DQ Entertainment (International) Ltd IPO Message Board (Page 29)

DQ Entertainment(Internation) Ltd is good for Invest....???

what is my favourite udyan mukharjee said about dq as under(he is managing editor of cnbc tv 18 and not allowed to trade in stock market)

"I think it will do well because I know people will complain about valuations on current year earnings etc, seemingly slightly expensive in the near-term. But given the business and how it is shaping up, and given its order book, I do not think on next year’s earnings or next year’s revenues it’s that expensive a stock.

It’s a nice niche animation, gaming play, very good clients overseas and it derives most of its income from overseas as well. It’s actually assured of the next couple of years of revenues because of its order book of more than Rs 450 crore, so it’s in a unique situation what come what may it will deliver and clock those Rs 200 crore plus kind of revenues annually. It’s asking for Rs 600 crore marketcap, which I think given that it will do well over Rs 200 crore revenues next year and well over Rs 35 crore in terms of profits, I do not think its terrible expensive.

It's probably coming on FY11 numbers at just over three times revenues and probably between 15-17 times in terms of PE multiples. So if the growth can be believed and it’s a good business with 35% EBITDA margin profile, I think it will be subscribed quite easily and you might see some listing gains too."

DQ Entertainment (International) IPO Analysis
Riding the animation bandwagon

The company has large customers and good order book but the low stake of main promoter and low market cap of ultimate holding company at AIM is of concern

DQ Entertainment (International), promoted by Tapaas Chakravarti & DQ Entertainment (Mauritius), is one of the leading producers of animation, visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company is a producer of animation videos and creators of game art. It has forayed into production and distribution of live action television and feature films. It has an asset base of over 350 hours of animation content from which it can earn revenue through licensing and distribution activities.

The company was originally incorporated in 1987 as Dataquest Management and Communications Private Limited, which was changed to DQ Entertainment in 1993 to engage in IT training & consultancy. In 2000, it established an in-house training centre to training production staff. In 2002 established a traditional two-dimensional (2D) animation studio. In 2004, it established three-dimensional (3D) animation process. Its first commercial 3D animation project was a French TV series, Les Gnoufs. It started game assets development in 2007. The company has since launched its own IPO in 2009, with the launch of the first homegrown 3D computer generated imagery (3D CGI) television series, The Jungle Book, based on Rudyard's Kipling epic novel as well as three special TV features, Balkand, Omkar and Ravan, based on Indian mythology, for India and the Indian diaspora across the globe.

The company has moved up the animation value chain and entered into co-production. It has at least 14 co-production projects going on. The global budget is about Rs 1104.28 crore of which the company's investment would be Rs 152.55 crore funded through pre-IPO placement, IPO proceeds and debt.

Its production capabilities include 10 production facilities in India (eight in Hyderabad and one each in Mumbai and Kolkata), a pool of over 2,851 employees, and worldwide third-party sales representatives in Paris, Tokyo and Los Angeles.

The DQ School of Visual Arts was set up in FY 2008 to address the demand for high quality animation and gaming professionals. It took over from the in-house training division of the erstwhile DQ Entertainment. The school has centres in Hyderabad, Mumbai and Kolkata. Since its inception in FY 2008, the school has trained 715 people.

Revenues accrue either through outsourced production or co-production arrangements. Under outsourced production, the company is remunerated on a fixed fee basis for content produced. Under co-production, the company is remunerated on a fixed fee basis and it invests a certain percentage of the overall cost of producing the complete series in exchange for grant of distribution rights. In certain arrangements, the company might be able to retain the IP.

The company has a client base of over 90 companies, which include internationally recognized brands such as, inter alia, the Disney Group, Nickelodeon, American Greetings, BBC, Moonscoop Group, ZDF-Germany, Australian Broadcasting Corporation and NBC Universal.

