Perfect entertainment for `club members’!
Common firm-allottees of IPOs of same lead manager raise credibility issues
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OFFER AT A GLANCE |
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Issuer Name |
Channel Nine Entertainment Ltd |
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Offer Amount |
Rs 11.67 cr |
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Offer Quantity |
46.68 lakh shares of Rs 10 each |
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Offer on Total Equity |
30.1% |
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Post-issue Free Float |
79.39% |
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Post-issue Promo stake |
20.61% |
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Post-IPO Capital |
Rs 15.51 cr |
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Offer Price |
Rs 25 |
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Application Quantity |
6,000 & Multiples of 6,000 |
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Offer Opens |
February 22, 2013 |
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Offer Closes |
February 26, 2013 |
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Listing |
SME Platform of BSE |
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Rating |
Nil |
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Lead Manager |
Guiness Corporate |
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Registrar |
Beetal Financial |
The Offer
The 2002 -registered New Delhi-based Channel Nine Entertainment is making a fresh issue of 46.68 lakh shares of Rs 10 each at a fixed price of Rs 25 a piece aggregating to Rs 11.67 cr. Of this, 2.4 lakh shares are reserved for the `market makers’ to the issue – Delhi-based Narayan Securities Ltd. The entire issue has been underwritten by the lead-manger. Subscribers must apply for a minimum of 6000 shares (Rs 1.5 lakh) and multiples thereof. The shares are proposed to be listed on the SME-Platform of Bombay Stock Exchange (BSE).
Issue Object
According to the offer document, the objects of the IPO were to finance the company’s expansion plans and achieve the benefits of listing as the management believes that listing would enhance the brand image of the company. Of the issue proceeds, Rs 7 cr is to be spent on production of two films, Rs 3.5 cr is earmarked for strengthening ‘distribution operations’ and Rs 60 lakh will be used for ‘brand building’.
SME Specialist-Manager
The Delhi-registered Channel Nine’s IPO is lead-managed by the Kolkata-based Guiness Corporate Advisors. Incidentally, this is the fourth BSE-SME IPO handled by the same investment banker in less than two months! The number of IPOs and their quality speak volume about Guiness’ influence with Asia’s oldest stock exchange! Interestingly, three out of the four recent IPOs managed by Guiness had a price between Rs 20 and Rs 25. Also three of them had a similar issue amount of about Rs 11 cr. What makes Guiness-managed IPOs intriguing is that there are common names among the list of pre-issue allottees of three IPOs! Also, all the four IPOs have an abysmal promoters’ holding of less than 25%.
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IPOs HANDLED BY GUINESS CORPORATE |
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ISSUER |
IPO |
SIZE |
RETAIL |
FV |
IPO |
CUR. |
GAIN |
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DATE |
Rs.Cr |
Appli. Nos. |
Rs |
PRICE |
PRICE |
% |
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RCL Retail |
27-Sep-12 |
5.80 |
219 |
10 |
10 |
9.30 |
-7.0 |
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Eco Friendly Food |
27-Dec-12 |
7.52 |
375 |
10 |
25 |
31.00 |
24.0 |
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Esteem Bio Organ |
18-Jan-13 |
11.25 |
450 |
10 |
25 |
32.10 |
28.4 |
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Sunstar Realty |
18-Feb-13 |
10.62 |
N/A |
10 |
20 |
N/A |
N/A |
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Channel Nine |
22-Feb-13 |
11.67 |
N/A |
10 |
25 |
N/A |
N/A |
Pathetic Track
Even though Channel Nine is more than a decade old, its turnover was in single digit lakhs until fiscal 2011. The so called film/serial production company reported a top line of Rs 25 lakhs for fiscal 2012, of which as much as Rs 22 lakh came from ‘’website development and maintenance’’! Only in the current year (upto October 2012) the company has posted significant revenue of Rs 2.06 cr. In fiscal 2012, on a much lower turnover, the company netted a profit of Rs 7 lakh but, on a larger turnover in the current year, profit has dropped to Rs 4 lakh! In last three years, the company’s cash generation from operation has been negative. Thus, with no concrete project on hand, how will it service the post-issue capital of over Rs 15 cr? No wonder, the promoters have restricted their stake to just 21%.
Lousy Discounting
Channel Nine is part of an industry which has put up a pathetic show on the listed domain. More than 50% of the companies’ operations are currently in red. Of the thirteen scrips frequently traded, only two are in the dividend list. Six scrips are quoting below their paid-up value. As many as nine scrips are quoted below their net worth. Five companies’ m-cap are below even their revenue. When well established companies’ stocks are going abegging, how Channel Nine would fare is anybody’s guess.
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HOW CHANNEL NINE COMPARES WITH PEERS |
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SCRIP NAME |
M-CAP |
P/E |
P/BV |
P/FV |
P/R |
YLD |
PRICE |
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(Rs Cr) |
(x) |
(%) |
(Rs) |
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Balaji Telefilms |
297 |
40.5 |
0.7 |
22.8 |
2.1 |
0.4 |
45.60 |
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K Sera Sera |
236 |
– |
0.8 |
1.1 |
– |
0 |
11.34 |
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Sri Adhikari Bro |
220 |
78.4 |
1.3 |
8.8 |
3.7 |
0.7 |
88.35 |
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Mukta Arts |
74 |
6.9 |
0.8 |
6.5 |
0.3 |
0 |
32.70 |
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Shalimar Prod |
33 |
– |
1.5 |
1.5 |
– |
0 |
1.50 |
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Cinevista |
22 |
31.2 |
0.3 |
1.9 |
0.4 |
0 |
3.80 |
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Pritish Nandy Comm |
18 |
– |
0.2 |
1.2 |
5.4 |
0 |
12.48 |
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GV Films |
17 |
– |
0.0 |
0.0 |
3.5 |
0 |
0.45 |
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Gradiente Info |
16 |
12.5 |
0.4 |
0.7 |
0.4 |
0 |
6.89 |
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Creative Eye |
9 |
1.8 |
0.2 |
0.9 |
0.3 |
0 |
4.40 |
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Padmalaya Tele |
4 |
– |
0.1 |
0.2 |
1.3 |
0 |
2.14 |
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Cinerad Comm |
3 |
– |
1.1 |
0.5 |
0.0 |
0 |
5.19 |
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Filmcity Media |
2 |
– |
– |
0.7 |
– |
0 |
0.74 |
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Industry Composite |
952 |
– |
0.6 |
1.3 |
1.7 |
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Channel Nine |
39 |
82.2 |
0.2 |
2.5 |
32.3 |
0 |
25.00 |
Pricing Mockery
Channel Nine has no great financials to boast about. In last five years, it has netted a surplus of just about Rs1 lakh. It has only Rs 7 lakh in the share premium account. Yet, the company dares to ask a premium of more than Rs 7 cr! The IPO has been priced at Rs 25 a piece. What’s intriguing is, in 2011 it had issued shares even at a price of Rs 750 which amounts to Rs 188 post-bonus (in 2012). Through bumper pricing in 2011 and 2012, the company collected hefty premium and capitalized almost the entire premium on the eve of the public issue. Ironically, after issuing at an exorbitant price in 2011, the company issued shares at par in 2012! The manner that the company has priced shares in the past makes mockery of issue pricing. What’s more interesting is, Goldline International Finvest Ltd, which was allotted 2.7 lakh Channel Nine shares in October 2012 at a price of Rs 130, was also in the list of pre-issue allottees of Eco Friendly Food (IPO in Dec 2012) and Esteem Bio Organic Food (IPO in Jan 2013) – both IPOs managed by Guiness!