CARE IndependentEQUITY Equity Research RESEARCH MUKTA ARTS LTD. MUKTA ARTS LTD ENTERTAINMENT INDUSTRY 1 BSE Scrip Code: 532357 CMP Rs. 31.9 March 1, 2012
Strong brand value in movie production
Mukta Arts Ltd (MAL) primarily produces movies; it has a 17- film library of which 12 are blockbusters. The company has
produced such popular Hindi films as Karz, Hero, Karma, Ram- Lakhan, Saaudagar, Khalnayak, Pardes, Taal and Yaadein. MAL has also produced movies with outside directors including
Jogger‟s Park, Aitraaz, Iqbal, 36 Chinatown, Paying Guest, Right Yaaa Wrong, Hello Darling, Paschim Express, the Bengali movie
Nauka Dubi and the Marathi movie Sanai Choughade, etc.
MAL to enter film exhibition business MAL has entered into the film exhibition business to tap revenue across multiple streams. The company is looking at starting a
chain of multiplexes under the brand name „Mukta Cinemas‟ in various cities across the country. By entering in exhibition, MAL will extend and complete its presence in all major streams of the
film business. The locations tied up so far include smaller centres such as Vadodara, Ahmedabad and Bhopal. Expansion into Mumbai and other metros will depend on the response to the initial launch.
Key concerns Slowdown in economic growth
Piracy has an adverse impact on revenues Intensely competitive environment and success at box
office. Technological obsolescence
Valuations MAL is currently trading at trailing EV/EBITDA multiple of
75.9x.
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HISTORY AND BACKGROUND
Background MAL is an India-based holding company, incorporated in 1982 and converted into a public company in September 2000. It is the first Hindi film production company to tap the capital market. The company is engaged in integrating a studio culture from education to exhibition and production to distribution, imparting training in various skills related to films, television and media field.
Subsidiaries of MAL include Whistling Woods International Ltd (WWIL), Connect 1 Ltd, Mukta Tele Media Ltd and Mukta Tele Arts Pvt Ltd. WWIL is a school that offers training in skills related to the film, television and media industries. Mukta Tele Media Ltd is engaged in production of tele-serials, management of event shows and entertainment software.
Operations MAL primarily produces movies; it has a 17-film library of which 12 are blockbusters. The company has produced such popular Hindi films as Karz, Hero, Karma, Ram-Lakhan, Saaudagar, Khalnayak, Pardes, Taal and Yaadein. MAL has also produced movies with outside directors including Jogger‟s Park, Aitraaz, Iqbal, 36 Chinatown, Paying Guest, Right Yaaa Wrong, Hello Darling, Paschim Express, the Bengali movie Nauka Dubi and the Marathi movie Sanai Choughade, etc
Industry segments The company operates under 3 segments - Film Production (Software division) Media Education Segment Film Equipment Segment
The software segment, which includes films, contributed 83.2 per cent to total revenue in FY11, while media education segment contributed 7.5 per cent and equipment and others contributed 9.3 per cent.
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MAL: Segment wise Revenue break-up FY10 FY11
Source: Company and CARE Research
MAL: Peer comparison
(FY11) Units Reliance Mutka Arts Inox Leisure Cinemax Ltd Mediaworks Net operating income Rs. Crores 221 916 335 223 EBITDA Rs. Crores 2 20 38 35 PAT Rs. Crores (18) (359) 7 5 Growth in net operating income % 94.5% 12.7% 36.0% 12.3% EBITDA Margin % 0.8% 2.2% 11.4% 15.9% PAT Margin % NM NM 2.1% 2.4% RoCE % NM NM 4.6% 5.8% RoE % NM NM 2.2% 3.2% Price/Earnings (P/E) Ratio times NM NM 44.6 17.1 Price/Book Value(P/BV) times 1.5 6.8 1.0 0.5 Enterprise Value (EV)/EBITDA times 75.9 112.0 13.2 6.0
Source: Capitaline and CARE Research
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FINANCIAL PERFORMANCE AND ANALYSIS
Top line surged by 94.5 per cent in FY11 The top line grew by 94.5 per cent y-o-y from Rs.114 crore in FY10 to Rs.221 crore in FY11. This growth was mainly on account of 1) Software (including Films) division (83 per cent of the total revenues) which grew by 110 per cent y-o-y and 2) Other revenues (8.8 per cent of the total revenues) registering a growth of 181 per cent y-o-y. However, media education division registered de-growth of 6 per cent y-o-y.
Break even at EBITDA level MAL reported an EBITDA loss of Rs14.9 crore in FY10. However, during FY11 the company managed to clock EBITDA of Rs1.8 crore mainly on account of lower employee costs and other expenses which stood at 98.4 per cent of total revenues in FY11 as compared to 111.5 per cent in FY10.
PAT loss continues; book value per share down 52 per cent over last five years MAL has continued to post net loss since FY07. Led by robust revenue growth and break even at EBITDA level, the company has managed to cut it net loss from Rs.31 crore in FY10 to Rs.17.5 crore in FY11. However the company continues to erode (down by 52 per cent in the last five years) its book value per share which stood at Rs45.6/share inFY07 to Rs21.7/share in FY11.
