DQ Entertainment Review + Recommendation

[komal]

Here are Various Brokerage Reviews and Recommendations for the Forthcoming IPO of DQ Entertainment (International) Limited.

Face Value Rs. 10
Price Band (Rs.) Rs. 75 - 80
Issue Opens 08-Mar-10
Issue Closes 10-Mar-10

IndiaBulls IPO Analyst recommends a SUBSCRIBE with the following recommendation,

According to our valuation, at a price band of Rs. 75-80, the Company proposes a EV/EBITDA of 8.6x-9.1x for FY11E, which is at a discount to the peer group (UTV Software Communications, Balaji Telefilms, Prime Focus) average of 11.5x. DQE also has better EBITDA margin at over 35% and ROE at 10.5% for FY11E in comon to the peer set average of 17% and 7%, respectively. So, keeping in mind these numbers along with DQE’s strong fundamentals, we recommend investors to Subscriber to the issue.

[komal]

SMC Analyst, Mayank Garg has the following View on the DQ Entertainment IPO

The stock trades at a P/BV of 3.04x times on the lower side of the band and 3.24x times on the higher side of the band of its Quarter Ending Sep09 book value Rs.24.71. Looking at the post issue valuation, the stock trades at a P/BV of 2.09x times on the lower side of the band and 2.23x times on the higher side of the band of its post issue book value of Rs.35.90. Considering the P/E valuation, the company is trading at a P/E of 23.33x times on the lower
side of the price band and 24.88x times on the higher side of the price band of its annualised earnings of Rs3.22. Looking at post issue valuation, the company is trading at a P/E of29.25x times on the lower side and 31.20x times on the higher side of its post issue annualised earnings of Rs2.56

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.4700 crore 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 & huge concentration of revenues from US & European regions is something to look for.

[chetan]

Angel Broking has a NEUTRAL View on DQ Entertainment Public Issue

Anand Shah and C. Kapur wrote

Company's focus to move up the value-chain into co-production, licensing and IP creation has helped the company improve its Margins from 25% in FY2008 to 35% in FY2009. However, going ahead, the company's growth story is highly dependent on: 1) acquiring projects (mostly from Europe or USA), which is again dependent on macro-economic conditions favorable to these economies, 2) acquiring IP rights, and earning revenues through licensing and distribution (lack of experience in the same is a cause of concern), and 3) favourable currency fluctuations.

At the upper band of Rs80, the market capitalisation post issue for DQE would stand at Rs634cr, which equates to rich valuations - P/E of 20.3x, P/BV of 1.6x and EV/Sales of 2.6x FY2012E. Moreover, a lack of clarity over its business model and a limited execution record in IP creation makes us wary of DQE's growth rates in the future. Hence, we recommend a Neutral view on the issue.

[sunil]

KR Choksey IPO Analyst Rohit Maheshwari asks investors to Subscribe to the issue and expect listing gains as well,

Low risk business model, focus on co-production, ability to leverage on licensing & merchandising, proven expertise through 350 hours of content, strong customer base and revenue visibility make DQ Entertainment different from other listed players. On upper band, Issue is priced at 31x of the annualized FY10E EPS of Rs 2.6, post IPO EV/EBITDA of 11.8x. Valuations look stretch, however given the unique business model and small issue size, we expect issue to receive scarcity premium on valuation. Thus, we recommend SUBSCRIBE to the DQ Entertainment IPO for listing gains.

[sunil]

HSBC recommends a SUBSCRIBE with the following recommendation,

The origin of the Indian animation industry lies in the outsourcing opportunities due to cost arbitrage. During 2002-03, Indian studios and production houses were primarily performing support work like background, wire removal, clean-ups, etc. and the important value addition process, such as conceptualization, pre-production, story-boarding, so forth were performed almost solely by the studios in the West. Over time, the skill-set of Indian studios and the quality of their work has gained recognition and they have moved up the value-chain to more complex activities.

[chetan]

Unicon Wealth Research has a SUBSCRIBE RECOMMENDATION with the following note,

At the upper price band of INR 80, the stock is discounted at 31x its FY10 annualized earnings which is similar to its peers. Considering the strong order book, large scale of technological advantages over its peers, the transforming business model of the company and the strong growth expected in the animation industry, we recommend SUBSCRIBE to the issue for long term value creation.

[chetan]

Edelweiss Analysts Vinay Khattar, Sandeep Bhandari Wrote,

A strong multi segmental and de-risked business, modeled on the lines of Walt Disney’s similar business segment covering entire spectrum of animation from production to licensing and to distribution represents an exciting opportunity. At upper price band of INR 80, the stock is trading at 17x FY11E and 9x and FY12E EPS of INR 4.66 and INR 8.88 respectively. We expect the stock to trade at 20x FY12E and 0.8x PEG ratio which implies the price target of INR
177, an upside of 121%.This stock has potential to be a multi-bagger, as its strong clients led model throws up exciting business deals on the lines of the Jungle book success. As these deals consummate, the stock valuation could track the EPS growth rate.

[chetan]

The status of allotment of DQ Entertainment IPO can be checked here,

Code: [Select]

http://mis.karvycomputershare.com/ipo/