Film companies’ market cap drops on AIM despite performance

MUMBAI: The stock markets, whether in India or abroad, have taken a hit over the last few quarters. The bull run that the markets witnessed last year has now slackened its pace. While closer home the Bombay Stock Exchange (BSE) listed media and entertainment companies have taken a considerable blow, Indian filmed entertainment companies that are listed on London Stock Exchange’s Alternative Investment Market (AIM) have also lost ground over the last three quarters.
While the BSE Sensex may have touched its historic high of 20,000 at the beginning of this year, the downtrend started soon after, with the Sensex now trading at around 14,000 points. Same was the case with AIM; however the fall has not been so drastic. The FTSE100 index on AIM stood at 6721 in October 2007 as compared to 5602 in September 2008.
Among the Indian companies engaged in the film business, Eros International, UMP (UTV Motion Pictures), The Indian Film Company and DQ Entertainment are currently listed on AIM. Additionally, Zee Motion Pictures and Balaji Motion Pictures are also planning to list on AIM.
Overseas listing is seen as a lucrative alternative option but due to the drop in the index, most Indian entertainment companies have not managed to up their market capitalization. However, if it’s any solace, the AIM listed companies are better off than the BSE listed companies, which have seen a huge drop in market cap over the last few months.
Throwing light on the same, Elara Capital vice president Vikas Chauhan says, "The global equities have dropped and so has the share prices of Indian entertainment companies listed on the AIM. In addition to this, lack of liquidity on the AIM market is also a reason for the drop in the price. Having said that; some of the stocks are trading at a significant discount, which makes them attractive investment opportunities." Elara Capital helped The Indian Film Company raise £55 million on AIM.
Jermyn Capital Partners Plc vice president, corporate finance Mehmet Ahmed adds, "The FTSE100 index since October 2007 has fallen dramatically, even though there has been some recovery in July-August and the same is true of FTSE small cap. If you look at AIM100, the trends are the same with a weaker recovery in the least two months. The general trend is mirrored with the stocks of Eros International, UMP and The Indian Film Company, and therefore their path is not out of line with the rest of the market. I suspect that FTSE 100 recovery is heavily skewed because of energy stocks and financial services to an extent not reflected in AIM100. In other words, there does not seem to be anything unusual in overall trends given general market sentiment."
While money is being raised to be deployed into various film ventures, the fact remains that the gamble doesn’t yield profits each time round, given the uncertain nature of the film business.
Consider this, in November last year the market cap of Eros International was £485.19 million as compared to £389.06 million in September 2008. On the other hand, The Indian Film Company’s market cap slashed by nearly 50 per cent from £46.2 million in November 2007 to £26.13 million in September this year. UMP’s (UTV Motion Pictures) market cap fell from £171.48 million in November 2007 to £139.61 million in September 2008.
Most companies have been reporting strong performances and have a robust line-up of films in their kitty but the general downward trend in the market has been acting as a hindrance to growth.
Speaking about the factors that affect stock prices on the AIM market, Jermyn Capital Partners Plc’s Ahmed says, "The factors that affect the AIM market as a whole are the same as for other markets i.e. liquidity, sentiment, volumes etc." Jermyn Capital Partners Plc was the broker for UMP Plc and helped raise $70 million on behalf of the company on admission to AIM in July 2007.
"On the back of favourable industry dynamics, the Indian film companies are reporting strong performances. The stock prices have been falling purely due to global market conditions and lack of liquidity in the AIM market. These stocks are interesting investment opportunities, especially from the long term perspective. We believe with passage of time the Indian film companies listed on the AIM will be able to increase their valuations," informs Elara Capital’s Chauhan.
However, an industry professional on condition of anonymity, had this to say, "Investors realise that although some films are making money, listed companies are reporting profits only due to accountancy practices of showing all profits in the first year while allocating the cost over a few years. As a result, profit can be shown for the current year but the revenues in the coming years may not be as high as projected."
What’s more, in June this year, the market capitalisation of India-focused companies on AIM crossed $6 billion with stocks registering an average growth of 52 per cent in valuation till April. However, entertainment companies were not contributors to this growth.
Amongst the filmed entertainment companies who bucked the trend on AIM is DQ Entertainment, which listed this year. The company’s market cap has marginally grown from £53.41 million in March 2008 to £54.85 million in September 2008.
An industry watcher spoke to said, "Apart from the general market sentiment, share prices are also going down because shareholders know that most funds are being deployed for the sake of being deployed rather than for any meaningful business reasons. Funds should not be deployed just because one ‘needs’ to deploy them."
"While sporadic announcements can give the stock price a fillip in the short term, companies should focus on the bigger picture rather than short term gains," adds the head of a financial firm.
Dropping a word of advice to companies that are looking at listing on AIM in the near future, Chauhan says, "AIM is an interesting market for companies without a historic track record to raise monies overseas. However, the valuations, which the AIM market gives is less than the Indian markets. Thus, companies with adequate track record may be better off listing in India than on the AIM."