Photon Kathaas Productions

SPECULATIVE BUY

10/08/2011 Ben Jaglom

South Indian film company Photon Kathaas Productions (PKP), which joined AIM last November in a float that raised $2.4 million is hoping to attract investors through its unique offering.

The company operates as a production house, making a number of films for the South Indian film market, separate to the Northern Indian film market, or 'Bollywood' as it is most commonly known, which mainly makes titles in the Northern Indian language of Hindi. South India has a population of 250 million with the main languages including Tamil and Telugu, with a large diaspora existing in countries including Malaysia, Canada and the UK.

Photon is led by a joint English/South Indian team. Its executive director is Gautham Vasudev Menon is unlikely to be a familiar name in the UK but he is well-known in Southern India, being one of the region's best-known directors. Meanwhile the chairman is Michael Rosenberg, the former chairman of Numis Securities. The company is aiming to be the first production house in the South Indian film market, with its CEO Venkat Somasundaram arguing that the South Indian market 'Is where Bollywood was five years ago with no concept of intellectual property and no portfolio of films.'

Somasundaram is keen to emphasise the difference between the British and Indian markets, noting that the company is able to turn out a film in anywhere between 4-10 months with revenues often coming before the actual release due to pay TV deals. Furthermore the company's head of marketing Reshma Ghatala insists 'In India film is a social experience and you often get people going an average of 2-3 times a week.'

The company recently declared its interim results, declaring pre-tax profits of $38,000 on turnover of $1.4 million. Analysts at Seymour Pierce are forecasting pre-tax profits of $1.6 million (EPS: 4.7 cents) on revenue of $7.3 million for the year to December 2011. In 2012 it sees profits climbing to $2.4 million (EPS: 6.7 cents) on sales of $9.3 million.

Operating in an unusual industry, the company certainly presents risks as the South Indian film industry is not one well-understood by many analysts however India is a country with a huge and growing film business and the company has both London-based and South Indian expertise and contacts. We think the shares hold speculative appeal.