Mukta Arts Ltd Buy 21/07/07

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Mukta Arts Ltd Buy 21/07/07 Telephones NAYAN M. VALA 32549230/32448788. Fax.26105973 403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, E-Mail: [email protected] S.V Road, Vile Parle (W), Website: www.nayanmvala.com Mumbai – 400056. Share & Stock Broker Mukta Arts Ltd Buy 21/07/07 MUKTA ARTS 01/07-20/ 07 140 120 100 80 Background: 60 40 Mukta Arts was started 28 years ago by the leading film maker. Mr. 20 Subhash Ghai.The present business of Mukta is the generation and 0 distribution of contents for the entertainment industry. It has to its credit a long list of commercially successful Hindi films. These films have been extensively appreciated by the audiences both in India and overseas. Shareholding Pattern: These films also have considerable archival value, which ensures a steady flow of revenue into the company. In addition to this the company also % of controls over 50 multiplex and single screens in the North of India. These Shareholders Holding include some of the biggest chains in the country like PVR, Fun Republic Promoters 70.25 and Adlabs. This gives the company major distribution and exhibition FI's & MF's 0.78 strength which it passes on, not just for its own films but also for those Public & Others 29 from outside producers.During the last 28 years, the company has produced over 20 films and growing, all of which have generated tremendous profits for the company. Most of these films have been directed by Mr. Ghai and some of them are amongst the most popular hindi films in recent times. Films like Karz, Hero, Karma, Ram Lakhan, Saaudagar, Khalnayak, Pardes, Taal and Yaadein. In addition to this, the company has also produced some memorable movies with outside directors including major hits like Jogger’s Park, Aitraaz, Iqbal and their Investments by MF’s most recent film 36 Chinatown. Movies like Joggers Park and Iqbal demonstrate that the company has a varied definition of quality cinema which spans across budget, genre and scale making Mukta Arts films some of the most sought after products with audiences, critics and the trade.Mukta is now finalizing its future slate that will include films with Abbas-Mustaan, Nagesh Kukunoor and of course Mr. Ghai’s next highly anticipated extravaganza. Rationale for Investment: • Strong Library Base generating Recurring Income : Mukta Arts has established a very strong library of 25 films which provides recurring revenues in the form of renewal of the satellite and video rights. During FY07, company received Rs.220 million from Zee TV for the satellite rights of 12 films for five years against Rs.160 million it received for the same library when it sold the rights to Sony in 2002. MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD CODE NO.23/00528/13 Telephones NAYAN M. VALA 32549230/32448788. Fax.26105973 403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, E-Mail: [email protected] S.V Road, Vile Parle (W), Website: www.nayanmvala.com Mumbai – 400056. Share & Stock Broker No. Of • Strong Pipeline: The Company has aggressively scaled up its Scheme Name Shares production business from just one or two films a year to five to six Sundaram BNP films per year. Currently, company has six films in pipeline including Paribas Balanced two films directed by Mr. Subhash Ghai and three by outside Fund - (D) 96064 directors. The total cost of projects under pipeline is around Rs.515 DSP ML million. Technology.com (G) 40827 • De-risking through capitalizing on its presence in DSP ML distribution: The Company keeps distribution rights for Mumbai, Technology.com Delhi/UP and Punjab territories which contributes more than 65% of the box-office collections. It covers around 40% of the production (G) 41213 cost from music, video and satellite rights and remaining 40% it DSP ML tries to recover from remaining territories by giving distribution Technology.com rights on minimum guarantee. This strategy helps the company to (G) 40720 de-risk itself from the box-office fluctuations. Sundaram BNP Paribas Select • Digitalization further improving the revenues: Introduction of Small Cap (D) 96064 the digital theatres has been proving as additional revenue driver for the film industry as the B grade theatres in small towns which were not contributing, have started contributing to the box-office collections from the first week itself. • Emerging new Revenue Streams: We believe that new revenue streams like video on demand through IPTV & DTH and mobile downloads can prove to be extra revenue drivers for Mukta Arts improving its profitability and generating sustainable revenue streams from renewal of rights. Valuation Ratios: • Value Unlocking in Whistling Woods: The company is in talks 