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Tips Industries Limited - Ready to RACE ahead!

iPick Idea (KPN) - TIPS Industries (BSE Code : 532375) (Listed on NSE too)

In our Indian Stock Market, its very rarely we get to invest our money on a potential Blockbuster Film. That too if the film is a multi starcast and has Salman khan in it with the film releasing on EiD festival weekend

The film i am talking about is Race 3. Salman and Eid factor, combined with thriller/suspense/action genre and Race franchisee along with mega starcast and Remo Dsouza as director, makes this movie one of the most anticipated release of 2018.

The stock in concern is TIPS INDUSTRIES, producer of Race 3 Movie.

This company belongs to Taurani brothers and they have themselves hit a jackpot when they signed Salman Khan for Race 3 last September 2017 for production under Tips Industries.

Tips Industries : Market cap : 164cr
Stock price : Rs. 114

Race 3 release date : Eid 2018 (June 15, 2018)
Race 3 starcast: Salman khan, Anil kapoor, Bobby deol, Jacqeline fernandes, Daisy shah, Saqib Saleem
Race 3 Director: Remo Dsouza
Race 3 Music : Vishal Mishra, Pritam, JAM8, Meet Bros, Vicky Raja, Hardik Acharya & Shivay Vyas

All past salman movies have earned on average min 500cr at the boxoffice (domestic+international combined) (except Tubelight, which was commercial type of cinema).

Potential of Race 3 earnings :

Indian Box-office : Min Rs. 250cr - Max 400cr nett (Eid weekend - 3 days alone, can fetch Rs. 120cr domestic pening)

Overseas Box-office : Min Rs. 200cr - Max 300cr nett excluding China collection (Eid weekend - 3 days alone can fetch Rs. 100cr overseas opening) (Salman’s last release Bajrangi Bhaiijan fetched Rs. 294cr in China alone in Mar 2018)

Satellite Rites : Approx Rs. 75 - 100cr nett (As per media reports, producers are expecting Rs. 150cr from only satellite rights, although the deal is not yet completed)

Music Rights : Approx 25cr nett

Production cost: Rs 100-125cr nett

Considering above and deducting production cost, Race 3 will earn atleast minimum to minimum Rs 500 cr (if film is only HIT and maximum it can earn greater than Rs. 1000 cr if film is a BLOCKBUSTER.

This net profit is going to reflect in balance sheet of Tips Industries in April-June 2018 Quarter and if we assign even lowest PE of 10 (Closest Peer : Eros trades at 26PE, Walt Disney in US trades at 15 PE) to the company, then this company definitely deserves much much much much higher Mcap than current Mcap of Rs. 165cr.

About Tips Industries : Tips Industries was established in the year 1975 as small shop in the market of Lamington Road.[4] In 1975, the Taurani brothers traded in LP’s (Long Playing Phonograph Records) for three of the biggest companies in India – HMV (now Saregama), Music India (now Universal Music Group) & CBS (now Sony Music). In 1990, Tips Industries set up its first manufacturing facility at Palghar, Thane.

Tips Industries is one of the largest corporate houses in the field of music and films. Its main area of interest is music production, promotion and distribution, now also in films. It has the highest number of gold and platinum discs to their credit in comparison with any other record label in India. Its team of distributors serve more than 1000 wholesalers across the length and breadth of the country who, in turn, serve more than 400,000 retailers.

Financial Details :

Quarterly Results Figures in Rs. Crores

                     Mar 16	  June 16	   Sep 16	   Dec 16	     Mar 17	June 17	Sep 17	Dec 17

Sales 33.37 16.72 10.58 7.30 12.42 10.08 12.56 10.29
Expenses 31.58 6.74 3.83 4.73 21.54 4.91 4.61 5.40
OP 1.79 9.98 6.75 2.57 -9.12 5.17 7.95 4.89
OPM 5.36 59.69 63.80 35.21 -73.43 51.29 63.30 47.52
Other Income 1.75 0.82 0.69 5.56 12.35 0.34 0.62 0.44
Depreciation 0.38 6.97 3.80 3.80 0.37 3.41 3.46 3.45
Interest 2.90 2.81 2.81 2.55 2.06 1.97 1.90 1.68
PBT 0.26 1.02 0.83 1.78 0.79 0.13 3.21 0.20
Tax 0.05 0.21 0.27 0.68 0.16 0.01 0.68 0.05
Net Profit 0.21 0.81 0.56 1.10 0.63 0.12 2.53 0.15

Risk Analysis -

  1. This is a short term pick for next 3months as the film pipeline after Race 3 is not there till 2020.
  2. Low Liquidity, so one has to tread carefully once one gets the desired returns.
  3. If the content is very bad (extremely low chances), maybe the stock will not perform (Highly LOW Chances)

Disclosure : I have personally invested in this stock. Please contact your financial advisor before investing.

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Shree Ashtavinayak Cine Vision Ltd. (https://en.wikipedia.org/wiki/Shree_Ashtavinayak_Cine_Vision) was producer / owner of movies like Jab We Met, Golmall and Dabangg. This company is now delisted / bankrupt / liquidated. I personally do not bet on such stocks based on a single movie. All the rights mentioned above will take much more than a quarter to materialize. Also, whatif, in case a movie fails? There should be a strong pipeline.

