From hero to zero: Why this big film producer is in crisis

From an 'A-lister' to a 'has-been' in just a few weeks — This is how film production company Vashu Bhagnani Industries, formerly Pooja Entertainment, has fared on the bourses recently. Between July 4, 2023 and June 21, 2024, its share price leaped a massive 16x from Rs 25 to Rs 406. Since then, it has crashed 37 per cent (as of July 8, 2024).

Such drastic fluctuations warrant a closer look. So let's decipher what led to this wild ride!

Lights, camera and flop!

Once a blockbuster studio known for comedy hits like 'Coolie No. 1,' 'Hero No. 1,' and 'Biwi No. 1' in the late 90s, the company's recent films have been box office failures, reportedly leading to severe financial stress.

Media reports have claimed that the company's office in Juhu, Mumbai was sold off to settle debt worth Rs 250 crore and about 80 per cent of its workforce has been laid off. The company has denied selling the property, while admitting that the failure of its latest film 'Bade Miyan Chote Miyan' has impacted the production house. Note that the company's financial records do not indicate a debt sum of Rs 250 crore. Its net debt as of FY24 was Rs 23 crore.

Its other recent releases like 'Ganpath' and 'Mission Raniganj' turned out duds as well. In fact, the last time the company had a box office hit was in 2001 with 'Mujhe Kucch Kehna Hai'.

In doldrums

The company's financial track record is disappointing as well. Between FY20 and FY24, its revenue has grown a sluggish 7 per cent annually, while the net profit slumped 24 per cent per annum during this period.

A closer look reveals the poor state of other fundamental parameters. The company's receivable days stretch to a jaw-dropping 313 days! That's almost a year of waiting for money to come in. Meanwhile, it's stretching its payables to maintain a semblance of healthy cash flows. But unsurprisingly, the operating cash flows have been negative in three of the last five years.

Our take

The troubling state of the company's financials did not deter investments, evident from the stock's galloping rally of the past year that has ballooned its P/E ratio to 176 times! The market optimism may have partly been due to the promoters' gradual stake addition over the years, which grew from 64 per cent in FY19 to 74 per cent in FY24, indicating their commitment and confidence in the company's future.

However, the investment thesis for the company remains weak, given the streak of falling profitability in recent years and the high valuations. We believe the stock's significant rally, despite shaky fundamentals, is a textbook case of irrational exuberance.

This story is not a recommendation. Investors should do their own research before making any investment decision.

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