200703 with the private equity players to offload apart of its stake in P/E 11.85 Whistling Woods. We expect any such deal will unlock the value of the investment made by of Mukta arts in Whistling Woods. P/BV 1.43 P/CEPS 10.23 • Established Player to capitalize on growth momentum: We EV/EBIDTA 10.18 believe that there is going to be a huge demand for quality content on account of multiplex boom, digitalization of the theatres and Market Cap/Sales 1.75 increasing demand for music, video & satellite rights and we see Mukta Arts as a clear beneficiary as it has a proven record of quality films and believe that the company would capitalize on this growth. Highlights: • Completion of the Key man Insurance Policy : During the FY07, the company has completed all the installments of the Key Man • Strong Pipeline insurance policy. The company has paid Rs.240 million in six • Strong Library installments. The company will receive Rs.350 million at the • Emerging revenue maturity of the policy in year 2011. We expect a saving of Rs.40 Streams million from the Administrative costs, improving the bottom-line of • Whistling Wood picking the company MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD CODE NO.23/00528/13 Telephones NAYAN M. VALA 32549230/32448788. Fax.26105973 403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, E-Mail: [email protected] S.V Road, Vile Parle (W), Website: www.nayanmvala.com Mumbai – 400056. Share & Stock Broker up • Value unlocking • Lease Rental from commercial complex in FY09: The company through Whistling has closed down its loss making studio Audeus, Andheri last year Woods and now constructing a commercial complex on the land of the • Established Brand studio. The company has a construction contract with a Mumbai name based construction company, Surbhi developers in which Surbhi • Income from Leasing developers will invest and build up the complex. Out of total constructed area of 80000 square feet, Mukta Arts would own 55% Points to Ponder: of the built up area that is 44000 square feet. The current market • Value of valuation of the Mukta’s share in this property would be around Invesments- Rs Rs.350mn. The construction will be completed by December 2007. 30crore. This property is situated at prime location near Fun Republic, • Investments in Andheri, Mumbai. The Company intends to give this commercial on Whistling Woods lease. We expect a net lease rental income of around Rs.40mn from (70%)-Rs 13.5 FY09 onward, assuming a lease rental of Rs.80 per square feet crores per month. • Cash Rs 30 crores Financials: Value per Share based on above= Rs 35/- Forthcoming Films: Bombay to Bangkok Net profit of Mukta Arts jumped manifold to Rs 14.98 crore in the quarter Banner : Mukta Searchlight Films' ended March 2007.bSales rose 138.6% to Rs 29.52 crore in the quarter Director : Nagesh Kukunoor ended March 2007 as against Rs 12.37 crore during the previous quarter Producer : Rahul Puri ended March 2006. For the full year, net profit stood at Rs 14.27 crores Cast : Shreyas Talpade, Lena, and Sales was at Rs 96.51 crores. Vijay Maurya, Rajeshwari Sachdeo, Vikram Inamdar, Yatin Valuations: Karyekar & Naseeruddin Shah The industry P/E for the peers is at 41. The stock has underperformed with respect to the sector. There are lot of triggers in the stock. Market will Black & White factor in those in times to come. This industry is undergoing consolidation Banner : Mukta Arts with lot of developments all across. All this makes the stock look very Entertainment attractive. We are taking a worst case scenario where the company maintains the Director :Subhash Ghai same performance. On the back of this performance, the stock is currently trading at Cast : Anil Kapoor, Shefali Shah, half the price. We recommend a buy on this stock with a target of Rs 150 with a one Aditi Sharma & Introducing Anurag year horizon. Sinha Cycle Kick MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD CODE NO.23/00528/13 Telephones NAYAN M. VALA 32549230/32448788. Fax.26105973 403-404, Cosmos Court, Above Waman Hari Pethe Jewellers, E-Mail: [email protected] S.V Road, Vile Parle (W), Website: www.nayanmvala.com Mumbai – 400056. Share & Stock Broker Banner : Mukta Searchlight Films Director :Shashi Sudigala Cast : K. P. Nishan Nanaiah, Sunny Hinduja, Girija Oak, Ishita Sharma, Dwij Yadav, Tom Alter, Gurmeet Choudhary, Sameer Kocchar, Shivani Joshi, Krishna Sheller, Ashok Beniwal, Shruti Bhattacharya, Bhuvanesh Shetty Yuvraaj Banner : Mukta Arts Entertainment Director : Subhash Ghai Music : A. R. Rahman Lyrics : Gulzar Cast : Anil Kapoor, Salman Khan, Zayed Khan, Katrina Kaif & Boman Irani MEMBER: NATIONAL STOCK EXCHANGE OF INDIA LTD CODE NO.23/00528/13 .
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