Disc: Not Invested.

Hi varun,

As i said in above post, its a short term pick !

& if you are speaking about Shree Ashtavinayak Cinevision, that company went down because of its own reasons ! and if you speaking of Shree Ashtavinayak Cinevision produced Dabaang 1, Dabaang 1 released on 10 Sept 2010. Now see Shree Ashtavinayak Cinevision share price graph during July 2010 to Nov 2010. Its price became almost 4x in 4-5months ! and after that it slided too below July price !

Thats why I said, one has to tread carefully once we get the desired returns ! Tide can turn against you very fast in this script !

But now in 2018, films are seeing much much wider release domestically and overseas plus China market has also opened up, hence the scope for this film to notch more higher return is very high !

Hope I have clarified most of the concerns !

I totally agree with example if Shree Ashtavinayak. I bought this share at average of 6rs based on Dabangg and company got delisted now. I still have around 6400 stocks appearing in my demat account for which I can’t do anything.

You are carrying 6400 shares because of your own mistake, you said you bought shree ashtavinayak, just for 1 movie - dabaang, then y didnt u sold when share price rallied from 6 to 40 ?? Those were more than 5x, u shuld had kmown to get out fast in such counters once u get ur desired returns

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I agree that it was my mistake of buying share on basis of one movie. About price, i bought share when price was reduced to 6 from 40 and not the other way around. Share price kept reducing to half rupee and I was hopeful that it will be back. Anyway long story short, i just wanted to share my past experience so that other person dont repeat the mistake.

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HI Everyone,

I checked with some people in the media industry and their feedback is that Salman Khan produces his own movies, including Race 3. Salman Khan Films is the official producer of Race 3 and most likely 95 to 98% of the revenues and profits will be taken by Salman Khan. There may be a small compensation to Tips for ownership of Race franchise. Today producers are not able to afford fees of A - List star cast such as Salman Khan, Shahrukh Khan, Amir Khan, as it runs into hundreds of crores, and therefore these actors produce their own films and keep almost all revenues to themselves. Also these are the only names which can command box office revenues of over 200 to 300 crores for each of their films.

Akshay Kumar’s films rarely clock over 100 crores / film and therefore he is ranked 5 or 6th in the A List.

A look at the balance sheet also reveals that the Company’s networth is negative and its debt costs are very high; probably signifying the underlying riskiness of its business. The negative networth makes it unlikely for the company to undertake a project like Race 3 with a cost of 150 to 200 crores on its own resources.

Regards

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Looks like 70% of profits will go to Salman khan

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Even if its 70% profit sharing to Salman, still its a huge win-win situation for TIPS Industries; Let me explain how :

As the film is releasing on Eid, minimum to minimum the film will be HIT due to extra-ordinary Huge Opening it will get ! Also production cost will be maximum 75cr-100cr at the max (not including Salman’s fee as he is taking home 70% of the profits, as reported by media)

ASSUME BEST Case Scenario :

Cost of Production – 80 Cr. (excluding Salman’s 70% revenue)
Cost of Marketing (P&A) – 20 Cr.

TOTAL COST – 100 Cr.

India Theatrical Box Office (A1)– 400 Cr. (Estimated box office)
Distributor’s share(A2) – 200 Cr.
Producer’s share (A) - 200 Cr. (A1-A2)

Music and Merchandising (B) – 15 Cr.

Overseas Theatrical Box Office (C1) – 200 Cr. (Estimated box office)
Distributor’s share (C2) – 100Cr.
Producer’s share © - 100 Cr. (C1-C2)

Satellite Rights (D) – 125 Cr.

Digital Rights ( E) – 50 Cr.

China Theatrical Box Office Collection (F1) - 400 Cr
Distributor’s share (F2) – 200 Cr.
Producer’s share (F) - 200 Cr. (F1-F2)

TOTAL RECOVERIES (A+B+C+D+E+F) = 690 Cr.

PROFIT – 590 Cr. (TOTAL RECOVERIES - PRODUCTION COST)
70% Share of Salman Khan in Profits - Rs. 413 Cr

30% Tips Industries NET Profit - Rs. 177 Cr


ASSUME WORST Case Scenario :

Cost of Production – 100 Cr. (excluding Salman’s 70% revenue)
Cost of Marketing (P&A) – 25 Cr.

TOTAL COST – 125 Cr.

India Theatrical Box Office (A1)– 200 Cr. (Estimated box office)
Distributor’s share(A2) – 100 Cr.
Producer’s share (A) - 100 Cr. (A1-A2)

Music and Merchandising (B) – 10 Cr.

Overseas Theatrical Box Office (C1) – 100 Cr. (Estimated box office)
Distributor’s share (C2) – 50Cr.
Producer’s share © - 50 Cr. (C1-C2)

Satellite Rights (D) – 75 Cr.

Digital Rights ( E) – 25 Cr.

