Shreya Media & Entertainment Private Limited: Leveraging on the Leverage?

Shreya Media & Entertainment Private Limited: Leveraging on the Leverage?

On April 10^th 2015, Shreya Media and Entertainment Private Limited (SMEPL), was awarded the best upcoming entertainment company in India. SMEPL’s Founder and CEO, Shreya Rao’s (Shreya) happiness knew no bounds when she received the award from one of the topmost business magazines in India. She felt as though all her dreams were turning into reality and all her hard work was paying off. Shreya always had been enterprising by nature. Wherever she was, she managed to keep her surroundings vibrant and lively. Interestingly, she was also a very responsible, hardworking person with independent thoughts. Her work exhibited her creativity and innovative thinking. Her family and friends recognized her abilities and were of opinion that she would be a success in creative ventures.

From her childhood, she was passionate of becoming an entrepreneur. During her graduation days Shreya realised that her thoughts were more inclined towards the Media & Entertainment (M&E) sector. Shreya decided to pursue a career in that industry. To be a success in the industry she charted her course of action and planned to acquire relevant qualifications. After completing her Post Graduation in Mass Media and Journalism from a reputed university in Delhi known for Humanities, she started her career in an M&E firm. Thanks to her invigorating passion and immense potential, she could quickly reach the position of Creative Head in a very short span of time. However, her aspiration was to set standards than to follow........

SMEPL

Shreya was cognizant of the huge potential and scope of the M&E industry. Gradually, Shreya ventured to set up a M&E firm, SMEPL along with two of her friends. During the initial years, the company was predominantly involved in the production of serials which caught the pulse of the Indian customers. With high Television Rating Points (TRPs) of the TV serials across various channels, the company witnessed spectacular growth and progression............

Plans Underway and Dilemmas

Before venturing into other areas, SMEPL was considering to launch either of the two television channels ‘Shreya News Media’ and ‘Shreya Movies’. The company wanted to compare the costs and revenue figures of both the channels as it preferred to launch the profitable channel of the two...............

Exhibits

Exhibit I: Income Statement and Market Data for the year ending March 31^st 2015

Exhibit II: Balance Sheet (as on March 31^st 2015)

Shreya Media & Entertainment Private Limited: Leveraging on the Leverage?

Synopsis

The caselet should be used as a precursor to introducing capital structure theories and their implications. The presence of either Operating Leverage or Financial Leverage would impact the Combined Leverage and therefore the value of the firm. Ample attention should be given to the underlying logic. The protagonist of the caselet, Shreya Rao (Shreya) sought to launch one of the two television channels, Shreya News Media or Shreya Movies. She was in a dilemma whether to opt the debt, equity, preferred or hybrid way of financing.

Prerequisite Conceptual Understanding

• • M. Y. Khan and P. K. Jain, “Operating, Financial and Combined Leverage”, Financial Management, 6^th Edition, McGraw Hill Education (India), 2013

Case Positioning and Setting

This caselet can be used in either of the following courses in an MBA program:

• • Financial Management – To understand the concept and implications of Operating Leverage, Financial Leverage and Combined Leverage on a firm’s value
• • Corporate Finance – To understand how the presence of equity, debt and changes thereof would affect a firm’s capital structure

Assignment Questions

• I. Determine the operating, financial and combined leverages of Shreya Media & Entertainment Private Limited (SMEPL) by 2016 without the new proposal.
• II. Assuming that the company finances the projects using financial Plan C, determine the three leverages for the two channels individually. Which new channel would be financially more viable to launch?
• III. .................

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