VELS Film International coming with an IPO to raise upto Rs 33.74 crore

VELS Film International

• VELS Film International is coming out with an initial public offering (IPO) of 34,08,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 99 per equity share.
  
• The issue will open on March 10, 2023 and will close on March 14, 2023.
  
• The shares will be listed on NSE Emerge Platform.
  
• The share is priced 9.90 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is Khambatta Securities.
  
• Compliance officer for the issue is Sampath Kumar Sujatha. 
  

Profile of the company

The company is primarily in the business of production of films and sale of film rights. Vels Film International is the result of the vision of Ishari K Ganesh to produce feature films in various languages. The company is a member of South Indian Film Chamber of Commerce. The company's contribution to the South Indian Film Industry is growing in fast pace particularly to the Tamil Film Industry which is the third biggest in India. Ishari K. Ganesh’s late father Shri Isari Velan was a renowned comedian in Tamil Cinema of yesteryears and that inspired him to act in several films as well. Being born to a great actor and comedian, entering the film industry was a natural progression for Dr. Ishari K. Ganesh. Its promoter is involved in film industry since the movie ‘Vaaku Moolam’ in the year 1991. He has acted in multiple movies and the last movie in which he acted was S. Shankar’s ‘2.0’ which released in 2018.

Later the company’s promoted started working in the education sector. With a modest beginning as a humble educationist, its Promoter, Dr. Ishari K. Ganesh, started the Vaels Educational Trust in the year 1992 with 36 students. In 2017, the Vels Group celebrated its 25 years of commitment to excellence in education with more than 25,000 students, 25 institutions and 5,000 staff with centers in Singapore and United Kingdom. His efforts to provide quality education to all sections of the society are renewed every year. Its promoter is an educationist, philanthropist and a business magnate. After successfully setting up various schools, medical colleges and university in the year 2016 its promoter drifted his attention to film production in Tamil film industry in the memory of his actor father. He associated himself with Prabhu Deva, known for his choreography, and alongside him co-produced the film ‘Devi’ in 2016 along with other films. Later in 2019, ‘LKG’ was produced by Vels Film International (sole proprietorship of its promoter). After producing few more films, it decided to corporatize its film production business and therefore formed Vels Film International.

Proceed is being used for:

• Film production.
  
• General Corporate Purposes.
  
• Meeting the Issue Expenses.
  

Industry overview

Indian media and entertainment (M&E) sector to reach $25.2bn in 2022. The Indian M&E sector grew 16.4% to Rs 1.61trn ($21.5bn) in 2021. The sector is expected to grow 17% in 2022 to $25.2bn and recover its 2019 pre-pandemic levels, then record an 11% CAGR to $30.9bn by 2024. Further, India’s Media and Entertainment Sector (M&E) is expected to grow to $55bn-70bn by 2030. India’s digital advertising is expected to grow to Rs 23,673 cr ($3.09bn) in 2022 from Rs 18,938 cr ($2.47bn) in 2021. By FY23, the share of digital media is expected to increase to 19%, from 17% in FY20, and filmed entertainment is expected to increase to 11%, from 5% in FY20. Television would account for 40% of Indian media in 2024, followed by print (13%), digital advertising (12%), cinema (9%), and OTT and gaming (8%). The market is projected to clock a 17% CAGR between 2020 and 2023.

The Government of India has taken various steps such as digitising the cable distribution sector to attract greater institutional funding, increasing the FDI limit from 74% to 100% in cable and direct-to-home (DTH) satellite platforms, and granting industry status to the film industry for easy access to institutional finance. The Film Facilitation Office (FFO) set up by The Ministry of Information & Broadcasting, the Government of India, is a single-window clearance and facilitation point for producers and production companies with a view to assist them in getting requisite filming permissions. The merger of Film Media Units in December 2020 by The Ministry of Information and Broadcasting under one corporation would lead to convergence of activities and resources and better coordination, thereby ensuring synergy and efficiency in achieving the mandate of each media unit. The Telecoms Regulatory Authority of India (TRAI) is set to approach The Ministry of Information and Broadcasting, Government of India, with a request to fastrack the recommendations on broadcasting in an attempt to boost reforms in broadcasting. The Government of India has agreed to set up a National Centre of Excellence for Animation, Gaming, Visual Effects and Comics in Mumbai. The Indian and Canadian governments have signed an audio-visual co-production deal to enable producers from both countries exchange and explore their cultures and creativity.

