Picture Post NSE SME IPO review (Avoid)

Review By Dilip Davda on July 31, 2024

•    The company is a creative and innovative post-production company specializing in film editing and other related services.
•    It marked many fold jump in top and bottom lines for FY24, that raises eyebrows and concern over its sustainability going forward.
•    No peer group has come with their entry at such fancy valuations.
•    Tiny post-IPO paid-up equity also indicates longer gestation for migration.
•    There is no harm in skipping this “High Risk/Low Return” pricey bet.

PREFACE:
There are many miss-out/wrong data seen in the offer document. It issued RI at a price of Rs. 10 per share (FV Re. 1), but its impact on average cost of acquisition by promoter’s equity is not reflected. While the company has not issued any bonus shares, but its NAV data tables are given on the said basis which is very surprising. (Refer P81 to P83 of the offer document. It is really surprising as to how such offer documents get approved by the regulators? No company in this segment has come with such fancy valuations with paltry financial performance. Even tables given in IPO ad refers post bonus NAV data which is really miss-leading. Why one should subscribe such IPOs, where some garble is there in the financial data info. FY24 super earnings too raises eyebrows.

ABOUT COMPANY:
Picture Post Studios Ltd.(PPSL) is a creative and innovative post-production Company specializing in film editing, Computer Generated Imagery (“CGI”), visual effects (“VFX”), video conversion, grading, film and Commercial mastering of channels and digital platforms. The Company was established in the year 2019 as a Limited Liability Partnership (“LLP”) under the name and style of “Prodace Solutions LLP”. Thereafter the name was changed from Prodace Solutions LLP to Picture post Studios LLP vide Certificate of Incorporation issued consequent upon name change dated August 26, 2022 which was then converted into a Private Limited Company vide a Certificate of Incorporation dated June 01, 2023.

It pushes creative boundaries and embrace innovation. Its commitment to delivering cutting-edge solutions and adapt to evolving technologies has propelled it to rapid success. PPSL specializes in creating visual experiences that captive audience around the world. Post-production is a part of the process of filmmaking, video production and photography. Post-production includes all stages of production occurring after principal photography or recording individual program segments. Its studio has required equipment, software, and skilled professionals to enhance the quality of the footage and bring the Director’s vision to life. It ensures that the final product meets industry standards and effectively communicates the intended message to the audience.

PPSL, with a team of professionals, offer a wide range of services to cater to the diverse needs of the entertainment industry. It is one of the visual effects Company covering the entire spectrum of post- production requirements ranging from digital intermediates and visual effects to online editorials and operates as a studio, specializing in Films, Web series and advertisements, with a strong focus on high-end colour grading, motion design, visual effects, and online editing.

Overall, post-production studios play a vital role in transforming raw footage into a polished, professional film or video project. PPSL’s services portfolio allows Producers, Directors and Filmmakers to build bespoke addressing disparate aspects of advertisements or films for end viewers. As of April 30, 2024, it had 105 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 7800000 equity shares of Re. 1 each to mobilize Rs. 18.72 cr. at the upper cap. It has announced a price band of Rs. 22 – Rs. 24 per share. The issue opens for subscription on August 02, 2024, and will close on August 06, 2024. The minimum application to be made is for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.62% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 8.04 cr. for capex on purchase of equipment and software, Rs. 5.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 10.00 per share (based on Re. 1 FV) in February 2024. The average cost of acquisition of shares by the promoters is Rs. 1.00 per share.

The issue is solely lead managed by Shreni Shares Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Ltd. is also the market maker for the company.

Post-IPO, company’s current paid-up equity capital of Rs. 2.15 cr. will stand enhanced to Rs. 2.93 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 70.32 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 0.29 cr. / Rs. 0.22 cr. (FY22), Rs. 10.85 cr. / Rs. 0.60 cr. (FY23), Rs. 26.55 cr. / Rs. 3.44 cr. (FY24 – two broken periods). The sudden boost in its top and bottom lines for pre-IPO year raises eyebrows and concern over its sustainability going forward.

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 20.51, and based on FY23 earnings, the P/E stands at 114.29. Thus the issue appears aggressively priced.

For the last three fiscals, it has reported an average EPS of Rs. 1.02, and an average RoNW of 294.82%. The issue is priced at a P/BV of 7.36 based on its NAV of Rs. 3.26 as of March 31, 2024, and at a P/BV of 2.99 based on its post-IPO NAV of Rs. 8.03 per share (at the upper cap).

For the reported periods, the company has posted PAT margins of 74.79% (FY22), 5.53% (FY23), 11.65% (10 July – FY24 period), 13.29% (31 March – FY24 period), and RoCE margins of 1495.86%, 17.20%, 13.60%, 26.75%, respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Phantom Digital, Prime Focus, Digikore Studios as their listed peers. They are trading at a P/E of 22.8, NA, and 33.2 (as of July 31, 2024). However, they are not truly comparable on an apple to apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 33rd mandate from Shreni Shares in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at par and the rest all listed with premiums ranging from 4.88% to 141.94% on the date of listing.