 (6)
Profit after Tax/(Loss) 1,536 987 -35.7%
Net profit margin (%)27.8%22.4% 
No. of Shares (eoy) (m)47.874.9 
Diluted Earnings per share32.113.2 
P/E (at current price) 2.7 

There has been a marked shift in the operating policy of the company last year from work-for-hire projects where the company gets assured margins, to own products basis. Pentamedia currently has several projects in its pipeline to be released at appropriate intervals by early March’03. The company expects a sharp jump in animation production minutes to over 450 minutes from around 380 minutes currently.

Coming to its subsidiaries, Media Dreams, engaged in production of southern films, successfully released a film during the year, which had an average performance on the box office. Two other movies are under production. Media Dreams also entered into film distribution business during the year. It has acquired distribution rights of “Asoka” (Hindi movie) for distribution in TamilNadu and Kerala. However, as the film has not performed well on the box office, this division is expected to have recorded a considerable loss on this account. “Mayajaal”, the multiplex and theme center of the company based at Chennai is close to completion and the company has entered into several annual sponsorship agreements for the same.

The NumTv project of the company, which is into internet entertainment content distribution is gaining momentum and the company currently has a subscriber base of more than 30,000 of niche clientele spread across several continents. The NumTv project of the company with its vast bouquet of channels could see a bright future ahead. However, the success of the project is completely dependent on the availability of broadband.

The company’s shift in operations from hire work basis own products basis in the animation business could see a drop in margins in the coming quarters, if it not able to secure adequate markets for its products. Further, the investments made by the company in all its subsidiaries especially NumTv are riskier and would take time to generate returns. The company also seems to be losing focus exhibited by its entry into film distribution business, which is not its core area of operation.

At the current market price of Rs 36, the stock is trading at 3x its FY02 earnings. Pentamedia is a classic case of a company with strong operational capabilities, losing out on account of lack in investor confidence. The company has won international accolades for its work done and continues to pioneer many novel concepts. Despite, a rising stature and quality of work the company has been in a myriad of controversies. The company has huge investments in various subsidiaries, which lack transperancy.

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