Is it worth investing in premier production houses in India

In the times of the Netflixes and Amazon Prime Videos trying to crack the Indian web series code, where does India’s preeminent legacy soap opera creator with the backing of India’s largest conglomerate stand?

Directed towards a young audience who has limited interest in regular television shows, web series are a fast growing trend all over the world. The lack of strict censorship that rules commercial television has made it possible for makers to highlight issues and trends that are appealing to youngsters without having to beep out every offensive word. The increasing bandwidth and popularity of smart devices like tablets, phones and laptops have made watching shows a personal, instead of communal, experience. In fact, production houses that traditionally made films and programs for television are now also trying to catch up on this trend and cater to a fast growing internet audience.

The points detailed above make web series creators sound like the goose that lays the golden egg. But is investing in a company that makes web series really worth it? At Multi- Act, we went in-depth into the financials of one such company to see whether it makes sense to jump on the web series bandwagon.

Company Background

We studied an established company famous for making popular television series and films in India. The company has been in the business of making TV shows for over 23 years and in 2007 ventured into making Bollywood films. It has now jumped into the realm of making web series.

To Invest or Not to Invest?

Web series are a relatively new phenomenon in the media industry. At this nascent stage when even industry giants are barely profitable, it is difficult to comment on fate of these ‘me too’ companies. The company we studied, however, has a long established history of TV content creation. So we analyzed their existing business and financial history to study the company’s potential as an investment.


In their television business, the revenue growth and margins were great until 2009. The tide then turned and the company faced sudden losses. The company attributed this decline to the global economic crisis. However, the Indian television industry’s revenues continued to grow in that period.

Revenue growth & Profit margin for India's premier soap opera creator

Further analysis of Indian television industry indicated that the change in business fortunes was attributed to:

a. Launch of new Hindi GEC channels which resulted in fall in viewership of the older GEC channels. At that time, company had been overly dependent on one particular channel which suffered the most as of result of new channels cropping up.

b. Genres like mythology and reality shows became more popular than family drama therefore programming hours on GEC channels shifted in the favor of reality shows, Games and Talent shows, etc. However, this company’s programming was only directed towards the drama genre.

Motion Pictures:

In film production business, despite a number of hit films and increasing revenues, the losses continued piling up

Reported losses in film production

Financial Shenanigans?

Generally, box office collection against the budget can be an indicator of the films profitability. However there does not seem to be any strong co-relation between theatrical collection and budget of films’ produced by this company and revenue and profit reported in Annual Report.

Years Gross BO collections (1)  



Derived Gross Profit

(3)=(1) – (2)

Reported Operating Profit (4) Difference

(3) – (4)

2006 168 90 78 69 9
2008 297 180 117 91 26
2009 492 750 (258) (211) -47
2010 85 45 40 (89) 129
2011 583 350 233 29 204
2012 948 415 533 88 445
2013 420 190 230 20 210
2014 2,514 2,690 (176) (267) 91
2015 1,521 865 656 (62) 718
2016 420 190 230 20 210
2017 1,339 1,810 (471) (249) -222

Sources- , company annual reports

In many cases in spite of good box office collection over the budget of a film, company has reported operating losses/low profits. Refer note at the end of the article to learn more about correlation between Box Office performance of a film and producer’s profitability.

These findings imply that:

  1. Either the company is under reporting its profits in the film segment or
  2. The benefits of the film’s performance are accruing to other stakeholders in the value chain and not reaching the company.

Both possibilities lead to the conclusion of “Poor quality of business“.

Overall Business Quality

We firmly believe in investing in companies with strong moats i.e. companies with sustainable competitive advantages and high barriers to entry. With this particular company we found:

    1. In media industry competition is high. There are no barriers to entry. Multiple entities compete for audience’s viewership. Customer stickiness depends on quality of content without any loyalty to the producers’ brand. Non-performance of television shows/films is a major risk for the creators.These risks in the business model were evident even in good old days when company’s profits were soaring high.
    2. Talent owners (artists, directors, actors etc.) are the company’s suppliers and there is high competition for obtaining services of good talent. While established production houses have some advantage in attracting good talent, established talented artists have bargaining powers and thus cost of their services is also higher. In the film aspect of the business, artists have started sharing in films’ profits.
      So producers are unlikely to earn above average profits for a long period.
    3. Absence of long term audience captivity, risk of frequently changing audience preferences and lack of any substantial cost advantage leaves this company without any Moat.

Quality of the Company:

Our proprietary grading system assesses a company’s quality based on company’s fundamentals, corporate governance, capital allocation, nature of business and industry in which it operates. The grade ranges between A to C, A being the best and C being the Worst.

Our Quality of Earnings analysis gave this company a grade of B- because of recurring losses, long cash conversion cycle, negative Free Cash Flow generation and poor quality of earnings and business.


Although web series are growing in popularity across the country, looking at the past financial history of this company, one must be discerning when it comes to investing. While it is tempting to catch up with a popular trend in the form of web series, user loyalty is not guaranteed.

The company does not pass the rigors of our analysis due to less than optimal reporting, poor grade, and absence of a moat. So we will not join the street in applauding this company for their foray into the digital world.

This article is just a trailer that covers the business analysis/assessment of the said company. For a complete analysis of the company

Note: Film business – BO performance and producer’s profits

Box office performance is an indicator of a film’s profitability. Nonetheless, the revenue of a film producer is also affected by the deals it negotiates with the distributor (here it has 2 options either to pre-sell and lock-in the revenues or share the films collections in some pre decided proportion), it may also become its own distributor and negotiate directly with the exhibitor. Sometimes, producers also enter into a profit sharing model with the artists. Additionally, it earns revenue from overseas collections, sale of film rights to TV channels, DVD rights etc. For these reasons, BO performance of a film and the producer’s profitability are not perfectly correlated. In summary, it is worth noting that in spite of good BO collections, if company is continuously making losses then it raises questions on the management’s ability to negotiate deals with the counter parties.

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Portfolio Management Services (SEBI Registration No. INP000002965) are offered through Multi-Act Equity Consultancy Private Limited (CIN: U67120PN1993PTC074692), which is a wholly-owned subsidiary of Multi-Act Trade and Investments Private Limited; Investment Advisory Services (SEBI Registration No. INA000008589) are offered through Multi-Act Trade and Investments Private Limited (CIN: U65920MH1997PTC109513).