Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Indian Film Co - have the lunatics taken over the asylum?

While one can sympathise with the falling share price in the current market, corporate governance issues now appear to be of greater concern at Indian Film Company.

A limited number of shareholders appear to have been given access to additional information. Given the financial scandals of the past few months wouldn’t it be nice for all shareholders to be privy to the same information!

Former dissident shareholders who were previously highly critical of senior board member Raghav Bahl, have suddenly altered their opinion and now acknowledge that ‘Raghav Bahl's contribution and the brand awareness of the Network 18 Group of companies that he controls, have made and continue to make important contributions to the Company and its business.' They had previously asked for his removal!

Former dissident shareholders have conveniently gained appointment to the board. One of them (Deepak Kumar Gupta) appears to hold a direct and beneficial interest in only 1.07% of the company’s shares yet is now overseeing the strategic review!

Both are from corporate finance/investment management backgrounds with no evident experience of the Indian film industry. We all know how well the financial engineers have performed over the past few months - is it now a case of the lunatics having taken over the asylum!

I find this extract from the recent RNS amusing:

‘Atul Setia, aged 42, is a partner at Altima Partners LLP ("Altima"), an investment manager. Over the last three years at Altima, Mr Setia has been focused on building relationships and specialised in India. ‘Building relationships’ – now that’s an achievement!

The statement of 30th January 2009 concludes that ‘The Board and IFCRG believe that the appointment of the two new non-executive directors together with the forthcoming strategic review shall help ensure the Company's successful prospects for the future.’

At the operating level the company appears to have been performing satisfactorily the share price has simply been caught up in the general stock market misery.

Net asset value at 30th September 2008 was £54.68 million or 99.42p per Ordinary Share. However, in this instance it’s probably unwise to rely too heavily on the support of net asset value. Net asset value of £54.8m is predominantly made up of £15.8m of ‘Exploitation rights’ and £25.4m of ‘Investments in films under production’. With regard to these the notes to the financial statements reveal the following:

The Company amortises film costs using the individual-film-forecast method. Under the individual-film-forecast method, such costs are amortised for each film in the ratio that current period revenue for such films bears to of remaining unrecognised management’s estimate ultimate revenue as at the beginning of the current fiscal year. Management regularly reviews and revises, where necessary, its total estimates on a film-by-film basis, which may result in a change in the rate of amortisation and/or a write down of the intangible asset to fair value. The amortisation charge is included under cost of sales in the Consolidated Income Statement.

The assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If any such indication of impairment exists, the Group makes an estimate of its recoverable amount.

i.e. net asset value is essentially determined by management estimates!
Net asset value calculations aside, it’s surely the time for full and frank communication to all shareholders!


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