Adlabs Films Ltd is an entertainment conglomerate with interests in production, processing, distribution and exhibitions.
Adlabs Films Ltd is an entertainment conglomerate with interests in production, processing, distribution and exhibitions. It is now part of the Reliance Anil Dhirubhai Ambani Group, which holds 54.91% in the company.
Its foray into television content will help diversify its portfolio and de-risk the business. While the demerger of Big FM will unlock shareholder value in the short term, the overall business strategy looks a good long-term bet.
Business: Adlabs is present across the value chain — from film exhibition, film processing & production content production & distribution and Big FM.
The overall business strategy consists of expanding the exhibition chain, maintaining a leading position in film processing, investing in content production & distribution channel and exploring new business opportunities.
Exhibitions: With the focus on prolific Hindi, Tamil and Telugu film markets, it plans to set up multiplexes in key cities. It also plans to acquire single screens for conversion and refurbishment.
It has presence in 19 locations with 69 screens and plans to have a presence in 60 locations with 175 screens on a cumulative basis.
It recently tied up with Kanpur-based Rave Entertainment to buy the right to conduct its cinema exhibition business at an operational multiplex in Kanpur and six other projects under implementation in NCR, UP, Punjab and Haryana, totaling 23 screens.
On the film processing front, Adlabs commands a 70% market share in the Hindi segment. It is considering converting its analogue processing lab into a digital lab.
Content: Adlabs plans to build a line-up of 6-8 films to be released across the country every year.
Apart from tie-ups with established directors, it has entered into co-production agreements with MTV for youth-centric movies and with Hyde Park to produce Hollywood films.
On the television front, Adlabs recently acquired majority ownership in Siddhartha Basu’s Synergy Communications. Adlabs and Ocher Studios of Chennai recently revealed the first look of the 3D animated mega-production Sultan the Warrior.
Big FM is on the verge of launching 45 stations. It is in the process of being demerged from Adlabs.
Investment rationale: Adlabs’s revenue has been growing at a CAGR of over 60%. We expect it to continue the growth in FY08 as well on the backdrop of its recent tie-ups for exhibitions.
Apart from targeting the Grade-A cities the strategy to acquire single screen for conversion into multiplexes and refurbishment in Grade-B cities augurs well. Increase in multiplexes will lead to increase in movie prints, leading to greater demand for movie content.
FY07 has been a good year for Indian cinema and FY08 is expected to be even better. Adlabs’s timely foray into television content through the acquisition of Synergy Communication and the entry into animation segment will help diversify the portfolio.
Valuations: FY07 has been very good for Adlabs. Revenues grew by 140% while the bottomline surged by 155%. We expect the company to continue the growth trend for FY08 & FY09.
Even if the revenue grows on at 50% it is expected to generate an earnings of Rs 23.6 for FY08. At the CMP of Rs 496.10 the stock is available at a 21x of its FY08 earnings and at 14x its FY09 earnings.
The short term trigger could be the demerger of Big FM. Investors can take a long term bet.
Disclaimer: The author does not hold any shares in the company
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