The Hindu Business Line : Shree Ashtavinayak Cine Vision: Avoid

At the upper end of the price band, the offer values the company at 15 times the FY-06 per-share earnings, on an expanded equity base. Although the valuation is not too demanding, the short track record of the company reveals little on the likely hit rate of its future releases at the box office.

Given the high-risk nature of the business, investors should wait and watch the company's perfomance before taking an exposure.

SACVL began as a content provider for television. It discontinued that business and ventured into film production in FY-04.

It has produced four films so far, of which Maine Pyar Kyun Kiya and Golmaal — Fun Unlimited were moderately successful.

It began film distribution in 2004 and has since built a presence in the Mumbai territory.

Film production accounted for about half the revenue in FY-06 and is likely to remain the mainstay of the business.

Objective of the offer

The offer will fund the production of three films, expected to be released in the first quarter of 2007. If successful, there could be a substantial revenue ramp up.

The company has tied up with Studio 18 (broadcasting major, Television Eighteen's new production venture). The duo will produce four films with a budget of Rs 100 crore, 40 per cent of which will be funded by SACVL. Studio 18, however, is a new player in the film production business.

The four films produced by SACVL have had modest budgets and predominantly explored the comedy genre with the aim of appealing to the masses.

The strategy has paid off so far, as the company has either broken even or made a reasonable profit.

A few of the future projects appear to be along similar lines. Bhagam Bhag, a comedy starring Akshay Kumar and Govinda, is to be released shortly.

Revenues from the distribution business could reduce the risks of unsuccessful productions.

But the performance of this division also depends on Bollywood's ability to pull off another blockbuster year. The company also operates in a highly competitive Mumbai territory and its clout is likely to improve only with scale.

As a smaller player, it is at a relative disadvantage to players such as Yashraj Films, and corporate houses, such as UTV or Sahara that have better financial muscle to hire the best talent and can afford a marketing blitzkrieg.

Pre-release marketing is playing an increasingly important role in creating box office hits.

Offer details: SACVL will raise Rs 60 crore at the upper end of the price band. The major part of the proceeds will go towards funding production of three films.

About Rs 15 crore will go towards equipment for film production. The promoter's stake, post offer, will be 67 per cent.

The offer closes on December 20. The lead manager is Allianz Securities.

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