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S. Vaidya Nathan

INVESTMENTS can be avoided in the initial public offering (IPO) of B.A.G. Films. The shares, which have a face value of Rs 2, are being offered at Rs 10 per share. There is a possibility that on listing, in the current bullish market, the stock could list higher than the offer price. Only investors with an extremely high-risk preference and an eye on trading gains need contemplate exposures. The IPO also appears to be a consequence of the commitment given to the IDBI and the UTI when their investments in debentures were converted into equity.

In its current business of making programming content for television channels, the company carries a high-risk profile. This is set to increase considerably, as B.A.G. Films plans to get into production of feature films. The latter is a different ball game altogether. Despite 2003 being a relatively better year for Hindi films, forays into filmmaking are intrinsically risky.

A company such as Mukta Arts, promoted by Mr Subash Ghai, has had a fairly tough time. The promoters of B.A.G. Films do not have even a remotely comparable background. There is no doubt that newcomers into filmmaking do taste success. But the risks associated are high enough for retail investors to steer clear of financing such ventures.

With filmmaking, the revenue stream can become volatile. This could impart a high degree of uncertainty to the bottomline. The profitability potential of the convergence and media school projects may be affected by competition.

In its existing line of business, the company has had a fairly steady track record of churning out content for television channels. For long, it has relied mainly on Doordarshan. But now it derives a sizeable proportion — about 40 per cent — of its revenues from Star Plus. Two of its serials — Kumkum and Pyara Sa Bandan (telecast four days a week in the afternoon slot) and Chalti Ka Naam Antakshari — have had a fairly good run.

Going forward, in its existing business, much will depend on the company's ability to generate a sizeable revenue stream from Star Plus. Its presence on other channels does diversify the revenue base. But their contribution to the earnings stream may stay under pressure owing to viewership preferences, which stack up heavily in favour of Star Plus and Sony.

The delays in the implementation of planned projects also do not inspire much confidence. The company has indicated mid-2004 as the new completion dates for the projects, including feature films. Even if these are adhered to, the earnings stream may not expand adequately to support the expansion in the equity base.

The offer, which opened on September 6, closes on September 17. The lead manager is KJMC Global Market (India).

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