Pros and strengths

Experienced Directors and Management Team: The company is managed by a team of experienced and professional personnel having experience and knowledge and the same would enable it to develop strong business models and execute plans effectively. Its Managing Director and core-management team possess an in-depth understanding of the Indian film industry, content and content exploitation, and is therefore well - positioned to focus on the continued expansion and strengthening of its business.

Distribution network: The company leverages its experience and relationship with the distributors of the south Indian movies for theatrical distribution as well as distribution on OTT (Over-The-Top) platforms for the films produced by it.

Growth Stage and visible revenue streams: The company was formed in 2019 and since then it is focused on scaling up and increasing the revenue. It had nil revenue in FY 2020 which was increased to Rs 2601.37 lakh in FY 21 despite COVID crisis. In the FY22 the company clocked a revenue of Rs 2644.25 lakh on standalone basis and Rs 2645.02 on consolidated basis. It has produced 5 movies and 5 more movies are expected to be produced and may get released in the next 2 FYs.

Risks and concerns

Substantial financial risks relating to production and completion of films:  There are substantial financial risks relating to the production and completion of films. The Indian film industry as well as the south region film industry has traditionally been controlled by family run enterprises, with relatively low levels of corporatization. While the growth of corporate film production companies has in recent times increased levels of accountability, the film industry continues to be relatively unorganized. Actual film costs may exceed their budgets and factors such as labour disputes, unavailability of a star performer, equipment shortages, disputes with production teams or adverse weather conditions may cause cost overruns and delay or hamper completion of a production. It is responsible for all cost overruns on its own productions and as such this production method exposes it to the greatest execution risk.

Dependent on Distributors: The company is primarily in the business of production of films and sale of film rights to distributors. Although it enters in distribution agreements with distributors but it expects timely payment for meeting its business requirements. There can be no assurance that a distribution Agreement will be able to protect it in case of default or late payments by the distributer or the agreement may get terminated, in which case it would require another distributor on short notice. It might not be able to enter into new distribution agreements on favourable terms or at all, and there can be no assurance that any new distribution arrangements would be sufficient to effectively exploit its film content in markets. A decrease in its revenues from sale of film rights can have a material adverse effect on its business, prospects, financial condition and results of operations.

Face competition from competitors: The company competes directly and indirectly with other film production houses for accessing the talent and producing comparatively better regional films primarily Tamil. Increased competition may force it to access talents, hire actors at higher prices, which may adversely affect its profitability and market share. Some of its competitors may have greater capital, marketing and other resources, which may enable them to commit larger amounts of capital in response to changing market conditions, or to anticipate the course of market developments and trends more effectively than it does and develop capabilities that may render its processes obsolete or put it at a disadvantage. It may also face competition from new entrants in the market. Any exclusive arrangements between actors, directors, etc. and its competitors may also hamper its operations.

Outlook

Incorporated in 2019, VELS Film International is primarily in the business of the production of films and the sale of film rights. The company is Promoted by Dr Ishari K Ganesh who started the venture with the vision to produce feature films in various languages. VELS Film is a member of the South Indian Film Chamber of Commerce. The company is growing at a fast pace as its contribution to the South Indian Film Industry is widening. The Tamil Film Industry is the third biggest film industry in India. The company is managed by a team of experienced and professional personnel having experience and knowledge and the same would enable it to develop strong business models and execute plans effectively. On the concern side, the company is dependent on the functioning of cinema theatre operators for display of films produced by it. The failure of cinema theatre operators in displaying such films, could adversely affect its business and may damage the company’s reputation, any of which could have a material adverse effect on the company’s business, financial condition and results of operations.

The company is coming out with a maiden IPO of 34,08,000 equity shares of Rs 10 each at a fixed price of Rs 99 per share to mobilize Rs 33.74 crore. On performance front, the total revenue of the company has been increased to Rs 2,735.83 lakh in Fiscal 2022 as against Rs 2,601.37 lakh in Fiscal 2021. Moreover, the restated profit after tax for Fiscal 2022 has been decreased to Rs 469.48 lakh as against Rs 592.52 lakh in Fiscal 2021. Meanwhile, the company intends to expand its production activity to produce films which will cater to every need of viewers in India and enhance its position as a production house with continuous innovation in process and better understanding of the viewership trend. In view of the rapid changing preferences in entertainment space domestically and internationally, the company intends to build up capability of conceptualizing and producing films catering to every entertainment need for film viewers in terms of family drama, adventurous, romantic story etc.