The company says that the future growth will come from these areas. However, considering the current market situation, one is forced to ask oneself whether Tips deserves a premium of Rs 315. The promoter, however, maintains that the shares are being offered at a low PE of 11 based on 2001-earnings.

In fact, one of the issue managers justifies the premium by saying that Tips' competitor, Gramaphone Company, is currently enjoying a PE multiple of around 74. The company has an average return on networth of 50 per cent for the past five years and the PE of 11 is on a diluted equity, the issue manager adds.

According to Kumar S Taurani, the premium is justified as Tips is offering equity shares at a low PE multiple and the company has been growing at a very fast rate. Turnover and profitability have been growing at a CAGR of 41 per cent and 77 per cent in the past five years.

Taurani also says its recent marketing tieup with Moser Baer will benefit the company. ``We have entered into a three-year contract with Moser Baer for marketing its cassettes. We will get a net margin of around 12-15 per cent from this arrangement,'' Taurani says.

``We are increasing our regional presence, besides our foothold in Hindi music. We already have a strong presence in Punjabi and Marathi and soon, we will establish ourself in Marathi,'' he says.

The company has invested Rs 120 crore in acquiring music rights for 50 films, according to him. The company is projecting a net profit of Rs 35 crore on total turnover of Rs 161 crore in fiscal 2001.

Based on an EPS of Rs 26.2 for fiscal 2000, the floor price is discounted by a multiple of around 12. From fiscal 1996 to fiscal 1999, growth in turnover and profit has been moderate. During the four-year period, turnover rose from Rs 37.12 crore to Rs 56.58 crore and net profit from Rs 2.26 crore to Rs 7.46 crore. However, for fiscal 2000, the company saw a three-fold jump in net profit to Rs 23.57 crore and a two-fold spurt in turnover to Rs 115.81 crore.

The company has a music bank of 8000 titles contributing 50 per cent of sales volume and 99 per cent of the audio rights are outright purchases as against royalty-based.

Tips has chalked out a Rs 187.95-crore project which is being part funded by a term loan of Rs 3 crore from Bank of Baroda. The company is now setting up a studio for recording music, promotional activities and videos at a cost of Rs 10.19 crore, a manufacturing plant for compact discs (CDs) at Rs 27.49 crore and expansion of existing audio cassette manufacturing facilities in two phases at Rs 14.56 crore. A major portion of Rs 120 crore is for acquiring audio rights which the company has already invested. Besides, Rs 8.19 crore is earmarked for working capital requirements.