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Cinevista: Disappointment continues - Views on News from Equitymaster

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Cinevista: Disappointment continues

Dec 3, 2001

Unviable economics of operations with DD is spelling death for content providers like Cinevista who were hitherto dependent on the state owned broadcaster. Cinevista seems to have learnt this the hard way. While on one hand the proposed utilisation of IPO proceeds has gone haywire, the company is bleeding on the operating front. After a net loss in FY01, the company has posted an operating loss for the first half year. While revenues dipped by around 65%, operating margins slipped heavily into red turning its operations unviable. The sharp fall in operating margins can attributed to the fact that most of the air time slots which the company had bought from DD remained unsold due to slump in demand for advertising on DD. This resulted in the company withdrawing several programs from air and heavy discounts on its running programmes.

(Rs m) 1HFY01 1HFY02 % change FY01
Sales 242 86 -64.5% 397
Other Income 12 24 102.3% 39
Expenditure 210 138 -34.1% 544
Operating Profit (EBDIT) 32 (52) -263.5% (147)
Operating Profit Margin (%) 13.2% -60.8% -37.1%
Interest 3 2 -47.7% 4
Depreciation 3 5 64.0% 8
Profit before Tax 38 (35) -190.9% (120)
Tax 8 - -100.0% -
Profit after Tax/(Loss) 30 (35) -215.1% (120)
Net profit margin (%) 12.4% -40% -30.3%
No. of Shares (eoy) (m) 10.1 10.1   10.1
Diluted Earnings per share 6.0 (6.8)   (11.9)
P/E (at current price)    

While the company had to book the production and telecast costs in both the cases, the revenues did not match up, resulting in an operating loss. Production and telecast costs have eaten up almost the entire revenues, as shown in the table below.

(Rs m) FY99 FY00 FY01 1HFY02
Sales 215 439 397 86
Production/Telecast cost 136 261 394 85
Production/Telecast cost as % of sales 63% 60% 99% 99%

Cinevista, has also missed out on all its IPO projections. While there have been cost overruns in terms of land & equipment purchase as well as on the issue expenses, the web casting and overseas production center projects have run into rough weather.

The company is now looking at new areas of growth. It has acquired a majority stake (99%) in Video Vista Inc., New Jersey, USA, with a view to building a stonger base in the overseas market as also to produce original programmes for broadcasters in the overseas markets. Video Vista Inc. has been in the business of trading and licensing of Indian television programmes for 9 years.

The current market price of Rs 43 is at 83% discount to its IPO price of Rs 255, leading to an erosion in market capitalisation of more than Rs 2.1 bn. Though the company seems to be diversifying its risk and taking corrective steps, it is too little, too late. Investors have certainly paid a heavy price for the kind of entertainment provided by the company to them in last 15 months.

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