Baweja Studio NSE SME IPO review (Avoid)

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Review By Dilip Davda on January 23, 2024

•    BSL is a technology-based content production house.
•    It has completed over 22 projects and has 6 projects under production.
•    It also has 7 pre-production level projects in the pipeline. 
•    The company posted growth in its top line, but bottom line marked inconsistency.
•    Based on annualized FY24 earnings, the issue is priced aggressively. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
Baweja Studios Ltd. (BSL) is a technology-based content production house that specializes in all formats of commercial films with an aim to push the boundaries of storytelling and technology advancements in its field. It engages in research & development of scripts, end-to-end production of content, Intellectual Property creation and monetization of rights. 

Its strength lies in approach which revolves around sourcing of content either through in-house story developments, content acquisition, remake rights or adoption of books. After which a thorough selection process is carried out at various levels before starting the project for production. 

Its production activity was started in 1994 with a blockbuster film "Dilwale", and added other productions like Chaar Sahibzaaade, Love Story 2050, Qayamat, Bhaukaal etc. So far it has produced over 22 films. As of the date of this offer document filing, it had 6 films under production and another 7 under pre-production stages. 

Whereas in co-production, it serves as line producers wherein BSL produces the movies and deliver it to the clients (including the ownership and copyrights) as per the agreement for a pre-agreed fee ensuring predictable profits. After that it becomes a collaborative process between the platform/studio and the Company. Whereas the distribution of the content is the sole responsibility of the co-producer. In some cases, it enters into profit sharing arrangements with clients. This helps in decreasing the risks related to a single project as the financing is generally taken care by the co-producers as per terms of the agreement while BCL focuses and uses its expertise in production of quality content. 

At every stage of completion of the film, on the basis of the production agreements, it earns revenues thereby ensuring the predictability of revenues. The Company has diversified into digital films, web series, animation films, Punjabi films, advertisement films and music videos. As of the date of this offer document it had 16 employees on its payroll. It also hires additional professionals which differs from 100 to 150 people, based on requirement of projects.  

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 5400000 equity shares of Rs. 10 each (worth Rs. 97.20 cr. at the upper cap) consisting 4000000 fresh equity shares (worth Rs. 72.00 cr. at the upper end), and an Offer for Sale (OFS) of 1400000 shares (worth Rs. 25.20 cr. at the upper cap). It has announced a price band of Rs. 170 - Rs. 180 per share. The issue opens for subscription on January 29, 2024, and will close on February 01, 2024. The minimum application to be made is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.30% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 54.10 cr. for working capital and the rest for general corporate purposes. 

The issue is solely lead managed by Fedex Securities Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. NNM Securities Pvt. Ltd. is the market maker for the company. The issue is underwritten to the tune of 15% by Fedex and 85% by NNM Securities.

Having issued initial equity capital at par value, the company issued further equity shares in the price range of Rs. 90 - Rs. 100 between July 2001 and January 2003. It has also issued bonus shares in the ratio of 180 for 1 in November 2021, and 4 for 5 in December 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.27, Rs. 0.32, and Rs. 3.28 per share

Post-IPO, company's current paid-up equity capital of Rs. 14.43 cr. will stand enhanced to Rs. 18.43 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 331.69 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 19.54 cr. / Rs. 7.65 cr. (FY21), Rs. 40.97 cr. / Rs. 2.76 cr. (FY22), and Rs. 76.28 cr. / Rs. 7.97 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earns a net profit of Rs. 4.35 cr. on a total income of Rs. 38.90 cr. Thus its top lines posted growth but bottom line marked inconsistency for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 6.16, and an average RONW of 61.20%. The issue is priced at a P/BV of 10.72 based on its NAV of Rs. 16.79 as of September 30, 2023, and at a P/BV of 3.60 based on its post-IPO NAV of Rs. 50.05 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 38.05. Thus the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 39.32% (FY21), 6.78% (FY22), 10.80% (FY23), 11.27% (H1-FY24), and RoCE margins of 185.63%, 44.08% 52.55%, 18.73% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Shemaroo Entertainment, Eros Intl., Zee Entertainment, Mukta Arts, and Vels Film as their listed peers. They are trading at a P/E of 67.81, 00, 32.08, 20.85, and 18.55 (as of January 23, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 18th mandate from Fedex Securities in the last three fiscals, out of the last 10 listings, 3 opened at discount, all opened at premiums ranging from 6.49% to 76.19% on the date of listing. 

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