Advantage Adlabs

SPECIAL REPORT

Investors should stay put with Adlabs as its future looks brighter.

On June 30, Anil Ambani's Reliance Capital announced plans to pick up 52 per cent stake in Adlabs Films and to make an open offer for an additional 20 per cent at Rs 183 per share.

Adlabs has approved a capital infusion of Rs 325 crore through a preferential allotment to Reliance Land Private (a holding company of Reliance Capital) and other investors.

However, Adlabs promoter Manmohan Shetty will continue to retain his stake and will remain as a director.

Adlabs is moving from a film processing laboratory to an entertainment powerhouse. It is looking at areas for expansion with a lot of funds being infused.

The company has plans to focus on multiplexes, overseas film distribution and home entertainment. Thus the capital infusion by Reliance Capital augurs well for its myriad expansion plans.

The multiplex business is driving growth for the company. It accounted for 65 per cent of incremental revenues and over 40 per cent of the incremental segment's profit last fiscal.

After the setting up four multiplexes in Maharashtra, the company had also announced plans to set up four multiplexes in Kolkata, Mangalore, Bangalore and Hyderabad. It will add 22 screens this year, taking the total count to 40.

Adlabs has plans to set up 30 multiplexes, totaling 150 screens, across India over the next four to five years and had acquired the 67-year-old Metro theatre in Mumbai sometime ago. It was the first company to introduce the Imax format in India.

Moreover, it plans acquire Hindi and English film titles for the growing VCD and DVD market. Adlabs will also open offices in the overseas market.

However, it is yet to be seen what plans the new management has for the company. According to some analysts, given the expected boom in the entertainment industry, the company should continue to be on the fast track.

Analysts also feel that along with the exhibition business, which serves as the growth engine, film processing will also deliver good growth, helped by factors like the increasing number of movies produced, the emergence of co-production among studios and the need for greater number of prints per movie.

The company's foray into film making through its subsidiary Entertainment One (India) has given a return on investment of about 8 per cent, according to an analyst. 
 

Financials
(Rs Cr)	Q4FY05	Q4FY04	% change	FY05	FY04	% change
Total income	23.43	17.38	34.81	100.18	83.11	20.54
Other income	1.01	0.60	68.33	5.53	3.56	55.34
Operating profit	11.56	7.10	62.82	45.09	35.03	28.72
OPM (%)	49.34	40.85	-	45.01	42.15	-
Net profit	6.51	3.27	99.08	22.37	17.97	24.49
NPM (%)	27.78	18.81	-	49.61	51.30	-
EPS (Rs)	3.03	1.52	-	10.41	8.36	-
Trailing 12-month P/E						26.96

According to an analyst with a leading brokerage house, Adlabs portrays a high-growth and well-managed model, targeting India's film audiences. The company had consolidated sales of Rs 100 crore in FY05 and a net profit of Rs 22.37 crore. For FY05, its P/E is 28.62 on an EPS of 9.8.

The share price of Adlabs has spurted in the past week by more than 58 per cent, while over the past month it has surged by 72 per cent. Given the new management's capabilities and ability to raise resources, investors with holding power should stay put, say analysts.