Sunday, October 07, 2012

Why I am bullish on Kohinoor Broadcasting Corporation Ltd...?
CMP: Re.0.62
Let me say at the onset that I have been holding the shares of this company since the last few years and I  have now averaged it to some decent levels, following the principles of value investing---an investment jargon that traces its roots from the investment philosophies of Ben Graham and David Dodd. Although "Value Investing" has taken different forms and shapes, since its inception, I have tweaked the system to incorporate my investing methodologies, of buying buying securities whose shares appear under-priced, following some form of fundamental analysis. Therefore, I or my clients or blog readers could have some vested interest in the company. Now let us jump to the topic directly. 
Q. What does Kohinoor Broadcasting Corporation Ltd do?
Ans: Yes, this is the natural question, which was asked by many of the ardent investors, who bought the share on my recommendations. The Company is in the media and entertainment sector  with a particular focus on the TV industry. The Company is currently engaged in the production of TV content including current affairs, music, serialized drama and other entertainment programmes. After it received permission from Ministry of Broadcasting for up-linking of News and current Affairs channel it launched its maiden news channel KBC News last year. In the notes section of the Q3FY12 (quarter ending 31st December, 2011) results, it was mentioned: "The company has unlinked its free-to-air channel during the quarter. It is available on cable network. Therefore, the company has stopped outright sale of its programmers" (Investors are requested to verify the same with their own eyes by visiting the company's premises in Chandigarh). It has also obtained the WPC clearances from Ministry of Communication and Information Technology. The company has already completed setting up of the earth station that is capable of up-linking 8 TV Channels in Punjab and are focusing on play out station and other infrastructure for broadcasting. Kohinoor Broadcasting Coporation Ltd boasts to be the 1st company of north India to have its own earth station and up-linking Tele port. Currently, the company has plans to launch its entertainment channel in form of the KBC Plus.. 
Q. Does it have any subsidiary company?
Ans: In, 2007 the company established a wholly owned subsidiary under the name of Kohinoor Broadcasting Corporation FZE, in Dubai, as its distribution hub in United Arab Emirates (UAE). The Company's  wholly owned subsidiary viz M/s Kohinoor Broadcasting Corporation FZE is  situated at Hamriyah Free Zone, Sharjah--UAE. The main object of the Subsidiary Company has been set out as General Trading. The Company proposes to use the subsidiary Company as its distribution arm in  Middle East. The Accounts of the Subsidiary Company is drawn in accordance with UAE Commercial Companies Laws and is duly audited by independent auditors.
The company has diversified its portfolio by entering into solar energy sector. For this, another wholly owned subsidiary under the name KBC Power Corporation Limited has been incorporated in the year 2010. This Indian wholly owned subsidiary, M/s KBC Power Corporation Limited is engaged in the business of  manufacture of solar cell and solar modules. The Subsidiary company has not yet started its commercial production. However, the company has a target to commence commercial production by April, 2013.
Its Consolidated results for the last quarter, i.e quarter ended June 30, 2012 included the working results of two subsidiaries viz, Kohinoor Broadcasting Corporation FZE. Sharjah, having net investment of Rs. 7771.48 Lacs and KBC Power Corporation Ltd., India, having investment amounting to Rs. 37.57 Lacs. 
The Ordinary Equity Shares of the Company are listed at Bombay Stock  Exchange Limited. The Global Depositary Receipts issued by the Company  are listed at Luxembourg Stock Exchange.
Q. What is the location of its channels or where is it available?
Ans:  The company's principal business is Broadcasting Activities. The  Company has Uplinked its free-to-air channel, KBC News. The channel is available on Satellite-INSAT 4A, 83 Degrees East, Symbol Rate 3000, FEC-3/4, Downlink Frequency- 3868, Pole- Vertical. The company is in the process of making the channel available on DTH and cable network. 
Q. What about Tagore Theaters Private Ltd, which once created a lot of storm?
Ans: This is one of the entities over which key managerial persons/their relatives are able to exercise significant influence. Apart from this one, the other two are:
(a) Asian IT Education Private Limited and (b)  Creative Infosystems Private Limited. Investment made in following related party entities stood at: 
  • Asian IT Education Pvt Ltd: Rs. 4.9 Million,
  • Creative Infosystems Pvt Ltd.: Rs. 8.17 Million
Q. How is media Sector looking at present? Should we be bullish on this sector?
Ans: The media sector has once again started to look excellent let us see how:
(i) FDI in the Broadcasting Sector: The Cabinet Committee on Economic Affairs (CCEA)  recently, increased the foreign investment from 46% to 74% in teleports, cable networks, DTH and mobile TV. The government said it had become necessary because of convergence of technologies involved in the telecom and broadcasting sector.
