Bollywood content aggregation company Shemaroo Entertainment has set a price range (pdf) of Rs 155 – Rs 170 per equity share for its initial public offering (IPO) that is set to open next week (September 16) and close two days later (September 18).
The company is looking to raise Rs 120 crore from this offering by selling 7.7 million shares (7,741,885 shares). Subscribers will have to bid for a minimum 85 shares or in multiples of 85 shares. Of the total shares offered, 60% will be offered to qualified institutional buyers (QIBs). The company has also offered a 10% discount to retail subscribers.
Of the Rs 120 crore, Shemaroo plans to use Rs 106 crore to fund its working capital requirements. It plans to use Rs 80 crore in FY15 and Rs 26 crore in FY16. The remaining amount will be used for expenditure from general corporate purposes like brand building exercises and strengthening of its marketing & distribution capabilities among others.
Shemaroo had initially filed a draft red herring prospectus with the Securities and Exchange Board of India (SEBI) in June last year and had received SEBI approval in February this year. Yes Bank and ICICI Securities are the book running lead managers of this issue and the company will be listing its shares on both NSE and BSE. It expects to start trading on the exchange on or before October 7, 2014.
Notes from Shemaroo’s red herring prospectus (pdf):
– Content Library: Shemaroo’s content library consists of more than 2,900 titles. This includes 759 titles over which it has complete ownership rights (Perpetual Rights) and 2,159 titles over which it has limited ownership rights (Aggregation Rights).
Perpetual rights allows Shemaroo to distribute it worldwide for a perpetual period across all mediums while aggregation rights are restricted by either period of usage, distribution platforms, medium and geography or a combination of these parameters.
Of the 759 titles where it has complete ownership rights, 355 titles are Hindi films while 364 titles are regional films and 40 titles are special interest content (devotional, kids, motivational/ spiritual, classic television serials and health related content among others). This also includes films produced by Shemaroo itself. The company however notes that it doesn’t produce more than one or two films a year and has produced five Bollywood films in the past nine years.
Of the 2,159 titles where it has limited rights, 1,289 titles are Hindi films, 728 titles are regional films and 142 titles are special interest content.
– New Media Tie-ups: Shemaroo notes that it has tied up with more than 100 labels or content providers to offer content on new media platforms (mobile, Internet, DTH and other apps). This includes music, videos, imagery content, games, applications, celebrity chats, text content, and voice based services among others.
– YouTube Tie-up: Shemaroo has tied up as an official channel partner on YouTube and is currently managing 32 channels on the service. This includes Shemaroo Movies, Shemaroo Entertainment and Filmi Gaane among others.
Besides this, it has agreements with video on demand services like Daily Motion, Yahoo India and Spuul among others.
– Owns 50% stake in Vistaas Digital: Shemaroo had acquired 50% stake in the devotional content provider Vistaas Digital Media Private Limited for a consideration of Rs 10.61 crore in October 2010. This was to secure devotional content for its new media initiatives.
It has also entered into an agreement with Vistaas Digital Media to distribute devotional content like live darshans and aartis from various temples & shrines such as Shirdi Sai Baba, Ajmer Sharif, Shani Shingnapur among others, devotional films and songs, debates, discussions, pravachans, satsangs, discourses, and travel episodes related to various pilgrimages, temples and shrines. In addition, Shemaroo has also entered into agreements with other labels to aggregate more devotional content.
– Distribution: Shemaroo currently distributes content through four mediums – television (satellite, terrestrial and cable TV), new media platforms that includes mobile, Internet, DTH and other apps, Home Entertainment (VCD, DVD and BluRay among others) and other media (In-Flight entertainment and overseas distribution among others).
Broadcast syndication currently generates majority of revenues for Shemaroo, having contributed more than 50% of its revenues in each of last five years. Shemaroo also claims to have distributed more than 1,000 films through television broadcasting.
– MVAS tie-ups: Shemaroo has tie-ups with telcos like Airtel, BSNL, Tata Teleservices, Reliance Communication, MTNL and Tata Docomo to distribute content like caller ringback tones, ringtones, wallpapers, imagery, videos, games, full songs, celebrity chats.
The company claims to have more than 30,000 caller ringback tones available on these platforms as of now.
Besides this, it distributes content by bundling them on memory cards, mobile phones, USB Drives and kiosks. It also apparently provides content to IPTV operators like BSNL, MTNL and Bharti Airtel among others.
– Content Management partnerships: Shemaroo mentions that it is moving beyond just content aggregation to provide content management solutions to various partners. This includes powering the Re 1 WAP store for Reliance Communications and offering interactive devotional service iDarshan for Airtel Digital TV. Note that Shemaroo had also partnered with MTS India to offer its devotional service ‘iDivine‘ as a value added service for MTS MBlaze subscribers in September last year.
