Hyderabad based animation firm DQ Entertainment will be going public on March 8 with 16,048,011 equity shares of Rs. 10 each. Subscriptions will close on March 10, 2010. The price band and minimum bid lot have not yet been announced; price will be determined by 100 percent book building mechanism.

Post issue, promoters DQ Entertainment Mauritus Limited’s holding in the company will be reduced to 75 percent from 94.03 percent. Insititutional investor IDFC Investment Advisors Limited‘s holding will also decrease from 4.64 percent to 3.70 percent.

Download: DQ Entertainment’s Red Herring Prospectus

Funds To Be Used For Scaling Up

The company intends to use the Rs 549.58 million from the IPO and pre IPO fund for IP content creation, Rs 392.31 million for development of office premises and production facilities and development of infrastructure and additional facilities at the SEZ Unit in Andhra Pradesh and Rs 129.22 million as investment in subsidiary DQ Entertainment(Ireland) Limited.

Challenges

Piracy, digital or on the internet is a major hurdle for the company. Content like animation, games can easily be pirated and will bring in less revenue for the company.

The company’s business is totally based on projects and contracts. DQ Entertainment needs to bring in regular projects for consistent revenue inflow.

The company has limited experience in IP content creation, they have only produced Balkand and Ravan and are in the process of completing The Jungle Book, Omkar, Mysteries of Feluda, Toomai – the Elephant Boy.

US and European markets are a major revenue source for the company, for the FY 2009 revenue from the US and European nations were 41.57 percent and 51.18 percent. The company needs to expand its reach so that they are not dependent on these two markets only.

Promoter Company DQ Entertainment Plc has been making huge losses since its inception in 2007. In FY 2008 the company made a loss of Rs. 907.14 million.

Pre IPO Placement Round

The company had raised Rs 256.9 million in the pre IPO placement round by selling 3,772,771 equity shares.For the half year ended  September 2009 DQ Entertainment reported a net profit of Rs 102.57 million and total revenue of Rs 690.11 million.

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