The company has planned investment in co-production agreements, focusing on IP content creation of Rs 104.97 crore. Of this, the IPO and re-IPO proceeds would finance Rs 54.96 crore and the balance would be financed through debt of Rs 45.64 crore and internal accruals Rs 4.37 crore. The company also plans to develop SEZ facility at Kokapet Village at Rs 51.92 crore. Of this, IPO and pre-IPO would be Rs 39.23 crore, debt Rs 11.25 crore and the balance through internal accruals. The company also plans to invest in its subsidiary for own IP creation of Rs 14.59 crore. This will be financed through IPO proceeds.

DQE plc: the ultimate Holding Company

The company's corporate promoter, DQ Entertainment (Mauritius) Limited, is incorporated and registered in Mauritius. It is a wholly owned subsidiary of DQE plc, an Isle of Man incorporated entity. In December 2007, DQE plc listed on Alternative Investment Market, London (AIM) at an issue price of 136 pence and raised funds for investment in strategic alliances, global and local IP development and partnerships, and foraying into live action and expansion of production facilities and workforce. The company had raised GBP 26.8 million through the AIM listing. The main reason was to give an exit to the hedge funds, which have to be liquidated on completion of investment life.

The individual promoter (Mr Tapaas Chakravarti) holds about 12.66% of DQE plc through his company Zenithal Pvt Ltd, thereby holding 11.9% (pre-issue) and 9.5% (post-issue) of DQ Entertainment (International).

Certain existing shareholders of DQE plc have entered into a performance incentive agreement with Zenithal. These specific existing shareholders have agreed to transfer an aggregate of 1690895 shares to Zenithal at par value if either of the following performance criteria are met by DQE plc: the closing market price of DQE plc's shares being at or above a certain percentage of the placing price (136 pence) for a consecutive period of 30 days or a bona fide purchase offer being made for all the ordinary shares held by the vendors at or above the threshold price (136 pence). On expiry of the performance period of 13 months, Zenthil has written to the vendors for further extension of the period by 13 months.

As on March 4, 2010, the closing price of equity shares of DQE plc was 98 pence, which is below their issue price of 136 pence. The 52-week low price of DQE plc is 57.50 pence and is 42.28% of its issue price. The market capitalization works out to Rs 243.16 crore (Rs/GBP at 68.99). However, liquidity at AIM is poor.

DQE plc has acquired a 20% stake in method animation for a total subscription price of euro 2.5 million. In case of any animated TV series being developed and produced by Method Animation as a delegate producer and fabricated by Method Animation, the company shall be offered the first right to enter into production services agreement with Method Animation.

Strengths

* The global animation industry is one of the fast growing components of the global media and entertainment industry. The global animation market was estimated at US$ 68 billion in 2008 and is expected to grow at a CAGR of 10% to reach US$ 100 billion by 2012. The Indian animation industry, estimated at US$ 494 million in 2008, is miniscule as compared to the global animation industry. However, the Indian animation industry has been growing with an estimated CAGR of 25% during 2006-08 and is estimated to reach a size of about US$ 1095 million by 2012.

* The company has a strong order book worth about US$ 95.07 million, providing high levels of earning visibility. More than 80% of FY2010 revenues are identified with over 40% of the order book in various stages of production and the & balance to commence during the year. Orders worth US$ 28 million are to be executed in FY2010 and US$ 33 million and the balance beyond FY 2010.

* The company has strategically moved along the animation value chain, gaining greater exposure to intellectual property ownership and distribution. It has adopted a low-risk approach, entering into co-production arrangements. As a result, the company would not only continue to receive production revenues generating its usual production margin, but also acquire rights to earn license revenues. It is at a strategic advantage to leverage its position within the production chain by acquiring and/or developing intellectual properties through international co-partnerships.

