Ganesh Films BSE SME IPO review (Avoid)

Ganesh Films India Ltd. (GFIL) is engaged in the business of acquiring distribution rights of south Indian movies from production or co-production houses and thereafter distributes the same to the cinema halls spread across the Distribution Territory. Since incorporation, Company has entered into agreements for acquisition of distribution rights of many films ('Library'). It currently has a Library of over 696 south Indian films (including Tamil, Telugu, Malayalam and other regional language films) in which the Company has sole, irrevocable and non-exclusive distribution right (including linear & non-linear internet rights / IPTV rights / digital rights under copyright to license, sub-license, distribute, advertise, market and otherwise exploit any platforms or internet or digital based medium) to use the contents / titles for a perpetual term for all the territories in the world including India.

GFIL source or acquire distribution rights of film by entering into assignment / licensing arrangements with film producers. All such films sourced or acquired will be exploited and distributed by it end-to-end through multiple formats of film distribution. This company belongs to M/s. Ganesh Film, a proprietary concern, engaged in this line since 1985, but it is incorporated only on 6th April 2018 and started distribution from 9th May 2018.  Since then it has distributed two regional language (Tamil) films i.e. Irumbu Thirai and Iravukku Aayiram Kangal in the month of May 2018. GFIL’s business includes (i) theatrical distribution of south Indian films (including Tamil, Telugu, Malayalam and other regional language films) in the Distribution Territory; and (ii) distribution of Tamil movies through Digital Platforms consisting of mobile, internet and other applications.

To part finance plans of acquiring distribution rights of south Indian films for the territories of India, working capital and general corpus fund needs,  GFIL is coming out with a maiden IPO of 1052800 equity shares of Rs. 10 each at a fixed price of Rs. 80 per share to mobilize Rs. 8.42 crore. Issue opens for subscription on 16.07.18 and will close on 18.07.18. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 35% of the post issue paid up capital of the company. Issue is solely lead managed by Fedex Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Having issued initial equity at par, it raised further equity at a price of Rs. 80 per share and has also issued bonus shares in the ratio of 4.1 for 10 shares in the month of May 2018. Average cost of acquisition of shares by the promoters is Rs. 13.22 and Rs. 80 per share. Post issue, GFIL’s current paid up equity capital of Rs. 1.95 cr. will stand enhanced to Rs. 3.01 cr.

On performance front, since it has been incorporated in the month of April 2018, it has no track records till FY17. For the period 09.05.18 to 20.05.18 of current fiscal, it has earned net profit of Rs. 54000 on total revenue of Rs. 9.18 lakh. Thus its financial track record is just for around 50 days of current fiscal. Issue is priced at a P/BV of 2.57 on the basis of its NAV of Rs. 31.14 as on 20.05.18 and at a P/BV of 1.66 on the basis of post issue NAV of Rs. 48.24. If we annualize latest earnings and attribute it on fully diluted post issue equity, then asking price is at a P/E of around 151 which indicates exorbitant pricing of the issue. It has no listed peers to compare with.

On merchant banker’s front, this is the 3rd mandate from its stable and the last 2 listings opened at a premium ranging from 2% to 11.11% on the day of listing.