China Theatrical Box Office Collection (F1) - 200 Cr
Distributor’s share (F2) – 100 Cr.
Producer’s share (F) - 100 Cr. (F1-F2)

TOTAL RECOVERIES (A+B+C+D+E+F) = 360 Cr.

PROFIT – 235 Cr. (TOTAL RECOVERIES - PRODUCTION COST)
70% Share of Salman Khan in Profits - Rs. 165 Cr

30% Tips Industries NET Profit - Rs. 70 Cr

So if we assume Best Case Scenario, then TIPS Industries is all set to make profits of Rs. 177cr and if we assume Worst Case Scenario, then TIPS Industries is all set to make profits of Rs. 70cr.

Assuming its Peers Eros is trading at 25 PE, then as TIPS is a short / one time pick and even if assign lowest possible PE of 10, then it can easily command a Mcap of Rs. 700 cr to highest possible market cap of 1770cr, giving multifold returns to investors in next 3-4 months !

My two cents. Market does not give any pe multiple based on one off earning. Check for all exception gains.
To get pe multiple, market must believe that there can be future earning as well. We cannot simplify the valuation as above.
This in no way a specific comment on TIPS.

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Firstly, i told this is just a short term pick and not a long term one. So hence your comments are invalid. Secondly, who knows TIPS might announce few projects more as it utilizes the profit earned from this movie. Thirdly, if earning are there, it has to reflect in stock price, no matter as just one time !

Hi,

The extraordinary profit projections spurred me to connect with the Company. They are extremely difficult to reach. Sought an industry veteran’s help to connect. The Company will only receive music rights from Race 3. Company’s profits from Race will be in single digit crores. All money invested by Salman Khan Films and all rights domestic and foreign, theatrical collections etc retained by Salman Bhai without any ambiguity.

Doesn’t seem like any major upside. Management has promised to meet after Q4 Board Meeting. Will keep you all posted if the meeting happens.

Regards

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Hi Sundeep,

I think the industry veteran you connected with, even he will not have exact information except Taurani brothers or Salman Khan himself, as its a financial matter.

If you look at the official posters of Race 3 released, you will see both names Tips Industries Limited and Salman Khan Films presents…that means, both of them are the producers but as reported in media, Salman Khan is taking huge 70% profits for RACE 3. This itself is very very huge. But RACE is also a franchisee itself (so exoect some royalty) and also Taurani brothers are looking after everything associated with the film! So it is possible they are taking away rest 30% profits and this 30% profits amounts to Rs. 70cr to 177cr, depending on the box-office !

Though there is separate thread for SAREGAMA, I am posting results that declared today. EPS of 12.31 for this quarter… It have more stickier revenue from media like, music and their hit product carvan than tips, which is bet on one film…


Disclosure: invested in Saregama

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Some updates on this ! Race 3 Trailer is releasing on May 15, 2018. As per reports, it is mind boggling with high octane stunts !

Secondly,

The film’s theaterical rights (domestic + overseas) is reportedly sold by producers Tips Industries @ Rs. 140 Cr (except China rights) (Producers were expecting Rs. 150Cr+ while distributor was willing to pay only Rs. 130Cr. hence there was delay in releasing the trailer.)

So the Scenario now that plays out is :

Cost of Production – 80 Cr. (excluding Salman’s 70% revenue)
Cost of Marketing (P&A) – 20 Cr.

TOTAL COST – 100 Cr.

Theatrical Rights (Domestic + Overseas) (A) : Rs. 140 Cr
Music and Merchandising (B) – 15 Cr.
Satellite Rights (D) – 125 Cr.
Digital Rights ( E) – 50 Cr.

China Theatrical Box Office Collection (F1) - 400 Cr
Distributor’s share (F2) – 200 Cr.
Producer’s share (F) - 200 Cr. (F1-F2)

TOTAL RECOVERIES (A+B+D+E+F) = 530 Cr.

PROFIT – 430 Cr. (TOTAL RECOVERIES - PRODUCTION COST)
70% Share of Salman Khan in Profits - Rs. 301 Cr

30% Tips Industries NET Profit - Rs. 129 Cr

This value is between BEST Case Scenario and Worst Case Scenario Assumed !

Finally, the distribution of this film will be done by Salman Khan himself. This is his first film as distributor. Such is the confidence, that he himself has decided to distribute the film and he reportedly procured the distribution rights himself for Rs. 140 Crores.

With this deal done, a mojor headache is over for TIPS Industries, as no matter what will be the films fate, TIPS Industries is sureshot bound to make profits between 115CR to 150CR

So here we are, RACE 3 is releasing tommorow In India (already released today in UAE). As per initial reports, the film is a BLOCKBUSTER with highly positive reviews from audience there !

In India too blockbuster opening is expected because of Salman & Eid holiday factor.

And yes, as per my previous posts, film has reportedly being sold at Rs. 130 cr+ for satellite, and hence the film recovered its poduction cost from satellite rights itself.

Hence assuming all, TIPS Industries is most likely to earn in excess of Rs. 150Cr on this RACE !

I’m convinced that Tips will surely make good profits on Race but I’m not sure About the upside potential of this stock keeping in view this one time profit.

Disclosure: Holding for short term.

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