Weaknesses

* The direct/indirect shareholding in the company of the individual promoter is very low at 11.9% (pre-issue) and 9.5% (post-issue). Also, in future, if the management decides to de-list the ultimate holding company, i.e., DQE plc from AIM, the options might include using funds from DQ Entertainment (International) to buy back the shares or issue shares of DQ Entertainment or DQ Entertainment (Mauritius) to the existing shareholder of DQE plc, thereby diluting the stake of the shareholders of DQ Entertainment (International), the company coming out with IPO.

* The market for animation entertainment is characterised by short product lifecycles and frequent introduction of new products. The company would run the risk of committing resources for the creation of such products and eventually fail to realise anticipated revenues.

Valuation

At the price band of Rs 75 – Rs 80, on consolidated basis EPS of FY2009 of Rs 2, the PE works out to 37.5 – 40 times and on the half yearly annualised EPS for FY2010 of Rs 2.6, the PE works out to 29.2 – 31.2 times. The EV/sales is at 3.4 – 3.6 times, EV/EBITDA is at 9.6 – 10.2 times and market capitalization/sales is 4 – 4.2 times.

The price is 10 – 17% higher than the pre-IPO placement price of Rs 68.11 end December 2009. The company had filed its draft red herring prospectus (DRHP) in September 2009.

Comparing with like companies (FY2009 consolidated numbers), Crest Animation Studios (outsourced production & own IP) had reported a loss in FY2009 with revenue of Rs 57.11 crore and is trading at market capitalisation/sales of 2.8 times, EV/sales of 2.7 times and EV/EBITDA of 2.9 times. Compact Disc (outsourced production and own IP) is trading at PE of 1.3 times and is trading at market capitalization/sales of 0.3 times, EV/sales of 0.4 times and EV/EBITDA of 1.3 times. Prime Focus (VFX, post production and animation) is trading at PE of 18.3 times and is trading at market capitalization/sales of 0.8 times, EV/sales of 1.9 times and EV/EBITDA of 12.9 times.

The market capitalization of the ultimate parent at AIM works out to Rs 243.16 crore (Rs/GBP at 68.99). However, liquidity at the AIM is poor. Against this, market capitalization of DQ Entertainment (International) at the offer price band works out to Rs 595 to Rs 634 crore.

my demat a/c is in reliance money and bank a/c at hdfc bank how can i apply through asba process

@119 and 121 Sumeet Kumar,

If you have netbakning, you can do it online also.

dear SANTOSH,
avoid DQ if u can wait for 5 days and go for ilfs after seening the price band if u have money which u can deploye, with any extra money after ilfs u can apply that in dq, too many negatives are surrounding the stock so better avoid when u have option available.

it looks like dq can touch 100 after listing, but almost the same co is trading in london at less than half valn, so if any fii will truly belieive in the dq then he will buy it in london not in india at 2x rates, so every one will apply in it for listing pop not a good co to hold for one yr or more u may find it around rs.40-50 after one yr

so avoid dq go for ilfs & aplly 30% of ur fund in nmdc if price for retail after all discount comes to around 270-290

gem ipo finder,
What is you take on DQ Entertainment IPO on listing gain? There are confusing report. It is trading much lower P/E in London stock exchange. Again IDFC has 4% (post IPO) stake in the company which it purchased at a price of Rs.68 in Dec 2009.

Thanks,
-Santosh

IDFC Fund pick's 46 Percent of Total Anchor Investor's portion , In Past IDFC Pick's large Stake in RAJ OIL . Look what is the rate today ( Against Issue price of 120 /- It is rulling around 65 / - ) Hence Be careful .........

The average price of acquisition of promoter seems to be less than 10. He has got these shares for Rs 10 even on Sep,2009.
I don't understand why should be pay so much.

The DQ entertainment international equity shares that are listed in London stock exchange are quoting at a pe of 12. Now they are coming out with this issue at a pe of 30 which is very expensive.
One of the positives of this company is in niche business. Further future holds huge prospect in this stream of business.

dont get carried away by grey market prices. The issue is not a good one. no one wants to keet this in their portfolio for long term. every one wants to make a quick killing. This will not give big returns because :- high oversubscription and low quality of fundamentals. you will get lesser no of shares and then after listing price will be not as high as at present in grey markey.

avoid and apply in GMDC or IL&FS. also avois pradeep.

