Adlabs Films: Average

Score: Average

S. Vaidya Nathan

ADLABS Films proposes to set up a I-MAX film exhibition centre with other facilities such as shopping complex, restaurant space and games.

In Mumbai, this may be a good revenue opportunity. But the kind of profitability that the company can manage from the film exhibition business is largely unknown. Since the business risk is fairly high, the company appears to have taken the prudent course and opted for equity funding.

Adlabs Films is in the business of film production in the processing stage. In this line of business, the company appears to have a fairly good track record. Not only has it handled processing work for a number of big ticket films, it has also made good reprints and volumes. The company has a sizeable share in the western region film processing with a steady rise in billing rates in the past three years. The reported financials also appear to be fairly satisfactory.

The prospects in film processing, film trading and related business appear to be fairly good, given the trends in the industry, the company's track record and the infrastructure possessed by it. The IMAX dome theatre project is being set up with technical collaboration with IMAX Corporation, Canada.

This would offer four screening facilities under one roof, besides other facilities. If this project attracts a good customer base, the company may be able to generate the kind of earnings that could support a good valuation for the stock. The project is scheduled for commissioning in December 2000 but there would be meaningful contribution to revenue and earnings (if at all) only from 2001-2002 onwards.

In this backdrop, the offer appears to be stiffly priced. But for investors with a penchant for bearing a higher degree of risk, an exposure could be considered in the IPO in small lots. But even such investors could take advantage of any profit opportunity that may be available in the post-listing period and take profits in the stock. The company could merit a close watch for possible investment at a later date, depending upon how its I-Max project shapes up.

What the company says: According to the offer document, the following emerge as salient features:

* Adlabs has a well-equipped film processing laboratory and a preview theatre in Mumbai. It has processed more than 1000 films and one billion feet of footage since its inception.

* The company has a 60 per cent share in film processing in the western region and now has 25 films from big production houses.

* The proposed IMAX dome theatre is the first of its kind in India and would be the largest in the world. The technical tie-up with IMAX Canada provides for a maintenance contract for 20 years.

* The IPO is to finance the IMAX project and upgrade existing facilities in its film processing business.

* The project cost of Rs 61 crore is largely to be financed by equity.

* The capacity utilisation of its various facilities in processing ranges from 20 per cent to 66 per cent.

* The billing rates have risen by 10 per cent in the last couple of years.

* The promoters have 25 years experience in the film processing business.

* Adlabs has got the National Cinematography awards in four of the last 10 years with the latest coming in 2000.

* Adlabs has reported revenues of Rs 36.83 crore in 1999-2000 (Rs 17.85 crore in 1995-96) and earnings of Rs 5.17 crore (Rs 1.35 crore). For the quarter-ended June 2000, the company reported revenues of Rs 11.66 crore and earnings of Rs 2.34 crore. The EPS based on 1999-2000 earnings is Rs 2.41 per share based on the equity base of 2.15 crore shares.

The offer opens on December 11 and closes on December 2000. The lead manager is SBI Capital Markets. Adlabs has an equity base of Rs 10.75 crore made up of Rs 2.15 crore of Rs 5 each.