Stock Valuation

New IPO: DQ Entertainment Ltd

DQ Entertainment (International) Limited is making an Initial Public Offer (IPO) of 16,048,011 equity shares of Rs. 10 each (face value) at a price band of Rs.75- Rs.80. Of this, up to 321,011 shares would be reserved for subscription by eligible employees. The issue less the portion reserved for employee constitutes 15,727,000 shares of Rs. 10 each. The issue would constitute 20.24% of the post issue paid-up capital of the Company. Prior to issue the Company has completed a Pre-IPO Placement of 3,772,771 Equity Shares to certain selected investors (including 2,936,427 to IDFC Investment Advisors Limited) at a price of Rs. 68.11 per share raising aggregate Rs. 257 mn.

Valuation and recommendation:

At a price band of Rs. 75-80, the Company proposes a EV/EBITDA of 8.6x-9.1x for FY11E, which is at a discount to the peer group (UTV Software Communications, Balaji Telefilms, Prime Focus) average of 11.5x. DQE also has better EBITDA margin at over 35% and ROE at 10.5% for FY11E in comparison to the peer set average of 17% and 7%, respectively.

So, DQE’s seem to have strong fundamentals and good growth potential, we recommend investors to go for the issue.

The issue will be open for subscription from March 8-10, 2010.