Company has allotted the shares @ rs 80 to the anchor investor as per the letter sent by the company to the Bse & Nse.

Geojit PNB Paribas Financial Services:

Brokerage house Geojit PNB Paribas Financial Services has given a rating of 40/100 to the initial public offering (IPO) of DQ Entertainment. The investment rationale is as under:

At the price band of Rs 75 - Rs 80, on consolidated basis earnings of FY`2009 of Rs 2, the PE works out to 37.5 - 40 times and on the half yearly annualised earnings for FY`10 of Rs 2.6, the PE works out to 29.2 - 31.2 times. The EV/sales is at 3.4 - 3.6 times, EV/EBITDA is at 9.6 - 10.2 times and market capitalization/sales 4 - 4.2 times.

The price is 10 - 17% higher than the pre-IPO placement price of Rs 68.11 end December 2009. The company had filed its draft red herring prospectus (DRHP) in September 2009. Comparing with like companies (FY`09 consolidated numbers), Crest Animation Studios (outsourced production and own IP) had reported a loss in FY2009 with revenue of Rs 571.10 million and is trading at market capitalisation/sales of 2.8 times, EV/sales of 2.7 times and EV/EBITDA of 2.9 times. Compact Disc (outsourced production and own IP) is trading at PE of 1.3 times and is trading at market capitalization/sales of 0.3 times, EV/sales of 0.4 times and EV/EBITDA of 1.3 times. Prime Focus (VFX, post production and animation) is trading at PE of 18.3 times and is trading at market capitalization/sales of 0.8 times, EV/sales of 1.9 times and EV/EBITDA of 12.9 times.

The market capitalization of the ultimate parent at AIM works out to Rs 2431.60 million (Rs/GBP at 68.99). However, liquidity at the AIM is poor. Against this, market capitalization of DQ Entertainment (International) at the offer price band works out to Rs 5,950 million to Rs 6,340 million.

SMC Research:

The brokerage house has assigned a rating of 2/5 on the issue. The investment rationale provided by the brokerage house is as under:

Company`s move from a pure outsourcing service model to a co-production model has helped the company in securing large projects as reflected by the company`s order book of Rs 47,000 million as of Jan`10. Moreover, DQ`s ownership in IP content of animation projects has helped the company to access additional revenue streams. However, lack of experience in the IP content domain and huge concentration of revenues from US and European regions is something to look for.

SIR, SREEDHARRRRRRRRRR

D Q ENTER,,, IL&FS TRANS,,, PRADEEP OVER,,, MESE KONSE IPO KE LIYE FUND BACHHA NA CHAHIYE PLEASE TELL ME SIR ?


D Q ENTER KA PRIMIUM MAINE 40/42 SUNA HAI MATLAB 50% RETURN SUNA HAI?
KYA ITNA PRIMIUM CHAL RAHA HAI?

AGAR 40/42 PRIMIUM CHAL RAHA HAI TO PURA PAISA D Q ENTER MEHI LAGANA SAHI HOGA,,,,,

PRINCE

PLEASE REPLY SIR............

I want to know whether we can use DOWNLOADED application form. Can I submit the same at any branch of STATE BANK OF INDIA ??

feel free to advise.... no blame games will be played.

dearSaharanpuri....do u reccommend putting a smalll amount in this too.....please reply

what Business Line report has not taken in to account is that how does the parent company and indian company stand vis-a-vis korean production houses.After all they are direct competitors in the sector internationally. No doubt te company is not bad but hereapni community ne to dona cheezan chahe hai listing price gains bhi aur chokhi company bhi......

