SVF Entertainment FY19 net profit, operating income sees improvement

MUMBAI: Shrikant Mohta and Mahendra Soni promoted SVF Entertainment has seen improvement in its net profit for the fiscal ended 31st March 2019. The Bengali content production company’s net profit increased to Rs 6.06 crore in FY19 from Rs 1.58 crore in the previous fiscal.

The company’s operating income also registered a growth at Rs 192.38 crore compared to Rs 176.79 crore. ICRA has reaffirmed fund and non-fund based bank limits worth Rs 35 crore while the ratings continue to remain on rating watch with negative implications.

ICRA had placed the ratings assigned to the bank facilities of SVF Entertainment on rating watch with negative implications following the arrest of one of its Director and Co-promoter by the Central Bureau of Investigation (CBI), in January 2019, in relation to the company’s past business transactions with another entity under CBI investigation.

It further stated that the outcome of such litigations and impact of the same on the company’s business profile, if any, are yet to be ascertained. Hence, ICRA continues to keep the ratings under watch with negative implications. ICRA will continue to monitor developments in this regard and would evaluate the impact of the same on SVF’s business profile.

The ratings continue to factor in the experience of the promoters in the media and entertainment industry and the company’s diversified revenue base with presence in movie production, distribution, content production for television (TV), exhibition, digital cinema, sale of satellite and internet rights of movies and music rights. The ratings draw comfort from SVF’s track record in producing commercially successful Bengali movies, some of which also won National Awards.

ICRA notes that SVF enters into an annual contract with a major national TV broadcaster for the sale of satellite rights of its recently released/upcoming movies and renewed a long-term contract (for five years) with the same TV broadcaster for the sale of satellite rights of its film library in FY2018 for a sizeable contract value.

SVF also earns additional revenues from the sale of internet rights of its movies, music, and songs. The company’s increasing revenue from the sale of satellite and internet rights not only provides revenue visibility but also helps reduce risk the film production business to a large extent, as receipts from such contracts cover a significant portion of the cost of movie production vis-a-vis low box-office collection, as witnessed in the recent years.

Moreover, a sizeable advance received towards the sale of satellite and internet rights are likely to support the company’s liquidity. The ratings are also supported by the company’s low gearing and comfortable debt coverage metrics.

The ratings are, however, constrained by the small scale of SVF’s operations at present due to its geographical concentration with presence limited primarily to West Bengal. The ratings also factor in the company’s exposure to the inherent risks associated with the film production and distribution business such as piracy, seasonality in business and audience rejection.

ICRA also notes SVF’s vulnerability to contract renewal risk associated with the sale of satellite rights, as the same is majorly derived from a single customer. Nevertheless, such risk is mitigated by SVF’s established presence in Bengali movie production. It further stated that SVF’s substantial investments in existing Group entities and incremental investments made in recent years in new subsidiaries having aggressive expansion plans, which may dent the company’s return on capital employed.

SVF’s volatile operating margin in the past years may be attributed to its earlier policy of writing off the entire cost of movie production within a short period post release, though a major portion of the revenue is realised in the subsequent years through the sale of satellite and internet rights. Nevertheless, a longer amortisation period effective from FY2019 led to an increased profit as well as an elevated level of inventory of unamortised movies.