The Hindu Business Line : Telephoto Entertainments: Reject

SHAREHOLDERS of Telephoto Entertainments can reject the open offer, as there is a possibility that the company's operations under the new promoter group could deliver value.

The open offer is priced at Rs 19 per share. The stock has, over the past month and half, traded at a price range of between Rs 19 and Rs 24 with robust volumes.

The open offer has been triggered by the acquisition of control by the SSI group. ; a preferential offer has also been made to the group.

The cash infusion from this offer, the capital reduction exercise undertaken a few months ago, the reduction in accumulated losses by writing off capital and sizeable revenues reported for the first half of FY-06, suggest that there could be an improvement in the business prospects over the next year or two.

Telephoto Entertainments produces feature films and television serials. The company made an IPO in 2000. Its financials have not been impressive, though it did move out of the red in FY-04. Given the nature of its operations, a volatile trend in revenues is to be expected. This explains the quantum rise in revenues in FY-06 as compared to FY-05. The profitability levels are not still attractive.

The new promoter group — SSI's — business profile appears set for a change and Telephoto is likely to be part of this process. Though the risks are high, the downside risks appear minimal.

The principal risk to our recommendation is a merger with SSI group companies, as there is the possibility of an adverse swap ratio in such an eventuality.

The open offer for 20 per cent of equity (Rs 3.1 crore) closes on February 11. The manager to the offer is Inga Advisors.

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