A New Release

Most media stocks might have taken a severe hit, but that has not deterred Hyderabad-based Padmalaya Telefilms in braving the capital market with its IPO. The company is offering 25 lakh equity shares of Rs 10 each at a premium of Rs 90 per share.

Padmalaya is raising Rs 25 crore through this IPO to finance its various joint ventures, expansions and other activities. These plans are expected to cost Rs 54.25 crore and are largely being funded through equity. The equity component is pegged at Rs 43.45 crore of which the promoters will bring in Rs 18.45 crore and the public Rs 25 crore. The rest is being funded through a non repayable credit receipt of Rs 10.80 crore from Reliance Capital. Some mutual funds like Kothari Pioneer and Reliance Vision Funds have picked up a stake in the company. Post issue, mutual funds will hold a 5 per cent stake. A detailed look at the issue.

 

The project

Padmalaya will upgrade its facilities to the new state of the art Digital Betacam format and improved linear as well as non-linear post production systems. It will procure equipment for programming and

software production, set up a studio for 2D/3D animation projects, design shop for Web Ads and Film trailers. For this, the company has earmarked Rs 17.75 crore. The company has entered into a tie-up with Pentamedia Graphics and is in the process of entering into an MoU to provide creative inputs and product execution know-how for their animation projects. Padmalaya's graphic capabilities which include Silicon Graphics will be expanded to add Smoke V-30 and Flame V-6 systems. The company's outlay for technology fees to Pentamedia is Rs 3 crore.

Padmalaya also proposes to set up a 20,000 square feet state-of-the-art multifloor complex with split level, revolving, airconditioned floors with several easy to set up permanent sets at a cost of Rs 4.50 crore. This facility will be used for in-house work and will also be let out. Apart from this the company will spend Rs 3 crore to acquire a film library.

Padmalaya proposes to expand its existing library by acquiring eight Telugu and two Hindi feature films. Another Rs 2 crore will be used to set up a marketing network. The company intends to set up offices in Mumbai, Chennai and Delhi and develop an international marketing hub. However, at Rs 19.80 crore, the highest cost component is financing its working capital requirements.

The promoters

Padmalaya has been promoted GSR Krishna Murthy, G Adisesha Giri Rao and GV Narasimha Rao. GSR Krishna Murthy has over 30 years experience and is popularly known as Super Star Krishna in the Telugu film industry. He is the promoter of one of the largest studios Padmalaya Studio. A director of 13 films, he has acted in more than 315 Telugu films.

G Adisesha Giri Rao has over 25 years of experience in film production. He has produced Hindi films like Himmatwala, Justice Chowdhary and Telugu films like Mosagallaku Mosagaadu among others. His strength lies in selection of new serials and films, project conceptualisation and

other technical aspects of production of television content. GV Narasimha Rao has about nine years of experience in film production and is responsible for programme development, new projects, strategic planning and 2D/3D promotion activities at Padmalaya.

The company

Padmalaya Telefilms, is a fully integrated television software and content provider with facilities at the Padmalaya Studio complex in Hyderabad. The company ventured into the production of television software in 1995 with the serial Jai Veer Hanuman which was premiered on Sony in February 1996. This was followed by Buddha on the same channel. Its first serial was telecast for 100 episodes while the latter ran for 26 weeks.

The company has also put out Telugu programmes on the local Doordarshan channel DD-8. Padmalaya was commissioned by the regional channel to run a one hour programme slot every evening five days a week. The company has over

200 Telugu films in its library which it uses to generate revenues from satellite

telecasts. Currently, most of its revenues accrue from the sale of distribution rights and revenues from the telecast of serials.

Padmalaya currently has a number of programmes and ideas in the pre-production stage like British Rule in India, a 1000-part period costume drama profiling the British rule in India to be produced in a joint venture with a foreign partner for the domestic and overseas market. Dasavathara, a 200- part mythological on the ten reincarnations of Vishnu, Karna another 200- part mythological and Swapnasundari a 100- episode folklore costume drama.

The company plans to focus on being a regional player and provide television software in Telugu covering soaps, short stories, drama, comedies, action historical and mythologicals. It does not intend to get into romantic soaps and sitcoms for the mainstream Hindi channels. There are plans to get into 2D/3D animation and will undertake job work after its studio is set up. It is also gearing up for the convergence era.

The Industry

The media sector is undergoing a sea change with a booming number of private channels. The demand for content providers has increased substantially. Currently, more than 10,000 hours of yearly television programming is required in India, including Doordarshan's 16 channels, Zee, Sony, Star and a dozen other prime channels from south.

Though these are mainly general channels in Hindi, the new target is the regional channel which is growing. Eenadu TV and Sun have a penetration of 90 per cent. Zee has already launched regional channels in various languages. The basic aim is to

offer a bouquet of channels to enhance viewership through a mix of regional as well as general channels.

Another huge opportunity for television software products exists in providing quality entertainment software to the ethnic Indian population living abroad and earn significant foreign exchange revenues by recycling content software from its library. Hence, countries having a large base of Indian population can become breeding grounds for media companies.

Lastly, convergence provides a huge upside. This is one area where content providers, cable companies, ISP's and Internet portals etc are likely to benefit the most. Broad banding is ushering in the convergence of information technology and entertainment. The increase in convergence will lead to a commensurate increase in demand for interactive software.

Valuations

The media sector is relatively recession free. While economy driven sectors were not the preferred flavour, media, software, pharma and fast moving consumer goods scrips were the hot picks. This pushed the valuations of media stocks skywards. Besides, the demand for content in regional channels is only likely to go up as channels like Zee are going regional with a vengeance. This would drive the demand for content providers.

Padmalaya's focus on specific areas of Tamil and Telugu programmes and specifically on the mythological segment has helped the company distinguish itself in terms of brand equity and experience coupled with established promoters.

Padmalaya's performance is decent. For the year ended September 1999, it had achieved a total income of Rs 17.82 crore and a net profit of Rs 3.63 crore. In the four month period ended February 2000, it has notched up an income of Rs 7.80 crore and a net profit of Rs 2.61 crore. The company expects these figures to grow substantially in 2000-2001. It expects an income of Rs 70.29 crore and a net profit of Rs 25.67 crore. The issue price of Rs 100 discounts its projected earnings for year 2001 by 4 times only. Though media stocks have been beaten out in the current downtrend, Padmalaya's low discounting of four times makes it attractive. Investors can apply.