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Market valuations of older IPL franchises less than 30% of newer ones' bids

Market valuations of older IPL franchises are less than 30 per cent of the bids of the newer ones - Pune and Kochi - even taking future cash flows into account.

B.S. Srinivasalu Reddy | May 10, 2011 | Updated 10:53 IST

Market valuations of older IPL franchises are less than 30 per cent of the bids of the newer ones - Pune and Kochi - even taking future cash flows into account.

Leading brokerage, IIFL's Institutional Equities Desk has arrived at the valuation of an older franchisee at $87 million. The valuation was done based on the discounted cash flow (DCF) method, at a discount of 13 per cent. IIFL has estimated cash flows per season of Rs 107.3 crore, terminal value of Rs 250 crore, and cash accrued at Rs 31.9 crore, leading to Rs 389 crore in present value of total cash flow. Converted into US dollars it will amount to $87 million.

In comparison, last year Pune Warriors India bid $370 million and Kochi Tuskers Kerala bid $333 million. Four years ago, only four teams bid below $87 million for the 10-year rights (payable in equal installments) - Rajasthan Royals ($67 million), Kolkata Knight Riders ($75 million), Kings XI Punjab ($76 million) and Delhi Daredevils ($84 million ) - and have positive return on their investment going by this valuation.

"The frenzy surrounding possible stake sales is a thing of the past, due to expensive valuations, complex shareholding structures and possibilities of further controversies," IIFL said.

"The franchisees have to outgrow the umbrella brand - IPL - and build a passionate and loyal fan base which will enable them to better exploit alternative revenue streams," said the authors of the IIFL report, Bijal Shah and Akash Chattopadhyay. However, while the franchisees are keeping their fingers crossed about their valuations inching up, the owner of brand IPL, the Board of Control for Cricket in India (BCCI) and the commercial rights holder, SETMAX, are enjoying the fruits of the event.

"The payout from the entire exercise remains skewed in favour of the BCCI, which is in effect the owner of the brand IPL. In comparison, the individual franchises remain fairly small brands," said Shah and Chattopadhyay.

BCCI is expected to garner Rs 1,000 crore during IPL-4 , with a three-fold jump in franchisee fee coming from the Pune and Kerala frachisees, besides various online rights sales. Though there is a 20 per cent drop in viewers, SET-MAX has avoided a drop in its ad-sales by pre-emptive advertisement sales at higher rates compared to last year.

Inflows for franchisees come through ticket sales, team sponsorships, in-stadia advertisements, merchandise sales and prize money, while their payout includes players' salaries, stadium leasing, team advertising and administrative costs.

Rohit Kumar Anand, an analyst with PINC Research, who also studied the valuations of IPL teams recently, said, "The cricket world cup taking place just ahead of IPL-4 had hit the latter's revenues heavily. Most of the pavilions in the stadiums are vacant, as the enthusiasm of viewers could not sustain nearly four months."

Anand feels that TRPs (television rating points: of viewers) for the IPL would increase next year. "When the cricket world cup is not there, fans will await the fifth edition of IPL and will try to associate themselves with one team or the other," he said.

Courtesy: Mail Today 

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