MUMBAI: Reliance Money has advised investors to subscribe to the initial public offering of DQ Entertainment at the cut-off price.

DQ Entertainment, headquartered in Hyderabad, produce animation, visual effects, game art and entertainment content for the Indian as well as global media and entertainment industry. The company has forayed into production and distribution of live action television and feature films.

The company has fixed the price band of the issue at Rs 75-80 per share. It plans to use the proceeds for investment in co-production agreements, IP content creation, development of office and production facilities; development of infrastructure and additional facilities at the SEZ unit, Kokapet Village and invest in subsidiary, DQ Entertainment.

“DQE enjoys healthy margins at 39.1% for H1FY10, compared to its peers. With the Indian animation industry (estimated at, $494mn in 2008) expected to grow at a CAGR of 22% between 2008-12 to reach $1bn industry by 2012, DQE stands a clear chance to capitalize on with its strong operational performance and a healthy order book portfolio along with strong clientele base with higher sustainable margins.

At the price band of Rs.75-80, the stock trades at a P/BV of 3.24-3.31x on book value Rs.23.2-24.2 post dilution. The stock quotes at PE of 29.1-31.2x its FY10E annualized EPS of Rs.2.6. Looking at the operational efficiency with high growth opportunity in the animation industry, along side its healthy revenue opportunity augers well for the company, hence we believe DQE provides a good opportunity for investors and recommend "Subscribe at cut-off" to the issue,” the report said.