SIMPLY AVOID THIS ISSUE
Midvalley Entertainment Limited is tapping the capital markets with its IPO to raise Rs 60 crs in a price band of Rs 64-70. The issue will raise Rs 60 crs and this is the 5th attempt at raising resources through a public offering.
| Price Band | Rs 64 – Rs 70 |
| Issue size in Rs | Rs 60 crs |
| Offer size in shares | 93,75,000 Equity shares at Rs 64 and 85,71,428 Equity shares at Rs 70 |
| QIB’s | 46,87,500 Equity Shares at Rs 64 and 42,85,714 Equity Shares at Rs 70 |
| Non Institutional Investors | 14,06,250 Equity Shares at Rs 64 and 12,85,714 Equity Shares at Rs 70 |
| Retail Investors | 32,81,250 Equity Shares at Rs 64 and 30,00,000 Equity Shares at Rs70 |
| Marketcap post issue | Rs 224.18 crs at Rs 64 to 245.20 crs at Rs 70 |
| Book Running Lead Manager | Aryaman Financialm Services Limited |
| Isssue Opening Date | Monday 10th January |
| Isssue closing date | Wednesday 12th January |
| IPO Grade | 1/5 by Brickworks Ratings India Pvt Ltd indicating poor fundamentals |
| Bidding Lot | 95 shares |
| Maximum bid for retail applicants | 2850 shares at Rs 70 – Rs 199500 |
The first risk factor is no 7 of the RHP where the company admits that they have not paid income tax for the Assessment Year 2001-02 and other years. They state that there is no dispute and that they have paid in June 2010 a sum of Rs 14 lacs as monthly instalment. There is no mention of any other payment in six months thereafter.
7. We have not paid Income Tax dues aggregating to Rs. 914.00 Lacs, which were provided by us over our previous financial years and which are undisputed as on date. Certain negotiations are underway with the Income Tax department with respect to deferring such payments, but no assurance can be given that these negotiations will conclude in our favour and hence any prosecution or legal action by the Income Tax department for the same can adversely affect our daily operations, financial results, liquidity conditions as well as our goodwill in the market.
We have not paid Income Tax dues aggregating to Rs. 914.00 Lacs plus interest as per Rule 5 of the I.T. Rules, which were provided by us for the Assessment Years 2001-02, 2006-07, 2007-08 and 2008-09 and which are undisputed as on date. The Income Tax department has vide its order / letters dated December 12, 2008 and April 08, 2009 attached certain of our Bank Accounts and Immovable Properties respectively.
In our letter dated June 30, 2010 we have proposed a scheme of deferred payments by way of monthly
Instalments which is under consideration by the Income Tax department and the company has even paid a sum of Rs. 14.00 lacs as a part payment towards the instalment dues. The same is under consideration at the Income Tax department and no written reply or action has been taken by them till date. No assurance can be given that these negotiations will conclude in our favour and hence any prosecution or legal action by the Income Tax department for the same can adversely affect our daily operations, financial results, liquidity condition as well as our goodwill in the market.
The second risk factor is no 11 where the company has defaulted in payment to City Union Bank and done a onetime settlement in April 2006 under risk factor no 11.
11. Our Company has in the past defaulted and failed to repay the loan taken from City Union Bank Limited. This track record could hinder our future debt fund raising activities.
Our Company has entered into a One Time Settlement (OTS) with City Union Bank (as per the details mentioned hereunder) for the settlement of dues. An order dated April 12, 2006, issued by the Debt Recovery Tribunal, Chennai, confirms a full and final out of court settlement between our Company and City Union Bank Limited.
The settlement amount has been paid and the details of the reduction due to settlement are as under:
| Particulars | Amount(Rs. in lacs) |
| Outstanding dues (including interest and costs as per City Union Bank Limited) |
301.97 |
| Amount paid to City Union Bank as part of OTS | 160.00 |
| Reduction on settlement | 141.97 |
This could have a bearing on our ability to raise the funds from banking and formal financial sectors in the future.