(ii) A ordinance had been passed by the Govt. of India on the mandatory digitization of the Cable Services. According to this amendment made in the section 9 of the Cable Television Networks (Regulation) Amendment Ordinance, 1995, the I&B ministry will make Digital Addressable System mandatory. This measure will empower consumers to an increased number of channels and high quality viewing. The concept of a prime band will be passé after introduction of digitization. Viewers will be able to access digital services only through a set top box (STB). This will eventually, face a black out of analog signals in major metros like Mumbai, Delhi, Kolkata, and Chennai post October 31st 2012, in cities with more than one million populations like Pune, Ahmedabad and Bangalore by March 31, 2013, the deadline for complete digitization in urban areas is September 30, 2014 while the entire country is expected to achieve digitization by December 31, 2014.
Shares of cable television services providers and broadcasters are expected to outperform the benchmark indices in the next six months following the government's move to digitize the industry. Other companies who are likely to benefit are: Hathway Cable and Datacom, Zee Entertainment and Den Networks which have already shot up over the past six months, outperforming broader indices such as BSE 500 and BSE 200. 
Industry Size
(iii) According to FICCI-KPMG report, the Indian Media & Entertainment Industry is expected to touch Rs.1,457 billion by 2016. In 2011, the Indian Media & Entertainment (M&E) Industry registered a growth of 12% over 2010, to reach Rs.728 billon, says the FICCI-KPMG report. The growth trajectory is backed by strong consumption in Tier 2 and 3 cities, continued growth of regional media, and fast increasing new media business. It is to be noted that 2011 has been a challenging year not just for the Indian M&E industry, or even the Indian economy, but for the larger world economy. Overall, the industry is expected to register a CAGR of 15% to touch Rs.1,457 billion by 2016 and KBC News being a regional channel is expected to get maximum out of this bullishenss.
Dr. Rajiv Kumar, Secretary General, FICCI said: “The key highlights are rise in digital content consumption, launch of diverse content delivery platforms, strong consumption in Tier 2 and 3 cities, rising footprint of the players in the regional media, rapidly increasingnew media business and regulatory shifts.”
According to Mr. Jehil Thakkar, Head of Media and Entertainment, KPMG in India “The Media & Entertainment industry landscape is undergoing a significant shift. Cable digitization, the promise of wireless broadband, increasing DTH penetration, digitization of film distribution, growing internet use are all prompting strategic shifts in the way companies work. Traditional business models are evolving for the better as a host of new opportunities emerge.”

Q. How are the financials of the company looking?
Now coming to the Financials let us take some ratios:
(a) The book value of the shares of the company is Rs..7.81 against the CMP of only Re.0.62 (62 paise) and face value of Rs.10.
(b) The market cap of the company is only Rs.6.83 Cr, which is not even the price of the land where the modern studio has been constructed. 
(c) On a standalone basis, in Q1FY13, the company did not earn much revenues, however its net loss decreased when considered both on sequential and Q-o-Q basis.
(d) In 2007-2008, the share price of Kohinoor Broadcasting Corporation Ltd touched Rs.20.75, at that time the company neither had channels nor completed its up-linking facility.
(e) According to the auditors, proper books of accounts as required by law have been kept by the Company, so far as appears from the examination of the books. In its opinion, the Balance Sheet , Profit and Loss Account and Cash Flow Statement, comply with the Accounting Standards referred to in the Section (3)(c) of Section 211 of the Companies Act, 1956 and rules there under.
(f) The Company has not taken or granted loans, Secured or Unsecured, from/to the Companies, Firms or other parties listed in the register maintained under Section 301 of the Companies Act, 1956 within the meaning of Section 370 (1B) of the Companies Act, 1956. So, the question relating to rate of interest and other terms and conditions of loans, repayment of the principal amount and interest thereon, steps taken for recovery/repayment of the principal and interest thereon, are not applicable in respect of the Company. In other words it is more or less a DEBT FREE COMPANY. However, the Company has not deposited the TDS regularly with the authorities, though the company is regular in paying other applicable undisputed statutory dues with the appropriate authorities---the arrears of outstanding statutory dues as at the last day of the financial year, FY12 concerned for a period of more than six months from the date became payable amounts to $ 377844 (Rs.1,96,47,888). Moreover, there were no dues on account of Wealth Tax, Service tax, Sales tax (VAT), Custom Duty, Excise Duty, Entry Tax, Stamp Duty and other statutory material dues which were not deposited on account of any dispute, as of 31st March, 2012.  
(g)  The Company has been registered for a period not less than five years and it has no accumulated losses at the end of the financial year, FY12 However, the Company has incurred cash losses in FY12, but not in the immediately preceding financial year. Further, the Company has not taken any  loans, credit facilities or other loans of whatsoever nature from any financial institution and/or bank and/or debenture holders.  The Company has not granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. The Company has not given any guarantee for loans taken by others from bank or financial institutions. 
Q. What about the FDI in Broadcasting Sector?
Ans: The CCEA increased foreign investment from 46% to 74% in teleports, cable networks, DTH and mobile TV. The government said it had become necessary because of convergence of technologies involved in the telecom and broadcasting sector. This is expected to have a positive effect on most of the stocks in this sector. 
Conclusions: Kohinoor Broadcasting Corporation Ltd which is now trading at around Re.0.62 (62 paise) should give some stupendous returns going forward. I shall suggest all to buy the scrip and keep accumulating on all declines.