Angel Broking has ‘Neutral’ view on DQ Entertainment IPO

MUMBAI: Angel Broking has ‘Neutral’ view on the initial public offering of the DQ Entertainment. The company has fixed the price band at Rs 75-80 and plans to raise Rs 120-128 crore. The issue closes Wednesday.

“Over the last couple of years, DQE has exhibited strong growth rates, given its strong order book in animation production and sound execution capabilities. Moreover, its focus to move up the value-chain into co-production, licensing and IP creation has helped the company improve its Margins from 25% in FY2008 to 35% in FY2009.

However, going ahead, the company's growth story is highly dependent on acquiring projects (mostly from Europe or USA), which is again dependent on macro-economic conditions favorable to these economies, acquiring IP rights, and earning revenues through licensing and distribution (lack of experience in the same is a cause of concern), and favourable currency fluctuations.

At the upper band of Rs 80, the market capitalisation post issue for DQE would stand at Rs 634 crore, which equates to rich valuations - P/E of 20.3x, P/BV of 1.6x and EV/Sales of 2.6x FY2012E. Moreover, a lack of clarity over its business model and a limited execution record in IP creation makes us wary of DQE's growth rates in the future. Hence, we recommend a Neutral view on the issue,” the report said.