– Shortcode: Shemaroo has tied-up with various telcos to have a dedicated short code 58800 to distribute voice and video content & services.
– Film restoration: Shemaroo has restored 383 films to date through its in-house film restoration facility that was setup in 2006. Note that Shemaroo had won a contract to digitize and restore content created by or for the Government of Maharashtra in January 2013. As part of the deal, Shemaroo was expected to restore around 4000 minutes of content, including several short stories and documentaries from negative/print.
– Financials: Shemaroo’s consolidated total income was at Rs 265.95 crore in FY14, up 23.1% year-on-year (YoY). The profit after tax was at Rs 27.27 crore in FY14, up 16.3% YoY while EBITDA was at Rs 65.69 crore, up 11.9% YoY. The consolidated net worth of Shemaroo as of March 31, 2014 is Rs 174.45 crore.
– Think Walnut: Shemaroo has a group company called Think Walnut Digital Private Limited that provides data services including mobile and Internet data services.
It posted total sales of Rs 1.82 crore for FY14, up from Rs 0.65 crore in FY13. The net loss was at Rs 0.19 crore for the fiscal, as compared to Rs 1.3 crore loss in FY13.
– Shareholding: Shemaroo managing director Raman Maroo and joint managing director Atul Maru currently owns 24.23% stake each in Shemaroo. Chairman Buddhichand Maroo has 18.01% stake and Shemaroo CFO Hiren Gada has 8.27% stake.
Director Jai Maroo who currently guides Shemaroo’s digital distribution strategy has 6.22% stake. He is also the sole beneficiary of a trust that owns entire shareholding in Technology and Media Group PTE Ltd that owns 9.18% stake in Shemaroo.
Other prominent shareholders include Radhika Hotels Private Limited (0.84% stake), Jungle Ventures managing partner Jayesh Parekh (0.77% stake), Shemaroo vice president of broadcast syndication and content acquisition division Vinod Karani (0.58% stake), Mahendra Chedda (0.51% stake), Shaan Realtors Private Limited (0.51% stake), Golden Future Investments Private Limited (0.51% stake) and Nikhil Prataprai Gandhi Family Trust (0.51% stake).
– Subsidiaries: As of now, Shemaroo has three subsidiaries: US-based Shemaroo Entertainment Inc that was incorporated in March 2007 to carry on the business of movie distribution.
UK-based Shemaroo Entertainment (UK) Private Limited that was incorporated in July 2009 to carry on the business of creation, aggregation and distribution of content on various media platforms.
Mumbai-based Shemaroo Films Private Limited that was incorporated in October 2012 for creation, aggregation and distribution of the content on various mediums like television, home video, mobile, IPTV, etc. across various markets within India and overseas and providing transfer related technical services.
Employees: As of July 31, 2014, Shemaroo has a total of 333 employees. Of this, 78 employees are in sales, marketing and business development teams, 149 employees are in Operations, 45 are in technology and 61 employees are in semi-skilled and unskilled roles.
In addition, it has 111 consultants on a contract basis, of which 101 provide technical services and 10 provide operational and sales support.
– Legal & Criminal proceedings: Shemaroo is involved in 91 legal proceedings which are pending at different levels of adjudication before various courts and tribunals. It also has a pending criminal proceeding for allegedly threatening a video store owner for distributing certain films without obtaining a license to distribute them.
– Acquiring content: Shemaroo notes that content acquisition is an integral part of its business and its library includes content licensed from third parties on fixed term basis. Hence, if it fails to source content in the future or renew the existing contracts, it could affect their business prospects and financial condition.
The company notes that intensified competition from both new and existing players in the films and television media segments in recent years has also led to an increase in content acquisition costs due to limited content pool. These costs could further increase in the future which will reduce the company’s ability to sustain profit margins.
That being said, Shemaroo notes that its revenues are not dependent on the success of individual titles or content since it is primarily a content aggregator.
– Copyright Infringement: While acquiring content, Shemaroo mentions that it invites copyright claims from third parties to ensure it doesn’t acquire contents that infringe intellectual property rights of any third party. Depending on this, it decides whether to acquire that specific content or not.
Despite this, Shemaroo notes that it might receive claims or notices after acquisition. This might require them to enter into royalty or licensing arrangements which may not be available on acceptable terms or available at all.
Of the 1,085 films acquired in the last three years ended on March 31, 2014, Shemaroo received objections for around 56 films. The acquisition cost for these films aggregated to around Rs 10.6 crore.