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Adlabs Films: So far so good

Aug 7, 2001

Adlabs Films, the film processing major declared encouraging results for 1QFY02. Net profit margin shot up by 530 basis points, inspite of considerable rise in depreciation. The rise in profit seems to be driven by mega bollywood hits during the year. As the number of prints for a particular movie increases, the incremental operating profits of the company increases considerably. The company has near monopoly in film processing business.

(Rs m)1QFY02FY01
Sales 145 464
Other Income 16 28
Expenditure 93 312
Operating Profit (EBDIT) 52 152
Operating Profit Margin (%)35.8%32.7%
Interest 1 2
Depreciation 7 12
Profit before Tax 60 165
Other Adjustments
Tax 16 50
Profit after Tax/(Loss) 44 115
Net profit margin (%)30.2%24.9%
No. of Shares (eoy) (m) 21.5 21.5
Diluted Earnings per share*8.25.4
P/E (at current price) 8.7 13.2
(*- annualised)

The Imax venture of the company has met with reasonable success contributing around Rs 18 m in the first full quarter of operation. However, the capacity utilisation rates are a cause of concern. The capacity utilisation has remained at around 45%, as against targeted utilisation rates of 55%. The capacity utilisation might improve in the current quarter (as schools in Mumbai re-opened in June). The company is talking to several schools in Maharastra for group private screening to students at concessional rates. The multiplex theatre project of the company is nearing completion and one screen out of the targeted four screens will be operational next month.

At the current market price of Rs 54, the stock is quoting at 9x its 1QFY02 annualised earnings. The Imax theatre and multiplex are expected to contribute good chunk to revenues from the third quarter of the current year. The company also seems to be cautious in its ad-spends and other marketing expenses. The film processing business of the company remains a cash cow for the company and is expected to continue to do well in the near future with bollywood lining up a string of new films, post the success of 'Lagaan' and 'Gadar'. However, the fortunes of the company are intrinsicly linked to the utilisation rates of the Imax and multiplex theaters. The company has a huge fixed cost bill for running these ventures and in case utilisation rates don't pick up, there could be considerable drop in operating margins. Further, considering that these projects will take atleast 3 years to breakeven, RoCE is expected to remain under strain.

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