Creative Eye: Below Average

Score: Below Average

S. Vaidya Nathan

INVESTORS can consider small exposures in the initial public offer of Creative Eye in the book-build portion by bidding at the floor price of Rs 50.

The company has a fairly decent track record though it is in dire need of a diversified revenue base. It made an IPO in July 2000 at a floor price of Rs 225 (for a share with face value of Rs 10). The offer was to raise Rs 75.54 crore. Though the book-built portion was oversubscribed, the offer was called off with markets taking a rough ride. With the markets not improving, the company has scaled down the price to Rs 40 crore.

Suitability: Creative Eye's equity is appropriate only for investors with a high risk profile, given the intrinsic business profile of the company and the possibility that the stock may show highly volatile price trends.

Prospects: The company has had a fairly decent track record over the last five years with steady revenue and earnings growth. But the high degree of reliance on Doordarshan and, in particular, on one programme, is a cause for concern. Though Creative Eye has indicated that it would diversify its revenue sources, a lot hinges on the success of new programmes on other channels and their longevity. DD and Om Namah Shivay may continue to dominate the earnings stream for next year or two.

The company's programming content would be a major strength but how successful it will be in leveraging this on the Internet and to what extent this would be profitable, are doubtful. If it succeeds in having some successful programmes on other channels, more revenue growth opportunities would open up. But profitability may come under strain as there is considerable competition in the content field too now.

Private channels can be expected to drive a hard bargain. In this backdrop, the projections for 2000-2001 seem to be on the high side. If the steady performance trend is maintained, there may be some room for capital appreciation. But this is a risky buy.

#What the company says: The following are some of the significant aspects of the business outlined in the offer document:

*The company develops programming content for the television channels. Doordarshan is the major contributor to the revenue stream.

*Its revenues hinge mainly on one serial Om Namah Shivay , that is aired on Doordarshan. The company plans to reduce the dependence on this serial from 65 per cent to 30 per cent over a one-year period.

*The company has a balanced mix of programmes catering to diverse interests.

*It has a library of 1,000 hours of software which can be leveraged on other channels and/or re-runs.

*Creative Eye plans to leverage its content by developing a presence on the Internet and accessing new markets through this route.

*The project cost of Rs 40 crore is to be used to acquire film rights, time on television channels, TV software, Hindi film songs and e-commerce activities linked to tele-shopping network. The entire project is to be funded by equity. The company also plans to expand its marketing network.

*Some of the notable serials produced by Creative Eye are Kahan Gaye Who Log, Sansar and Om Namah Shivay.

*It plans to diversify its revenue base by catering to other channels. The company plans to do a mythological serial for the STAR group. Five new programmes are scheduled to be launched through 2000 in channels such as DD, Zee and Gemini.

*The company's revenues rose Rs 16.99 crore in 1995-96 to Rs 45.20 crore in 1999-2000 and earnings from Rs

0.08 crore to Rs 2.85 crore during this period. For the April- June quarter, revenues of Rs 18.84 crore and earnings of Rs 1.41 crore were reported. In the offer document issued in July, Creative Eye had projected revenues of Rs 91.59 crore and

post-tax earnings of Rs 7.76 crore for 2000- 2001.

Industry Class :Media

Issue Type :Equity of Rs 5

Offer Size :25.02 lakh shares

Offer Price :Rs 50 per share (floor)

Project Cost :Rs 40 crore

Book Building Opens :November 23

Bid Close :November 9

Book Building Closes :November 28

Fixed Price Open :November 23

Fixed Price Close :November 28

Equity :Rs 10.01 crore

Lead Manager :HSBC

Promoter :Dheeraj Kochar

Listing :NSE/BSE