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UTV's IPO proceeds to be used for enhancement of production facility

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UTV's IPO proceeds to be used for enhancement of production facility

It has its origins in June 1981 when Rohinton 'Ronnie' Screwvala started India's first organised cable venture in Mumbai. Another chapter in the company's history will start as UTV Software Communications Ltd. (UTVSCL), a media integrated company, launches its public issue of 6.99 million equity shares of Rs 10 each through a 100 per cent book building process on February 21, 2005. At a price band at Rs 115-130 it expects to mop up Rs 800-910 million to part finance its expansion plans.

The proceeds would be used for enhancement of production facility and office infrastructure, investment in the Kids Channel (Hungama TV) project, funding of SFX and post-production expansion. About Rs 100 million would be utilised for Hungama television, which has already witnessed an investment of Rs 620 million. In fact, Rs 585 million, via fresh equity shares, will be invested in the UTV motion pictures business.

At present, UTVSCL (revenues of Rs 1 billion plus as of fiscal 2004) has a greater share of revenues from the movies business vis-à-vis the television business.

Speaking about the new order in fiscal 2005, Screwvala, CEO, UTV Group, says, "At present, 36 per cent of our group turnover of Rs 1.7 billion comes from the film business as against 25 per cent last year. The television business has a share of 50 per cent vis-à-vis 65 per cent last fiscal." Screwvala expects the revenue model to be pretty much equal between the television and movies business (45 per cent each) and the remaining business accounting for the rest 10 per cent by 2006-07. As of fiscal 2004, the TV content and airtime sales and marketing revenues added up to around Rs 630 million (even though the erstwhile high exposure to Doordarshan has been reduced), whereas the movie production and distribution revenues were around Rs 269.2 million out of a total of Rs 977.52 million. Its EBITDA margin has shrunk to almost half from 12.56 per cent in FY04 and 22.48 in FY01.

Currently, UTV has several shows on STAR ('Kehta Hai Dil', 'Shararat' and 'Bhabhi' on STAR Plus; 'Instant Khichdi', 'Special Squad' and 'Family Business' on STAROne) apart from nine on Hungama TV. On Doordarshan, it has 'Meher', 'Back to the Floor' and 'Business Bytes - on BBC'. It plans to launch a show on Zee and Sony in the new fiscal.

Countering the perceptions about the below-par realisations from UTV's film projects in calendar 2004 (big budget films like Farhan Akhtar's 'Lakshya' budgeted at Rs 300 million and Ashutosh Gowariker's 'Swades' at Rs 200 million among others), Screwvala says, "Actually, 'Lakshya' earned twice that of Farhan Akhtar's 'Dil Chahta Hai,' whereas 'Swades' has already grossed Rs 270 million till now prior to the sale of the electronics and DVD rights."

UTV Motion Pictures' line up, include the film "D" with Ramgopal Varma, "Mein Meri Patni aur Woh" (starring Rajpal Yadav and Rituparna Sen), "Blue Umbrella" (with director Vishal Bharadwaj) and Rakeysh Omprakash Mehra's "Rang De Basanti". Also on the list is a two-movie deal with the STAR group, which was signed in August last year. UTV was paid a sum of Rs 25 crore to produce the films and retains the theatrical, music and home video entertainment rights of the films. STAR, on the other hand, has the worldwide TV rights of the movies including satellite, cable, terrestrial and streaming through Internet/broadband etc. Further, Aditya Shastri has joined as head of the UTV Motion Pictures division recently. UTV has also inked a deal with Miramax for the domestic theatrical, DVD and TV rights of 138 movies for around $800,000. This will boost its revenue model, says Ronnie Screwvala, CEO, UTV Software Communications.

Recently, UTV's revenues have been flat and profitability has been hit this fiscal because of heavy start-up costs in 2004-05. Based on consolidated FY04 numbers and an EPS of Rs 3.2, the IPO price band of Rs 115-130 discounts these earnings between 36 and 41 times. To sustain such high valuations, UTV's new high-risk businesses such as its kids channel, Hungama, and its movie production and distribution business must do well.


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