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Adlabs: Strong numbers - Views on News from Equitymaster
 
 
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  • Sep 20, 2002

    Adlabs: Strong numbers

    Adlabs, the film processing major, recorded 46% sales growth for 1QFY03 inspite of overall sluggishness in the media industry. The company has made encouraging progress in both film processing and film distribution businesses. The company now plans to foray into film production.

    (Rs m) 1QFY02 1QFY03 % change
    Sales 145 212 45.7%
    Other Income 16 9 -48.0%
    Expenditure 93 128 37.6%
    Operating Profit (EBDIT) 52 83 60.4%
    Operating Profit Margin (%) 35.8% 39.4%
    Interest 1 3 166.4%
    Depreciation 7 10 33.7%
    Profit before Tax 60 79 31.8%
    Tax 16 24 50.6%
    Profit after Tax/(Loss) 44 55 25.0%
    Net profit margin (%) 30.2% 25.9%  
    No. of Shares (eoy) (m) 21.5 21.5  
    Diluted Earnings per share 8.2 10.2  
    P/E (at current price)   6.4  

    Backed by a strong pipeline of movies, the company reported strong performance in the film processing business recording 58% YoY (21% QoQ) growth. The number of prints processed increased by 43% over the immediate preceding quarter, 4QFY02. Operating margins in this business segment are high at around 58%. The company has benefited from the trend of increasing number of prints for a movie with a view to target simultaneous distribution and also increasing demand for copies from the overseas markets. That effectively means total number of films processed remaining constant, bigger copy size of a blockbuster film would earn higher margins than processing multiple films.

    Particulars Revenue Mix % OPM % RoCE*
    Film Processing Business 42.3% 57.7% 58.3%
    Film Exhibition Business 26.0% 42.6% 18.5%
    Traded Goods 27.8% 6.4% -
    Others 3.9% - -

    In the film exhibition business the company runs a IMax Dome and a 4-screen multiplex in Mumbai. While the occupancy rates for the multiplex are reasonable at around 60% on the back of several new releases, occupancy rates for the IMax remain a cause of concern. Inspite of several marketing initiatives, the occupancy levels for the Imax are low at around 35%. Consequently, the return ratios in this business are lagging at around 18%. The company is now targeting theatre management as a new business opportunity. The company is negotiating for several property owners to increase 'screens under management'.

    At the current market price of Rs 68, the stock trades at 6x its 1QFY03 earnings. The P/e multiple has come down sharply due to the impact of four screen multiplex starting operations. The film processing business remains a cash cow for the company with a virtual monopoly status in 'Bollywood'. The buoyancy in revenues from film exhibition could also continue in the near term. The company now plans to place its bet on film production business and investors might not be comfortable with this new ventures.

     

     

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