Friday, December 31, 2010

IPO ANALYSIS: MIDVALLEY ENTERTAINMENT LIMITED – NO VALLEY, IT IS DESERT – AVOID.





Mid Valley Entertainment Ltd - the film production, distribution & exhibition firm of South India, is entering the capital market on 10-01-11 with an IPO. The company intends to raise Rs 60cr for its ambitious expansion programme. Aryaman Financial Services Limited are the BRLM.

The  company  produces,  distributes  and  exhibits  movies  both  in  Indian  and  foreign languages.  The company also holds the music, video and television rights of movies, television serials for TV Channels. The company has earlier produced movies like Thambi and Seena Thana, in Tamil. The company presently has screening agreements with 46 theatres across Tamil Nadu (34), Andhra Pradesh (5) and Karnataka (7). The company plans to focus primarily on movie production and exhibition business going forward. 

The promoters of the company are -Datuk K. Ketheeswaran, M/s. Unigold Pacifc Limited, M/s. Global Motion Pictures & Ventures Limited and M/s. Kiara Enigma Sdn Bhd.


The objects of the Issue are: 

A.  Entering into screening agreements with 300 cinema theatres. 
B.  Renovation and Up-gradation of cinema infrastructure with Digital Equipment and other related assets for a select 100 screens.
C.  Acquisition of company, acquisition of screening rights of company having similar line, range and objects of business
D.  To meet general corporate expenses


RISK FACTORS:

1. The company operates in highly competitive and uncertain segment.
2. Lack of transparency and hence lack of corporate governance in doing business.
3. The company has not paid Income Tax dues aggregating to Rs. 914.00 Lacs.
4. For acquisition, no specific target has been identified.
5. The company had in the past defaulted and failed to repay the loan taken from City Union Bank Limited. 
6. The company had violated certain guidelines under FEMA.
7. There are certain audit qualifications in the auditor’s report,pertaining to previous financial years/periods.
8. IPO grade 1 by BRICK WORKS.
9. Shares will be listed only in BSE.

VIEWS OF RATING AGENCY

The  grading  factors  promoters  experience  in management  of malls  and multiplexes. However, the grading is constrained by  small size of operations, declining operations in the last 2 years , four prior unsuccessful attempts by the company to raise funds through IPO, promoters lack of experience  in  entertainment business,    litigation with  income  tax department  for non-payment of tax dues, the promoter companies of MVEL and the group companies incurring loss, very  preliminary  stage  of  project  implementation,  no  independent  appraisal  of  the project/project  cost  and  project  funding  fully  from  IPO  proceeds.    Promoters  are  not participating  in    the means  of  finance  and  their post holding  equity holding will  decline  from
current  49.9% to ~34%.   The company operates in media and entertainment industry which has high revenue volatility and suffers from video/audio piracy.

VALUATION AND RECOMMENDATIONS

The company will have a post issue capital of around Rs 40cr, servicing this kind of equity will be very difficult, going by company’s past track record. There are issues with respect to corporate governance. Shares of the companies in this segment, are not fancied in the exchanges. Even the much hyped, recently listed EROS Entertainment, shares are quoting below the offer price. AVOID. POOR QUALITY IPO.

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