MAL: Consolidated Financial Performance (FY07-11)
(Rs Crore) FY07 FY08 FY09 FY10 FY11
Net operating income 106.7 124.2 185.1 113.6 220.9 EBITDA 11.0 14.9 9.3 (14.9) 1.8 PAT (0.2) (0.0) (5.8) (30.7) (17.5) Fully Diluted EPS* (Rs.) (0.1) (0.0) (2.6) (13.6) (4.3)
EBITDA margins 10.3% 12.0% 5.0% NM 0.8% PAT margins NM NM NM NM NM
Source: Capitaline and CARE Research
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EXPANSION, NEW INITIATIVES AND CONCERNS
Expansion plans and initiatives
In FY10, WWIL tied up with the Central Board of Secondary Education (CBSE) to introduce media education at the 11th and 12th standard level and with Centum Learning Ltd (a Bharti Airtel associate company) to design the media and entertainment curriculum for all its education centres. MAL has entered into the film exhibition business to tap revenue across multiple streams. The company is looking at starting a chain of multiplexes under the brand name “Mukta Cinemas” in various cities across the country. The locations tied up so far include smaller centres such as Vadodara, Ahmedabad and Bhopal. Expansion into Mumbai and other metros will depend on the response to the initial launch. MAL is planning to enter the television software arena.
Key concerns Slowdown in economic growth Piracy has an adverse impact on revenues Intensely competitive environment Technological obsolescence
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SECTOR OUTLOOK
CARE Research believes that Indian Media & Entertainment (M&E) industry would continue to be one of the biggest beneficiaries due to favourable demographics, rising disposable income and increased spend on discretionary items. Inspite of being one of the youngest nations in the world, the industry currently witnesses lower penetration across various segments comprising the M&E industry. Therefore the lower penetration levels in addition to the evolving content and delivery platforms is expected to enable the industry register CAGR of 14% during the period CY11-15. Other factors such as the growing reach of the M&E industry especially in the tier- II & III cities, increasing penetration of mobile and broadband services and government‟s thrust towards digitalization are expected to drive the industry‟s growth. However, any adversities in the economic growth may adversely affect the industry‟s prospects in the form of declining flow of advertising revenues to the industry, slowdown in the growth of subscription revenues from the customers etc. CARE Research expects the following trends to be observed in the various M&E segments:
Key Trends in M&E Segments
Television Print media New Media Films
•Consumer •Rising Literacy • 3G Auction •Digitisation Preference Levels Roll out •Increase of shifting towards •Foreign •IPTV Multiplexes International Companies •Value Added •Increasing Programming entering Services Government formats alliances with •Lower Broad intiatives •Regional Indian band and Markets Companies Internet •Large appetite •Regionalisation penetration for good content •Growth in as number of International TV Households Magazines increasing rapidly •DTH/CAS
Source: Industry and CARE Research
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CONSOLIDATED FINANCIAL SUMMARY
Rs. Crores FY07 FY08 FY09 FY10 FY11 Income Statement Net operating income 106.7 124.2 185.1 113.6 220.9 EBITDA 11.0 14.9 9.3 (14.9) 1.8 Depreciation and amortisation 8.4 10.4 8.9 7.5 7.2 EBIT 2.6 4.5 0.4 (22.4) (5.4) Interest 2.2 2.8 4.1 8.3 7.1 PBT 0.4 1.7 (3.7) (30.6) (12.5) Ordinary PAT (After minority interest) (0.3) (0.0) (5.8) (30.6) (9.7) PAT (After minority interest) (0.2) (0.0) (5.8) (30.7) (17.5) Fully Diluted Earnings Per Share* (Rs.) (0.1) (0.0) (2.6) (13.6) (4.3) Dividend, including tax 4.5 4.5 2.3 - - * Calculated based on ordinary PAT on Current Face Value of Rs. 5/- per share
Balance sheet Net worth (incl. Minority Interest) 104.4 99.6 91.7 61.6 49.0 Debt 22.8 25.7 35.7 55.5 69.5 Deferred Liabilities / (Assets) 0.9 0.8 0.9 1.0 - Capital Employed 128.1 126.2 128.3 118.1 118.4 Net Fixed Assets (incl. Capital WIP) 68.9 70.9 67.1 80.9 96.6 Investments 29.8 13.7 9.0 2.3 2.5 Loans and Advances 29.8 44.4 48.8 47.8 52.2 Inventory 14.8 29.3 30.2 - - Receivables 12.4 18.3 18.1 21.8 26.2 Cash and Cash Equivalents 7.3 13.7 3.7 4.5 3.9 Current Assets, Loans and Advances 64.3 105.7 100.9 74.1 82.3 Less: Current Liabilities and Provisions 34.9 64.1 48.7 39.3 62.9 Total Assets 128.1 126.2 128.3 118.1 118.4
Ratios Growth in Operating Income 16.4% 49.1% -38.6% 94.5% Growth in EBITDA 35.4% -37.5% NM NM
Growth in PAT NM NM NM NM
Growth in EPS NM NM NM NM EBITDA Margin 12.0% 5.0% NM 0.8%
PAT Margin NM NM NM NM RoCE 3.6% 0.3% NM NM RoE NM NM NM NM Debt-Equity (times) 0.3 0.4 0.9 1.4 Interest Coverage (times) 1.6 0.1 NM NM
Current Ratio (times) 1.6 2.1 1.9 1.3
Inventory Days 86 60 0 0
Receivable Days 54 36 70 43
Price / Earnings (P/E) Ratio NM Price / Book Value(P/BV) Ratio 1.5
Enterprise Value (EV)/EBITDA 75.9 Source: Capitaline, CARE Equity Research
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DISCLOSURES
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