The third risk factor is where the promoters have no experience in the entertainment business under risk factor no 17.
17. Our promoters have no operating experience in the entertainment business. This may affect our ability to effectively manage and operate our proposed expansion activities and hence adversely affect our results of operations and financial condition.
The Company has been in the entertainment business since inception. But, the promoters who have taken over the company in 2006, despite having global experience in managing various businesses worldwide, do not have any operating experience in the entertainment business per se. The company shall rely on its Key Managerial Personnel and Technical staff deployed for effective implementation of the proposed expansion. Accordingly any inability to effectively manage and operate the proposed expansion activities could adversely affect our results of operations and financial conditions.
The fourth risk factor is Risk factor no 28 under which the company has filed its DRHP on four previous occasions with SEBI starting from June 2000. In its fourth attempt NSE refused listing approval and therefore the company is not listing on the NSE this time..
What is important to note is that a company which is trying to raise resources for over 10 years still does not have experience in the business for which it is raising money is indeed very very odd.
28. Our Company had filed the Draft Red Herring Prospectus with SEBI on previous four occasions.
Our Company filed its Draft Red Herring Prospectus with SEBI on previous four occasions. Our company received the observation from their Southern Regional Office vide letter no. 1(26)/20018/1377 dated June 1,2000.
Our Company, again approached SEBI, Southern Regional Office, to go public, and had received SEBI’s
observations; vide their letter no. 1(26)/01002/02/231 dated February 26, 2002. Our Company, in view of the then prevailing market sentiments decided not to proceed with the public issue on the above two occasions.
Our Company again filed its Draft Red Herring Prospectus with SEBI in July 2007. The Book Running Lead Managers through their letter dated December 19, 2007, withdrew the offer document filed with SEBI, due to inconsistency in the financial information, and eligibility criteria.
Our Company again filed its Draft Red Herring Prospectus with SEBI in October 2008. Our company received SEBI’s observation vide letter no. CFD/DIL/ISUES/PB/AT/162305/2009 dated May 5, 2009, but in view of the then prevailing market sentiments we decided not to proceed with the public issue.
The National Stock Exchange of India (NSE) had earlier refused the listing approval when the Company had filed a draft offer document with the exchange in February 2009 because of which the Company has now chosen not to list its securities in NSE.
The fifth risk factor is no 9 where the company says that they are to identify all the 300 proposed theatres for screening agreements.
9. We face risks associated with the implementation of new cinemas.
In addition to our existing agreements relating to 46 cinema screens, we propose to enter into screening
agreements with 300 new theatres in Southern Peninsula in the same territories where our theatres are located and South East Asian Countries by June 2011. We face several risks in developing new cinemas, including the following:
-
We are still to identify all of the 300 proposed theatres with whom we intend to enter into screening
Agreements. The theatres with which we intend to enter into screening agreements or identified through a
Theatre Evaluation Form which gives full details about the location of the theatre, ownership of the theatre, capacity of the theatre, license and approval details, market potential and average footfalls, past history of screened films and finally the nature of audience. After which we negotiate on the price and other considerations and then enter into screening agreements for five years. Any delay in following the said process in identification, negotiations and finalization of agreements and terms with all of these 300 theatres will cause a delay in the entering into screening agreements which will revise our cost estimates and hence accordingly alter our scale of operations. For further details please refer to para “Exhibition/Screening process” on page 97 of this Red Herring Prospectus. And also, we face the risks of these negotiations not being within our budgeted range and we have to revise our cost estimates and hence accordingly alter our scale of operations - Our proposed project of acquisition of leasing rights of screens / theatres, renovation and digitalization of theatres is capital intensive. The budgeted resources for implementation of these new projects may be inadequate and we may incur cost overruns, which could adversely affect our financial position and our results of operations.
