IPO Analysis – Invest in DQ Entertainment (International)
DQ Entertainment IPO is open from March 8-10. SBI Capital Markets is the book-running lead manager to the issue. DQ Entertainment is offering over 16 million shares through it’s IPO 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).
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.
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.
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