Tips Industries: Below average

Score: Below Average

S. Vaidya Nathan

THOUGH the company has done well in the last five years, its revenue stream may be subject to a high degree of risks linked to the success or otherwise of a particular music volume and the film in question.

At the floor price of Rs. 325, the scope for appreciation may be limited and the returns may not be commensurate with risks. But the company could merit a close watch by investors with an appetite of risk in the post-listing period.

Prospects: Tips' track record in managing the rights of a few movie music volumes, which have had a good run in the market, has helped in the steady growth in business volumes and earnings over the last five years. Perhaps boosted by the success of Taal and a couple of other volumes, there was more than a 100 per cent rise in revenues and earnings in 1999-2000. The company has also lined up rights for a few big banner works in the making, and has paid out of Rs. 37 crores for this purpose.

A substantial part of the offer proceeds is to help the company gain access to good music volumes, which involve payments in two or three stages. This could enable Tips to keep the pipeline active in terms of prospective music rights. The expansion of in-house capacity for cassettes and CDs and the recording facilities may help the company have better control, resulting in improved margins.

The company's projected revenues and earnings for 2000-2001 and the subsequent years will depend on the number of big ticket volumes it manages. A high level of catalogue sales, a library with rights to 8,000 titles, a system of writing-off acquisition costs in the year of acquisition, good spread between cassette and CD sales, and a widespread distribution network, may augur well for the revenue stream.

On the flip side, the prospect of earnings volatility and risks indicates that 50 per cent growth rates on the higher base of 1999-2000 may be difficult to sustain. On account of this and the rather stiffly pegged floor price, an investment in the IPO can be avoided for the present. But the company's performance could be tracked closely for investment at a later date.

What the company says: Tips has releases such as Taal, Pardes, Biwi No : 1, Raja Hindustani , among others. The entire catalogue is digitised, which provides opportunities in e-commerce. About 99 per cent of audio rights are outright purchases against the royalty route. Tips has an equity of Rs. 12 crores. It plans to set up manufacturing capacities of 336 lakh audio cassettes per annum and 40 lakh CDs per annum.

As far as sales are concerned, the company had 52 per cent of catalogue products and 48 per cent of new releases. From Rs. 20.70 crores in 1994-95, sales rose to Rs. 115.82 crores in 1999-2000. Earnings rose from Rs. 1.36 crores to Rs. 23.58 crores during this period. The company has projected revenues of Rs. 159.12 crores in 2000-2001 and earnings of Rs. 35.24 crores. A promoter, Mr. Ramesh Taurani, has been charge-sheeted in the murder of Mr. Gulshan Kumar and the matter is subjudice.

The offer opens on September 26 and closes on October 3. It is lead-managed by Anand Rathi Securities.