The company was originally incorporated in 1987 as Dataquest Management and Communications Private Limited, which was changed to DQ Entertainment in 1993 to engage in IT training & consultancy. In 2000, it established an in-house training centre to training production staff. In 2002 established a traditional two-dimensional (2D) animation studio. In 2004, it established three-dimensional (3D) animation process. Its first commercial 3D animation project was a French TV series, Les Gnoufs. It started game assets development in 2007. The company has since launched its own IPO in 2009, with the launch of the first homegrown 3D computer generated imagery (3D CGI) television series, The Jungle Book, based on Rudyard's Kipling epic novel as well as three special TV features, Balkand, Omkar and Ravan, based on Indian mythology, for India and the Indian diaspora across the globe.
The company has moved up the animation value chain and entered into co-production. It has at least 14 co-production projects going on. The global budget is about Rs 1104.28 crore of which the company's investment would be Rs 152.55 crore funded through pre-IPO placement, IPO proceeds and debt.
Its production capabilities include 10 production facilities in India (eight in Hyderabad and one each in Mumbai and Kolkata), a pool of over 2,851 employees, and worldwide third-party sales representatives in Paris, Tokyo and Los Angeles.
The DQ School of Visual Arts was set up in FY 2008 to address the demand for high quality animation and gaming professionals. It took over from the in-house training division of the erstwhile DQ Entertainment. The school has centres in Hyderabad, Mumbai and Kolkata. Since its inception in FY 2008, the school has trained 715 people.
Revenues accrue either through outsourced production or co-production arrangements. Under outsourced production, the company is remunerated on a fixed fee basis for content produced. Under co-production, the company is remunerated on a fixed fee basis and it invests a certain percentage of the overall cost of producing the complete series in exchange for grant of distribution rights. In certain arrangements, the company might be able to retain the IP.
The company has a client base of over 90 companies, which include internationally recognized brands such as, inter alia, the Disney Group, Nickelodeon, American Greetings, BBC, Moonscoop Group, ZDF-Germany, Australian Broadcasting Corporation and NBC Universal.
The company has planned investment in co-production agreements, focusing on IP content creation of Rs 104.97 crore. Of this, the IPO and re-IPO proceeds would finance Rs 54.96 crore and the balance would be financed through debt of Rs 45.64 crore and internal accruals Rs 4.37 crore. The company also plans to develop SEZ facility at Kokapet Village at Rs 51.92 crore. Of this, IPO and pre-IPO would be Rs 39.23 crore, debt Rs 11.25 crore and the balance through internal accruals. The company also plans to invest in its subsidiary for own IP creation of Rs 14.59 crore. This will be financed through IPO proceeds.
DQE plc: the ultimate Holding Company
The company's corporate promoter, DQ Entertainment (Mauritius) Limited, is incorporated and registered in Mauritius. It is a wholly owned subsidiary of DQE plc, an Isle of Man incorporated entity. In December 2007, DQE plc listed on Alternative Investment Market, London (AIM) at an issue price of 136 pence and raised funds for investment in strategic alliances, global and local IP development and partnerships, and foraying into live action and expansion of production facilities and workforce. The company had raised GBP 26.8 million through the AIM listing. The main reason was to give an exit to the hedge funds, which have to be liquidated on completion of investment life.
The individual promoter (Mr Tapaas Chakravarti) holds about 12.66% of DQE plc through his company Zenithal Pvt Ltd, thereby holding 11.9% (pre-issue) and 9.5% (post-issue) of DQ Entertainment (International).
Certain existing shareholders of DQE plc have entered into a performance incentive agreement with Zenithal. These specific existing shareholders have agreed to transfer an aggregate of 1690895 shares to Zenithal at par value if either of the following performance criteria are met by DQE plc: the closing market price of DQE plc's shares being at or above a certain percentage of the placing price (136 pence) for a consecutive period of 30 days or a bona fide purchase offer being made for all the ordinary shares held by the vendors at or above the threshold price (136 pence). On expiry of the performance period of 13 months, Zenthil has written to the vendors for further extension of the period by 13 months.
As on March 4, 2010, the closing price of equity shares of DQE plc was 98 pence, which is below their issue price of 136 pence. The 52-week low price of DQE plc is 57.50 pence and is 42.28% of its issue price. The market capitalization works out to Rs 243.16 crore (Rs/GBP at 68.99). However, liquidity at AIM is poor.
DQE plc has acquired a 20% stake in method animation for a total subscription price of euro 2.5 million. In case of any animated TV series being developed and produced by Method Animation as a delegate producer and fabricated by Method Animation, the company shall be offered the first right to enter into production services agreement with Method Animation.
At the price band of Rs 75 - Rs 80, on consolidated basis EPS of FY2009 of Rs 2, the PE works out to 37.5 - 40 times and on the half yearly annualised EPS for FY2010 of Rs 2.6, the PE works out to 29.2 - 31.2 times. The EV/sales is at 3.4 - 3.6 times, EV/EBITDA is at 9.6 - 10.2 times and market capitalization/sales is 4 - 4.2 times.
The price is 10 - 17% higher than the pre-IPO placement price of Rs 68.11 end December 2009. The company had filed its draft red herring prospectus (DRHP) in September 2009.
Comparing with like companies (FY2009 consolidated numbers), Crest Animation Studios (outsourced production & own IP) had reported a loss in FY2009 with revenue of Rs 57.11 crore and is trading at market capitalisation/sales of 2.8 times, EV/sales of 2.7 times and EV/EBITDA of 2.9 times. Compact Disc (outsourced production and own IP) is trading at PE of 1.3 times and is trading at market capitalization/sales of 0.3 times, EV/sales of 0.4 times and EV/EBITDA of 1.3 times. Prime Focus (VFX, post production and animation) is trading at PE of 18.3 times and is trading at market capitalization/sales of 0.8 times, EV/sales of 1.9 times and EV/EBITDA