The coming quarters of FY02 are expected to be eventful in the history of Mukta Arts Ltd. It would be for the first that the company would be releasing three films in a span of 12 months. The company has raised Rs 1 bn from its IPO last year. The business model of the company, which was solely dependent on films produced by Mr. Ghai, is now shifting focus.
Apart from producing Subhash Ghai films, the company is broad basing its film production business by financing movies produced by independent directors under its banner. Though income from movie production would continue to dominate, it would also include revenues from TV serial production, equipment leasing and income from film distribution going forward.
Three movies in a row- a booster for FY02
“Yaadein” a mega movie directed by Subhash Ghai is slated to be launched on July 27’2001. The company has already recovered approximately Rs 140-150 m from the sale of its music and theatrical rights. The cost of the movie is expected to be around Rs 170 m. This movie is directed by Subhash Ghai himself and features the mega stars of today. The markets would be closely watching the response of the film in the box office, as it would be the first Subhash Ghai movie after the IPO. The success of the movie is expected to be a valuation driver for the stock in the coming months.
Revenues from the movie “Rahul” (which was launched in May’01) are expected to be in the range of Rs 55 m as against production cost of Rs 25 m. This profit would be accounted for in the current year.
Another project in the pipeline is a medium budget (Rs 120 m) movie “Badhai ho Badhai” and is expected to be released by year-end. It is expected that the company would mop up around Rs 150-175 m from this movie. On a conservative basis, however, we expect these revenues to come only in FY03.
Going by the past record, the financials of the company have shown heavy volatility with inflows dropping in the year of non-release of any movie. However, with the company planning to launch three films every year, hopefully the fluctuations in financials would wither out from the coming years. The company has already signed recognized directors such as David Dhawan and Satish Kaushik for its forthcoming films.
Film Library- Steady source of revenue going forward
Mukta Arts has a content library of 12 blockbuster movies. It plans to sell the telecast rights as a package to the broadcasters. The company’s first such package deal to sell 8 movies to B4U had however, run into rough weather following the arrest of B4U’s promoter.
However, Mukta Arts now plans to include its latest released movies and sell it as a package. This package is expected to earn Rs 180-200 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 these contents is already written off, the realisation would directly have a positive impact on the bottomline.
Among the other initiatives, Mukta Arts plans to enter into producing TV content and distribution of films, particularly international film distribution. Initially, the company would distribute movies produced under its own banner.
At the current market price of Rs 150, the stock is trading at a P/E of 12x its FY02 expected earnings. The valuations in immediate term are dependent on the success of the “Yaadein”. The volatility in financials has remained a cause of concern in case of Mukta Arts. In the longer run investors expect the company to show steady performance in its operations. (at least on a yearly basis). The company’s entry into distribution of its film may however add to the volatility. Again the TV content production is highly competitive. It will actually test the company’s ability considering that it is a relatively new area.
Apart from the above concerns the dependence of the company on Subhash Ghai remains the biggest grey area in the near term. (The official website of Mukta Arts was recently renamed as subhashghai.com- isn’t that a sufficient indication?).