Pick of the Week: Adlabs Films

BUY ADLABS FILMS

Equity: 23.06 Cr, BSE Code: 532399, CMP: 522.55

MEDIUM TERM @ 520 to 522 TGT 565 to 570

Adlabs is India leading film-processing firm, with nearly 70% of the Hindi-movies market, processing almost all of top- and mid-budget films. Adlabs set up India's first IMAX dome theatre in 2001, and subsequently took advantage of the tax exemptions for multiplexes and the shift in consumer preference towards watching movies in a multiplex. It has embarked on a massive multiplex rampup plan. It currently has 107 screens, spread over 24 cities, and a capacity of 31,000+ seats. The company aims to reach 315 screens and nearly 100,000 seats by March 2009. The expansion is being done through a combination of long-term leases with mall operators, acquisition of smaller multiplex chains (Rave, 23 screens) and conversion of existing single-screen halls (100+ screens) to multiplexes. Under the leasing model, Adlabs will pay a fixed rent to owners, while booking revenue and profit/loss.

Adlabs also has 45 FM radio licenses and the company has already started over 33 stations.

In FY07, Adlabs entered the film-production and distribution business. The company is targeting production of six to eight mid-to-high-budget movies annually. To minimize risk in this business, Adlabs is working on a minimum collection basis through sale of rights, such as satellite/overseas/music/DVD before release and has an experienced management team. In the film-distribution front, Adlabs will release close to 20-25 movies each year, with significant presence in distribution of Hollywood movies (Spiderman 3 in 2007) in India, and Indian movies abroad.

Adlabs' aggressive growth in multiplexes will dampen its near-term profitability. Meanwhile, competition from other multiplex players is rising and costs, such as rentals and power and fuel, are also impacting margins. The movie-production and distribution business is also attracting a lot of players and this has raised the cost of creative talent and finished content. Sales and NP for year ended 07-08 were 254.6 Cr & 45.9 Cr. On YOY basis NP has increased by 51 % Dividend during year ended 07-08 was 50 %