SVF’s FY18 topline declines 15.5% due to GST, drop in TV prod rev

MUMBAI: East India’s content production company SVF Entertainment’s operating income has registered a 15.5% decline at Rs 168.9 crore for the fiscal ended 31 March as against Rs 199.9 crore in the previous fiscal.

The decline in the company’s topline in FY2018 was primarily due to a change in revenue recognition method for the movie distribution segment post implementation of the Goods and Services Tax (GST) and a decline in revenue from TV production. The revenue from TV production is likely to increase in FY19.

The company’s net profit also saw a minor dip at Rs 7.12 crore compared to Rs 7.7 crore a year ago. In FY16, the company’s net profit and operating income stood at Rs 3.7 crore and Rs 152.8 crore respectively.

Incorporated in 1995, SVF is promoted by Shrikant Mohta and Mahendra Soni. SVF is involved in the business of producing and distributing movie content. The company is also involved in the production of television serials and events, trading in satellite rights and internet rights of movies, digital cinema, music and exhibition segments.

Rating agency ICRA had recently reaffirmed the long-term rating of BBB+ and the short-term rating of A2+ for the Rs. 35-crore fund-based and non-fund based limit of SVF Entertainment. It had further stated that the outlook on the long-term rating is Positive.

ICRA noted that the ratings continue to factor in the experience of the promoters in the media and entertainment industry and its 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 noted that SVF entered into annual contract with a major national TV broadcaster for the 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 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 de-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 recent years.

It also stated that a sizeable advance received towards 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.

However, ICRA stated that 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. The ratings note 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, ICRA said that such a risk is mitigated by SVF’s established presence in Bengali movie production. SVF’s operating margin remained volatile and declined to an extent in FY2018. However, this may be attributed to its policy to write off the entire cost of movie production in the very first year, whereas the revenue is spread over subsequent years.

ICRA also noted SVF’s substantial investments in existing group entities and incremental investments being made in new subsidiaries having aggressive expansion plans, which may dent its overall business returns in the near to medium term.

In ICRA’s opinion, the company’s ability to improve its box-office collection of the recently released/upcoming movies, growth in revenues from the relatively high-margin segments like satellite and internet rights and the amount of incremental financial exposure in Group companies would be the key rating sensitivities, going forward.

You may be interested