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Pritish Nandy: Projections go haywire - Views on News from Equitymaster

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Pritish Nandy: Projections go haywire

Sep 11, 2001

Pritish Nandy Communication (PNC), a media company promoted by leading journalist Mr. Pritish Nandy, made its debut in the capital market last year. The company raised Rs 400 m from its IPO primarily to fund its theme centers, creation of events for telecast on television channels and pump money into its core business of content production for the small screen. The company’s financial projections went haywire in FY01. As against a projected net profit of Rs 98 m for FY01, actual net profit was to the tune of Rs 46 m, a shortfall of 53%. The performance took a turn for the worst in 1QFY02 with a drop of 40% in net profit over corresponding quarter last year.

(Rs m) 1QFY01 1QFY02 % change FY01
(Actual)
FY01
(Projected)
% Change
Sales 35 28 -20.3% 134 493 -72.8%
Other Income 2 9 NA 22 16 39.3%
Expenditure 22 28 28.0% 102 386 -73.6%
Operating Profit (EBDIT) 13 0 -103.1% 32 107 -69.9%
Operating Profit Margin (%) 36.8% -1.5% 24.0% 21.7%  
Interest (net) 1 0 -98.6% 3 0  
Depreciation 0 0 33.3% 1 5 -71.8%
Profit before Tax 13 8 -39.9% 50 118 -57.3%
Tax 0 0 NA 4 20 -80.1%
Profit after Tax/(Loss) 13 8 -39.9% 46 98 -52.6%
Net profit margin (%) 38.6% 29.1%   34.6% 19.8%  
No. of Shares (eoy) (m) 7.9 10.5   10.5 10.5  
Diluted Earnings per share* 6.8 3.0   4.4 9.3  
P/E (at current price) 0.4 1.0        
(*- annualised)

The drop in performance of the company compared to its projected profit was mainly due to non-materialisation of marketing contract for Sydney Olympics. The company was relying heavily on this contract. Besides, unviable economics with state owned Doordarshan (DD), the preferred broadcaster of the company also added to its woes.

Following severe pressure on its business model, the company diversified into film production business. The company’s first Hindi production ‘Kuch Khatti Kuch Meethi’ didn’t perform too well on the box office. The company is now in the process of producing/co-producing more films, including international ones. On the cards is a film in joint venture with Ivory International and another film directed by Nagesh Kukunoor. PNC has also taken up a series of five films, to be directed by first time filmmakers, in association with Mahesh Bhatt and Vishesh Films.

At the current market price of Rs 21, the stock is trading at a steep discount of more than 86% to its IPO market price of Rs 155 per share i.e. an erosion of Rs 1.4 bn in market capitalisation. The company’s balance sheet for FY01 is qualified by the auditor's on several important issues. Again, the company’s plans in the Internet space are on a backburner and its theme center ‘Moksh’ has just commenced operations. Further, the performance of the company is expected to be volatile given its increasing presence in the film production business. All the businesses in which the company has ventured into are relatively new and attach comparatively high degree of risk to it. Whether the company is able to turnaround and live up to shareholder's expectations would depend on the success of these ventures.


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