Midvalley Entertainment is entering the primary market on 10^th January 2011 with a Rs. 60 crore public issue, priced in the band of Rs. 64-70 per equity share of Rs. 10 each. The issue, comprising of 25-26.8% of the company's post issue paid-up capital, closes on 12^th January 2011.

This is the fifth attempt by the company for IPO, first being initiated a decade ago in June 2000. Issues were withdrawn / not pursued, on previous 4 instances due to all sorts of reasons such as lack of management confidence, financial inconsistency in offer document, ineligibility to tap primary markets and subdued market conditions.

Chennai based film production, distribution and exhibition company, Midvalley Entertainment has screening agreements with 46 theatres in Tamil Nadu (34), Andhra Pradesh (5) and Karnataka (7). Through the funds raised in the IPO, the company plans to:

1.       Enter into screening agreements with additional 300 cinema theatres in at an investment of Rs. 15 crore

2.       Renovate and upgrade infrastructure at 100 screens (from above 300 screens, where screening agreements will be entered into) at a cost of Rs. 26 crore

3.       Acquire screening rights for Rs. 12 crore

The company, following May-April cycle for financial reporting purposes, will deploy majority of the IPO proceeds in FY12.

It faces very severe issues and no prudent investor must take an exposure to such stocks:

•         It has not been able to pay its undisputed income tax dues of Rs. 9.14 crore plus interest (provided in books) and is negotiating with tax authorities for deferring payments. Company's bank accounts and property have also been attached.

•         FY08 onwards, the company's fortunes have undergone a sea-change. While networth has remained flat at Rs. 55 crore, its sales and net profits have declined drastically.

•         For 12 months ending April 2010, company reported sales of under Rs. 13 core and earned mere Rs. 4 lakh of net profit. This is a decline of 82% in topline, from Rs. 74 crore in FY08. Also, net profit has fallen to a hundredth in two years, which was Rs. 8.9 crore in FY08 and Rs. 47 lakh loss in FY09. The continuous fall in revenues (business activity) as well as profitability is a serious concern. We are amazed at the company's boldness to undertake a public issue, when established player of the field are struggling to hold ground!

•         Amortization of satellite and distribution rights has drastically eaten into its operating profits, indicating lack of expertise in acquiring quality rights at appropriate prices. Rs. 8.7 crore was amortized towards the same in FY09, which continued at Rs 5 crore in FY10 and Rs. 1.6 crore in Q1FY11. An exceptional item seems to be a routine affair for this company. 

•         Debtors and inventory has been mounting up. Debtor days (as a relation to sale) increased from 92 days, as on 31-03-08 to a whopping 815 days (over 2 year!), as on 31-07-10. Such credit periods are unheard of, implying poor quality of receivables, which have gone bad. Even inventory days increased from 56 days, as on 31-03-08 to 401 days (over 13 months!!).

•         Q1FY11 posted revenues of Rs. 4.9 crore and net profit of Rs. 1.4 crore. However, this cannot be extrapolated to get EPS for FY11. 

As of 31st July 2010, the company's networth stood at Rs. 55.8 crore, resulting in BVPS of Rs. 21.75. Currently, promoter Datuk Ketheeswaran (a Malaysian businessman) holds 49.91%, 2 FIIs hold 5.85%, 8 foreign nationals / NRIs hold 4.36% while balance 39.88% stake is held by public. Post-IPO, present equity of Rs. 25.65 crore will rise to Rs. 35 crore.

While being debt-free, post-listing, at Rs. 70, company is expecting a valuation of close to Rs. 240 crore which is very aggressive, given the poor state of its financial affairs. Simply avoid this issue.

Your only link to this company can be a movie viewing at one of its screens!