Pritish Nandy Communications: Below average

Score: Below average

S. Vaidya Nathan

An investment in this initial public offer would carry a high degree of risk.

Though the company has a fairly satisfactory track record, the offer appears to be stiffly priced at Rs. 155 and the returns may not be commensurate with risks. Though the offer may attract some attention as a media stock, the valuation levels may taper down with intensifying competition and the possibility of lower earnings growth.

Prospects: The track record of the Pritish Nandy Communications (PNC) over the past five years shows steady growth and profitability levels in line with the broad trends. Much of the programming done by the company has been on news/current affairs.

The few entertainment serials done by the company do not inspire much confidence with regard to contributions from this source to the revenue stream. Much of programming ideas outlined, in terms of soaps, stories, long mythological serials and television films, are areas where its track record is of a very limited nature.

In the proposed area of programme content, the competition may be more intense. With TV channels also having more choice in terms of content providers, extracting good deals out of such content -- in the absence of major successes in the satellite channels era -- may also not be easy. So far, the company has largely relied on Doordarshan and this could be a drawback as the number of satellite TV homes to the overall TV owning households is on the rise.

Though it has been stated in the offer document that other channels are also targeted, it may take time for these to contribute significantly to revenues. The diversification of the revenue stream may take time and hinges on the ability to produce quality serials that would draw consistent viewership in prime time.

In most of the proposed areas, the plans appear to be at a nascent stage, including that of growth through acquisitions. The proposed more than three-fold jump in revenues and earnings appear optimistic. In this backdrop, an investment can avoided at this stage in the IPO of PNC.

What the company says: According to the offer document, PNC is floated by Mr. Pritish Nandy, a journalist with experience in the print and TV medium. The company has done a variety of news, current affairs, election shows and other lifestyle programming. In February 2000, 2.50 lakh shares were issued to promoters, in March 2000, two lakh shares to institutional investors at Rs. 300 per share and the Soros group, though an investment company has converted debentures into equity at Rs. 200 per share.

The offer proceeds are to finance the expansion of existing operations in content production, set up theme centres (which has been delayed), create events with telecast value and diversify through acquisitions. Investments are contemplated in two subsidiaries as well.

So far, PNC has a high show produced to show aired ratio (98.7 per cent). It plans to produce six TV films and five mega serials whose pilots would be ready by March 2001. As far as its track record is concerned, PNC has produced 36 different TV shows between 1995 and 1999 with 1,782 episodes. The content value is placed at Rs. 40 crores.

PNC had revenues of Rs. 5.72 crores in 1995-96 (earnings: Rs. 1.11 crores). This grew steadily with a dip only in 1997-98 to Rs. 1,410.18 crores in 1999-2000 (Rs. 2.37 crores). For 2000-01, revenues of Rs.50.89 crores, operating profit margins of 24 per cent, earrings of Rs. 9.77 crores and EPS of Rs. 9.33.

The offer opens on September 26 and closes on October 3. The lead manager is JM Morgan Stanley.

Industry Class :Media (Content)

Issue Type :Equity

Offer Price :Rs. 155 per share (floor)

Offer Size :26.17 lakh shares

Offer Opens :September 26

Offer Closes :October 3

Bid Closes :September 4

Lead Manager :JM Morgan Stanley

Equity :Rs. 10.47 crores

Project Cost :Rs. 45.84 crores

Promoter :Mr. Pritish Nandy