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Film firm Mukta Arts becomes stock market hit

India's only listed film production company, Mukta Arts Ltd, is a stock market hit with investors betting its latest movie will be a blockbuster.

The company, which went public last September, is negotiating the sale of the rights of its film Yaadein (Memories) which analysts say they expect to be highly lucrative for the company.

The sentimental love story shot in London, Malaysia and India is set for release on July 27 and stars Bollywood heart throb Hrithik Roshan and up-and-coming newcomer Kareena Kapoor.

The expected success of the film has already sparked a rally in the stock, and despite a recent correction, analysts said they see further upside yet.

Sixty-eight-per cent-owned by veteran film-maker Subhash Ghai, Mukta's stock zoomed 62 per cent to a high of Rs 169.70 between May and June 13, in an otherwise flat market.

The mid-cap stock, which offers investors the only listed exposure to India's prolific film industry, has retraced from its June 13 high.

"We see a 10-15 per cent upside potential from these levels in the stock, which is driven purely on the release of Yaadein," said Kalpesh Parekh of Sushil Finance. "But a small correction is likely as investors start booking profits post release or even close to the release."

VIEWERS' PULSE

"Right now the euphoria will build around the stock which has already run up from Rs 100 levels," said a more bullish Kuber Hemchand, analyst at Dil Vikas Finance. "Investors should book profits in the Rs 200-225 range."

Ghai, with a penchant for shooting in foreign locations, big budgets and lilting music, has written and directed 14 movies in his 30-year career. All but two of the movies were box office hits.

He has a liking for actresses whose first name starts with the letter "M". Meenakshi Sheshadri, Madhuri Dixit, Manisha Koirala and Mahima Choudhary have starred in his hits. The film company was named after his wife.

And 'a la Hitchcock', the 57-year-old Ghai makes signature appearances in his films, usually during a song.

"The feedback from Yaadein's rushes is good, Ghai has repeatedly demonstrated that he has the viewers' pulse," said Kalpesh Parekh.

"These (domestic and theatrical) rights should fetch between Rs 280-300 million for Mukta," said Jayesh Parekh, analyst with SMIFS Securities.

Mukta's financial adviser said it received Rs 80 million for the domestic and overseas music rights, another 30 million for in-film advertising against the total film cost of Rs 170 million. The sum for the musical rights was a record for an Indian movie.

"In the current year, all Yaadein rights put together will get Mukta some Rs 361 million," said Subrata Ray, head of research at DBS Securities. "Mukta will enjoy a gross margin of 56 per cent on the film, its most profitable so far."

Before listing, Mukta's annual revenue and profit fluctuated wildly -- cresting in a year in which a Ghai film was released but tapering off sharply the following year.

INDUSTRY RISK FACTOR

On listing, it promised at least three films a year. It also brought in directors other than Ghai who is India's biggest personal insurance policy holder with a 10-year, Rs 180 million "key man" policy.

Films from other directors will contribute 24 per cent of revenue this year and 59 per cent in the next year, analysts said.

"Mukta's business model is de-risked to a large extent now. Revenue flow which was roller-coaster is more or less stable," said Kalpesh Parekh. "My estimates for 2001 net profit are Rs 300 million on a top line of Rs 760 million."

That compares with 2000 net profit of Rs 60.1 million and sales of Rs 100.8 million. The firm is capitalised at around Rs 3.6 billion.

The 25-year-old firm's revenue base has been broadened by putting equipment on hire and leasing out its world class studio. It also plans to start a film training institute.

"Mukta should also get a one-time payment of Rs 150 million for the cable and satellite rights for seven of its films," Ray said. "The deal should happen this year and the amount will go directly to the bottomline."

While analysts derived comfort from Mukta's diversified revenue and profit stream and Ghai's high standing in the film world, they said his stock was not for the faint-hearted.

"Mukta is more of a trading buy," said one analyst who requested anonymity. "It's tough to recommend any media stock as a core holding. The industry risk factor is high, it has poor financial and corporate governance and virtually no track record."

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