• Delays in the scheduled implementation of the proposed projects for any reason, including construction delays, delays in receipt of Government approvals or delays in delivery of equipment by suppliers, could adversely affect our financial position. The following factors will hamper the implementation of the
Project:- Natural calamity
- Communal riots/ terrorists attacks
- Any change in the ownership of the theatres
- Any change in the Government policies and regulations
- Political factors & changes
- Changes in industry trends
- Our new screens may not achieve the requisite levels of patronage projected by us at the project
evaluation stage, which could adversely affect our results of operations and financial condition.
Business
The company Midvalley Entertainment Limited is in the business of Film Production, Distribution and Exhibition, actively engaged in the media and entertainment industry in South India. The company has presence in the media and entertainment activity from concept to completion i.e. from script to screen. The company produces, distributes and exhibits movies both in Indian and foreign languages. The company holds the music, video and television rights of movies, television serials for sales to TV channels and other emerging media sources. The company intends to emerge as one of the leading theatre chains in Southern India. The company has currently entered into screening agreements with 46 theatres in distribution territories of Hyderabad and Tamil Nadu.
The current business includes production, distribution and exhibition of movies and it has plans to foray into the field of Combined Entertainment Plexes and Drive-in open air theatres by way of organic as well as inorganic growth.
Objects of Issue
The objects of the issue are as follows: –
| Entering into screening agreements with 300 cinema theatres | Rs 1500 lacs |
| Renovation and upgradation of cinema infra for select 100 screens | Rs 2595 lacs |
| Acqusition of company in similar business | Rs 1200 lacs |
| To meet general corporate expenses | XX |
| Meeting the IPO Expenses | XX |
Financials
The net income for the company has been Rs 7362.93 lacs for the year ended April 2008, Rs 2116.43 lacs for April 2009 and Rs 1294.74 lacs for the year ended April 2010. The sales have been falling dramatically over the last three years. In the first three months of the current year ending July 2010 the company saw an increase in sales to Rs 486.90 lacs.
The profit after tax was Rs 886.60 lacs for April 2008, a loss of Rs 47.06 lacs for April 2009, a profit of Rs 3.93 lacs for April 2010 and an unbelievable profit of Rs 143.31 lacs for the three months ended July 2010. It’s indeed surprising that the company which had a loss in 2009, net margins of 0.30% in 2010, could in three months show net margins of over 29%.
Comparisons
The company has chosen its peers as Cinemax India, Fame India, Inox Leisure and PVR Limited. The turnover of PVR is Rs 334 crs while its share quotes at a PE of 16 and a market cap of Rs 363 crs. Cinemax has a turnover of Rs 142 crs, a PE of 22 and a market cap of Rs 157 crs. Inox has a turnover of Rs 256 crs, a PE of 15 and a market cap of 400 crs. Fame India which was under a takeover, has a turnover of Rs 150 crs, is currently loss making and a market cap of Rs 275 crs.
If one tries to compare these numbers with Midvalley Entertainment Limited, the company has a turnover of Rs 12.95 crs for year ended April 2010, a market cap historically of Rs 165 to 185 crs and based on post issue numbers of Rs 225-245 crs on a profit of Rs 3.93 lacs. The PE based on pre IPO equity would be over 4700. In the case of post IPO equity it would be over 6230 times. I believe trying and comparing the companies would be ridiculous.
Conclusion
The risk factors enumerated above are enough for a prospective investor to have sleepless nights once he puts his money into the company. The income tax department has the right to attach the proceeds of the company once the allotment of shares is made and adjust proceeds against admitted tax dues. There is nothing that the company is offering to investors. I believe investors should just forget this issue and wait for better opportunities to present themselves. This company looks like a horror film and should be avoided.
SEBI Disclaimer: – I do not intend to subscribe to the above issue.
Dear Arun,
Excellent Anaylysis done on this IPO.I am happy you have flashed out the”Warning/Caution Signs on the IPO”.This will help Investing Public from not going into a money loosing mis-adventure.Imagine the company is in-capable of paying off Income Tax Dues.What is SEBI doing??/