DQ Entertainment Ltd

Issue Highlights

•DQ Entertainment Ltd (DQE), headquartered in Hyderabad, produce animation, visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company has forayed into production and distribution of live action television and feature films. The company's revenue flow through licensing and distribution activities with an asset base of over 350 hours of animation content.

• The company launched its first home-produced 3D CGI television series "The Jungle Book" based on Rudyard's Kipling's novel, followed by three special TV features "Balkand", "Omkar" and "Ravan" based on Indian mythology.

• DQE has a client base of over 90 companies which include internationally recognized brands such as, inter alia, the Disney Group, Nickelodeon, American Greetings, BBC, Moonscoop Group, ZDF-Germany, Australian Broadcasting Corporation and NBC Universal

• DQE has an order book worth ~Rs.4.5bn. Out of which, about 40% of the order book are at various stages of production, while the rest are due for commencement. More than 80% of FY10 revenues have already been factored in with the executed orders. About Rs.1.3bn of the orders are to be executed in FY10E and the balance beyond FY10.

• The company has 10 production facilities in India (8 in Hyderabad and 1 each in Mumbai and Kolkata) and has wide-reaching presence through third-party sales representatives in Paris, Tokyo and Los Angeles.

• DQE enjoys healthy margins at 39.1% for H1FY10, compared to its peers. With the Indian animation industry (estimated at, $494mn in 2008) expected to grow at a CAGR of 22% between 2008-12 to reach $1bn industry by 2012, DQE stands a clear chance to capitalize on with its strong operational performance and a healthy order book portfolio along with strong clientele base with higher sustainable margins.

At the price band of Rs.75-80, the stock trades at a P/BV of 3.24-3.31x on book value Rs.23.2-24.2 post dilution. The stock quotes at PE of 29.1-31.2x its FY10E annualized EPS of Rs.2.6. Looking at the operational efficiency with high growth opportunity in the animation industry, along side its healthy revenue opportunity augers well for the company, hence we believe DQE provides a good opportunity for investors and recommend "Subscribe at cut-off" to the issue.
~R`MONEY