BUSINESSLINE INVEST K. Venkatasubramanian

Investors with a two-three year horizon can take exposures to the initial public offering of DQ Entertainment (International), given the inherent dynamics of steady growth in the outsourced services of animation processes from overseas entertainment companies, which the company is well-positioned to tap.

At the upper end of the price band (Rs 75-80), DQ Entertainment asks for 26 times its annualised current year per-share earnings, on a pre-offer equity base. This could be diluted by another 20 per cent, post-IPO.

A robust order book (that is three times annualised FY-10 revenues), a broad-based client base across the US and Europe and a strong focus towards creating IP-led growth are key positives for the company. Animation companies such as DQ Entertainment are a play on the outsourced services model, where much of their prospects lie currently, akin to the success story of software companies.

In that sense, the labour-cost arbitrage between India and the western world is still the main driver towards outsourcing animation services to countries such as India. Outsourcing of animation services itself is still in quite a nascent stage. Although the growth of the animation industry worldwide is expected to be around 10 percent, the portion within the pie that could be outsourced to Asian countries such as India could grow at a much faster pace.

DQ Entertainment was incorporated only in April 2007. In 2008-09, the company saw its revenues grow by about 60 per cent over FY-08 to Rs 150.9 crore, while net profits more than doubled to Rs 16.1 crore. The half-year profits of the fiscal stood at Rs 10 crore, largely due to a tight leash that was maintained on employee costs and SG&A expenses.

Well-positioned

The animation process essentially comprises of four steps: IP development, pre-production, production, and post-production.

Of these, the first two processes are accomplished by the clients, mainly movie production houses and broadcasting channels, themselves in the US or Europe. That is, the conceptualisation of animation stories, characters, the script and layouts, among other procedures, are done abroad. It is the labour-intensive production and post-production processes that are outsourced. These include actual 2D and 3D animation, added special effects and making the final product ready for distribution in various digital forms such as theatrical reels, DVDs and broadcast tapes.

It is in these areas that companies such as DQ specialise. The company derives over 90 per cent of its revenues from delivering these animation services for clients, which also includes developing animation video games.

The company has an order book of Rs 456.7 crore, executable over the next couple of years. This gives reasonable revenue visibility for DQ Entertainment.

Another key factor that may augur well for the company is the large base of around 90 clients. These include marquee names such as Disney Group, Nickelodeon, BBC and NBC Universal among others. The company derives 41.5 per cent of its revenues from US based clients and 51.2 per cent from the European ones. The rest of the revenues accrue from India.

A Nasscom report pegs the growth of the global animation industry to be at a compounded annual rate of 10 per cent to become a $100 billion industry by 2012. The domestic animation opportunity is yet to take off in a big way, but as with IT players, there is a huge untapped opportunity for offshore players such as DQ Entertainment.

Apart from this, the company also derives a small portion of its revenues from developing co-produced animation series for which there is sufficient offtake.

For example, The Jungle Book, a 52 episode animation series, has been sold to several broadcasters in the US and in the Europe and Middle East Africa (EMEA region), spanning multiple languages.

The co-production model allows for distribution rights revenues to accrue for the company.

Risks

The rupee appreciation vis-a-vis the dollar or euro is a key risk to realisations. An increase in the minimum alternative tax rate is another risk, especially as the STPI scheme has not been extended. This may strain margins till the company shifts operations to a SEZ over the next 12-18 months.

The issue

DQ Entertainment is offering over 16 million shares through this issue and hopes to raise Rs 128 crore. It plans to utilise the proceeds towards investment in co-production agreements (Rs 55 crore) and development of office infrastructure at an SEZ in Aindhra Pradesh (Rs 39 crore). The issue is open from March 8-10. SBI Capital Markets is the book-running lead manager to the issue.

Related Stories:
DQ Entertainment ropes in anchor investors
DQ Entertainment plans to raise Rs 128 cr thru IPO

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beware...no good.. track.. record...loss also..made...il&fs has come.....grey will dry...as ..heathway...heathway like story ..stay ..out...out...out..