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Mukta Arts: Concerns elude positives

Oct 29, 2001

Mukta Arts recorded a good financial performance for 3QFY02 as the company recorded a revenue of Rs 214 m with a profit margin of around 14%. This was fuelled by a huge income recognition from new movie release in the quarter. Though this is a quantum leap over its last years performance, ideally the performance cannot be compared as both revenues and net profit tend to fluctuate heavily depending on new film releases.

(Rs m)3QFY013QFY02% change9mFY019mFY02 % change
Sales 15 214 - 57 356 526.8%
Other Income 16 14-8.9%1637 125.0%
Expenditure 4 191 - 14286 -
Operating Profit (EBDIT) 11 23 110.4% 43 70 64.8%
Operating Profit Margin (%)71.7%10.7% 75.0%19.7%
Interest 1 0 -92.0%10 -42.9%
Depreciation 4 8 95.1%821 145.8%
Profit before Tax 22 29 31.7% 50 86 72.5%
Tax - - -
Profit after Tax/(Loss) 22 29 31.7% 50 86 72.5%
Net profit margin (%)144.7%13.6% 87.9%24.2%
No. of Shares (eoy) (m)21.022.6 2122.6
Diluted Earnings per share*4.25.1 3.25.1
P/E (at current price) 13.3 13.4

The leap in revenues in 3QFY02 was on account of the sale of theatrical rights of Subhash Ghai produced movie 'Yaadein'. As against an estimated production cost of around Rs 170 m, the company is estimated to have recorded revenues in the range of Rs 250-260 m from the sale of domestic, international music and theatrical rights, besides in-movie advertisement revenues. Again, 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. Defying expectations (particularly Yaadein), both the movies didn't perform well on the box office. However, since the company had already sold the rights, the company didn't incur losses on that account. Its newly started film distribution division had bought the theatrical rights for the movie for the Mumbai region.

Mukta Arts is expected to release 'Badhai ho Badhai', its third movie in the current year shortly. The company has also commenced two more medium-budget movie projects, which would be directed by Mr. David Dhawan and Mr. Satish Kaushik. The company is also signing up other directors in its attempt to broadbase its film production business. Mukta Arts is also expected to launch a music album in next calendar year. However, the content production initiatives for the small screen seems to be going slow.

Coming to the performance of the company on the bourses, the stock is currently trading at Rs 68 as against its high of Rs 265. This is reflective of the below expected performance of its movies on the box office. Though the performance of its movies have affected the company's financials, it would certainly dent hitherto high bargaining power of the company. The company needs to restore its high quality content creation capabilities to regain its bargaining power. Volatility in financials also remains a cause for concern. The company's entry into distribution of its film may further add to the volatility. However, investors can expect the volatility to witherout partially (at least on a yearly basis), as the company attempts to consistently launch 3 movies annually. The TV content production and music album segments are also highly competitive. Content production for the small screen would actually test the company's ability considering that it is a relatively new area. Apart from these, absence of the second line of management in the company still remains the biggest grey area. The official website of Mukta Arts was recently renamed as subhashghai.com- isn't that a sufficient indication?

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