Adlabs Films is India’s leading motion picture processing laboratory. It was set up in 1978 and initially catered to only the ad film market. However, over the years, the company has evolved and is all set to become a diversified media company with presence in film production, processing and exhibition (theatre management). The company has a virtual monopoly in film processing in the western region and enjoys steady business.
FY03 was a good year for the company as it registered a 61% growth in bottomline on the back of a 28% topline growth. A considerable amount of topline improvement was contributed by the income from IMAX and Multiplex theatre operations, which increased by 82% YoY. Also, this segment has turned positive after registering losses last year. The film processing business, which contributes major chunk of profits, also recorded a rise of 24%.
The film processing business segment enjoys higher operating margins. Moreover, 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.
In the film exhibition business, the company runs IMAX Dome and a 4-screen multiplex in Mumbai. While the occupancy rates for the multiplex are reasonable on the back of several new releases, occupancy rates of 35%-40% for the IMAX remain a cause of concern, despite several marketing initiatives.
However, the recent initiatives of the management of negotiating for latest IMAX releases with ESPN, Walt Disney, etc. should yield positive results for the company. Moreover, as a part of an expansion programme, the company has planned four multiplex projects covering 16 screens. All the four projects are expected to be completed during the year 2003-2004. 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'. However, it remains to be seen how does the company fare in its venture to produce films. At Rs 135, the stock is trading at over 17x its FY03 earnings.
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