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Friday, Mar 22, 2002

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Mukta rights sale to boost turnover

Latha Venkatraman
Shyam G. Menon

MUMBAI, March 21

MUKTA Arts Ltd, which is in the process increasing its film production operations, is examining the sale of rights of its library of 11 films to augment the company's turnover in year 2002.

With the company set to touch the minimum required critical mass of 3-4 productions per annum (eventually scaling up to 7-8 films), this year may also see the float of its overseas film distribution arm. "We are open to the idea," Mr V.S. Iyer, Financial Advisor, said.

At present, US and Canada account for almost 40 per cent of a Bollywood film's collections abroad, followed by the UK and West Asia, Mr Parvez Farooqui, Executive Director, said.

Mukta Arts had ended year 2001 with a net profit at Rs 14.32 crore (Rs 6.01 crore) on a turnover of Rs 50.65 crore (Rs 12.53 crore). The turnover increase was attributed to the income from the release of two films during the year — Yaadein and Rahul. According to Mr Iyer, receipts from potential sale of library rights this year, will accrue straight to the company's bottomline.

"The sale of our library rights, when effected, would translate to pure profits as there is no fresh cost involved," he said.The timing is also right because there is a rediscovery of the value of film software by broadcasters.

Though no concrete deals have emerged, the company has been constantly developing packages of its films for potential broadcasters. Deals earlier on the verge of being clinched, fell through on the price issue, Mr Iyer said.

It is a contentious matter as there is no benchmark yet. "The price is entirely need based and dependent on the channel's bargaining power," he pointed out.

Further, bankers familiar with the entertainment sector argue that listed companies such as Mukta Arts would be constrained in their pursuit of such deals by the closely-held nature of leading television broadcasters, barring Zee Telefilms Ltd (ZTL).

Transactions like sale of library rights is characterised by broadcasters' insistence of staggering payment, because their own earnings from a telecast of a film is in the realm of future business. An ideal alternative to overcome the resultant small upfront payment is to have a bank pay the library owner in full against the broadcaster's securitised income.

However in India, except ZTL, which is listed, none of the other television majors such as Star or Sony have made their accounts public. This means figures are unavailable for credit rating, a normal pre-requisite for securitised deals. The only other avenue is a corporate guarantee from the foreign parent, easy in principle, but the concept is yet to debut in the country, bankers said.

Films that form a part of Mukta Arts' library include Hero, Karma, Trimurti, Saudagar, Khalnayak, Pardes, Taal, Yaadein and Rahul.

The company is increasing its film production output to three films in 2002 as compared to two in 2001. Badhai Ho Badhai, a joint venture production between Kapoor & Kaushik Entertainment Company and Mukta Arts is slated for release by June-end. Its music rights have already been sold to Universal for Rs 2.5 crore.

Currently, 60 per cent of the company's turnover comes from films, 20-30 per cent from equipment hire and 10-20 per cent from investments, categorised under other income. Roughly Rs 90 crore has been invested, mainly in debt mutual funds earning interest income at a rate of 10 per cent.

The debt-free company meets its capital expenditure from internal accruals.

It is expected to spend Rs 5-6 crore on capital expenditure and Rs 20-25 crore towards working capital needs in 2002.

The company would like to produce television software, income from it being more stable when compared to films.

Mukta Arts is yet to finalise its joint venture arrangement with international film schools for the proposed integrated studio complex cum research and training centre, Whistling Woods.

The commissioning of this institute has been now set for end-2003, Mr Iyer said.

Plans to set up this institute were among reasons that spawned the company's IPO in 2000.

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