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Mukta Arts: Lacks glamour

Aug 13, 2002

Inspite of assurance and attempts made by the management, the volatility in the financials of Mukta Arts continues unabated. Unfortunately, post the IPO of the company, none of the motion pictures produced by the company have performed well on the box office. However, the pipeline of movies to be launched in the current year remains strong and market participants would be closely watching the performance in the forthcoming months.

(Rs m) 2QFY02 2QFY03 % change
Sales 123 194 58.0%
Other Income 9 -38 -529.5%
Expenditure 84 121 43.9%
Operating Profit (EBDIT) 39 73 88.8%
Operating Profit Margin (%) 31.5% 37.6%  
Interest 0 0 -89.3%
Depreciation 7 8 10.3%
Profit before Tax 40 28 -30.9%
Tax - -  
Profit after Tax/(Loss) 40 28 -30.9%
Net profit margin (%) 32.7% 14.3%  
No. of Shares (eoy) (m) 21.0 22.6  
Diluted Earnings per share* 7.7 4.9  
P/E (at current price)   19.5  

The performance of the company is not comparable YoY as both revenues and net profit tend to fluctuate heavily depending on new film releases. The financials of 1QFY03 were boosted primarily by the receipt of revenues from sale of its content library. Mukta Arts has assigned satellite telecast rights of its 11 films library to SET India Pvt. Ltd, for a period of 5 years for a consideration of Rs 161 m. The sale price for the content library has been much below our expectations. The company has recorded the whole of Rs 161 m in 1QFY03.

Mukta Arts' latest release 'Badhai ho Badhai' was a flop on the box office. Further, since the company had kept the distribution rights for the movie for the Mumbai and Delhi territory, it incurred a loss of Rs 24.4 m on account of distribution of the movie in these two territories. As has been cautioned by us in the past, the risk profile of the company has increased on account of the company entering into the movie distribution business for its banner production. The company's attempt to broadbase its film production business by signing up other directors does not seem to be working, atleast not for the shareholders. The company is also expected to make an entry into the music album business, which is already very competitive. We remain sceptical on the company's diversification plans.

The company does have a strong pipeline of movies under production. We expect the company to finish atleast three motion pictures in the current financial year. The company is also expected to launch a mega budget movie, directed by Mr. Subhash Ghai himself in October this year. The financials of the company and consequently the stock price of the company are expected to move in line with the performance of these new releases in the coming months.

The current market price of the stock is Rs 96, and valuations are expected to remain volatile going forward.

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