EROS INTERNATIONAL MEDIA LTD : POWERING INDIAN CINEMA !!!

Scrip Code: 533261 / EROSMEDIA

CMP:  Rs. 134.25; Buy at Rs. 130 - Rs. 135 levels. Short term Target - Rs. 150.00. 
Medium to Long term Target – Rs. 175.00; STOP LOSS – Rs. 123.51; Market Cap: Rs. 1,233.76 Cr; 52 Week High/Low: Rs. 230.05 / Rs. 106.75

Total Shares: 9,19,21,340 shares; Promoters : 7,14,07,000 shares –77.80 %; Total Public holding : 2,03,70,720 shares – 22.20 %; Book Value: Rs. 84.43; Face Value: Rs. 10.00; EPS: Rs. 10.93; Dividend: NIL % ; P/E: 12.33 times; Ind P/E: 30.64; EV/EBITDA: 6.92.

Total Debt: 384.08 Cr; Enterprise Value: Rs. 1,564.81 Cr.

EROS INTERNATIONAL MEDIA LTD: EROS INTERNATIONAL MEDIA LTD was incorporated as in 1977 and is based in Mumbai, India. It was started by Mr. Arjan Lulla. It was earlier known as Rishima International Private Ltd and changed its name to Eros Multimedia Private Limited on July 25, 2000. Company again changed its name to Eros International Media Private Ltd on Nov 20, 2008, On Nov 18, 2009 company again changed its name to the present Eros International Media Ltd. It is subsidiary of EROS WORLDWIDE FZ LLC. Eros International Media Limited operates in the media and entertainment sector in India and internationally. It engages in sourcing content through acquisition, co-production, or production; the theatrical distribution network operation; licensing films for cable, satellite, and terrestrial television; and the distribution of Tamil film content in Western Europe through its own television station. The company came out with an IPO of about 2 Cr shares in September 2010 at Rs. 175 totaling to Rs. 350 Crs at the price of Rs. 175 and got listed at Rs. 213.35 on 6 Oct 2010. The purpose of the issue was to acquire and co-produce Indian films. The company also distributes content through physical formats, such as DVD, VCD, and Blu-rays, as well as the digital mediums comprising VOD, DTH, Internet, mobile, and in-flight entertainment; and involved in music publishing and distribution activities. In addition, it provides production planning and visual effects services for films; engages in the acquisition, production, and distribution of Tamil films worldwide; and involved in cable or DTH licensing, as well as trading and exporting international film rights. The company owns approximately 1,100 films comprising Hindi, Tamil, and other regional languages & has aggregated rights to over 1,900 films plus additional 700 films for which the company holds digital rights only. In the year 2006, Eros International Plc, the holding company of the Eros Group, became the first Indian company to list on the Alternative Investment Market (AIM) of the London Stock Exchange. It distributes content through retail outlets and it’s Website under the Eros and Ayngaran labels. EROSMEDIA can be locally compared with PVR Ltd, Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California,  UTV Media PLC of UK, Dreamworks Animation Skg Inc of California.

Investment Rationale:

EIML is a leading global company in the Indian filmed entertainment industry that acquires co-produces and distributes Indian language films in multiple formats. Eros continues its emphasis on non-theatrical revenue streams. Eros launched two advertising free TV channels HBO DEFINED and HBO HITS along with HBO during the quarter. These channels are currently available on DISH and AIRTEL digital platforms and will available with other operators soon. Online entertainment portal, EROS NOW, is expected to pick up going ahead as broadband connectivity improves in India and 3G, 4G networks become more entrenched. In August, 2013 Eros announced that it is partnering with A.R. Rahman to produce a movie with the music legend. This movie can create quite a buzz and garner decent pre-release revenues due to the “Rahman” tag attached to it. The Company has strong distribution capabilities which enable them to target a majority of the 1.2 billion people in India, primary market for Hindi language films. The company has distribution offices in Mumbai, Delhi, Punjab, Mysore and Chennai. The group has a distribution network that spans over 50 countries, with offices in India, UK, USA, Dubai, Australia, Fiji, Isle of Man and Singapore. The company also holds license of airborne rights to certain airlines for in-flight viewing. EIML announced the launch of its online music channel Eros Now Music on YouTube. HBO Defined and HBO Hits have a subscriber base of nearly 1,50,000 currently. These channels have monthly subscription price of Rs. 140 for HD and Rs. 100 for SD. Currently they are being offered at 50% discount. Management expects revenues of Rs. 150 Cr from the channels by FY16E. Eros International reported better-than-expected Q1FY14 numbers. The topline stood at Rs. 186.3 cr while the EBTIDA was at Rs. 39.5 cr. However, the company reported a 27.5% and 23.6% YoY decline in its operating income and EBITDA, respectively, since Q1FY13 was marked by higher number of hit movies. The company released movies like Raanjhanaa, Yeh Jawaani Hai Deewani (only overseas), which had a decent run at the box office. Higher other income of Rs. 7.9 crore aided PAT, which stood at Rs. 29.3 cr. The stock has plummeted in the past few months due to a relatively weaker movie slate in Q1FY14. Nonetheless, the company has several big banner movies like Ram Leela, Kochadaiyaan and Krrish 3 (overseas) scheduled for release in the next six months.

Outlook and Valuation:

The recent KPMG report anticipates the market size of Indian Music & Entertainment sector to touch Rs 1,45,700 Cr (US$ 25.51 billion) by 2016. There is increased penetration in Indian markets, which is expected to even intensify further, owing to a revolution brought in by digital technology. Wireless broadband, growing internet usage, cable digitisation and higher DTH adoption would further drive Indian M&E industry. The report also noted that smart phones, tablets, gaming devices have laid the foundation of a new wave in the industry. Eros co-produces 60% of the movies while the rest are either acquired or produced. The company has had long industry associations, a consistent track record of releasing three to four movies of the top 10 movies in the box office and a wide distribution network. Eros has been able to develop strong relationships with key figures in the Indian film industry, which help it secure key films and build a strong portfolio of movies. The results were slightly better than the market expectations even though the number of movies released was much lower. The cost of acquiring movies has been rising sharply and the management indicated that the company would refrain from bidding aggressively in line with its strategy of focusing on profitability. This strategy would help margins, revenue growth of the company, until the content price corrects, would be under pressure. The company has a good movie pipeline for the next two years. Multiplexes like PVR have plans of aggressive expansion, which would further benefit producers/distributors. Also, with investment in newer streams of revenue monetisation like the online portal Eros Now and launching of two channels with HBO would further help drive the company’s revenue. The Q2FY14 is expected to be weak due to lack of any major releases. Revenues could get biased more towards Q3FY14 as this is seasonally strong quarter. Also, major releases such as “Kochadiayan”, “Krrissh3”, “Ram Leela” and others are expected to get released in Q3FY14. At the current market price of Rs. 134.25, the stock P/E ratio is at 8.03 x FY13E and 6.10 x FY14E respectively. Earning per share (EPS) of the company for the FY14E is seen at Rs. 19.40 and for FY15E could be Rs. 22.69 respectively. The content pipeline of the company is exciting but timely release of content remains a doubt. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. Eros is trading at a significant discount to other media businesses. Factoring in revenue and PAT CAGR of 17.4% and 14.3%, respectively, in FY13-15, Eros could be a good ‘BUY’ with a target price of Rs. 175.00 for Medium to Long term investment and for the Shorter term it would be Rs. 150.

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	944.00	1,068.00	1,167.80	1,473.10
NET PROFIT (₹ Cr)	147.80	154.50	153.40	201.80
EPS (₹)	16.10	16.80	16.70	22.00
PE (x)	7.60	7.30	7.40	5.60
P/BV (x)	1.40	1.10	1.00	0.90
EV/EBITDA (x)	6.00	5.90	6.50	5.30
ROE (%)	17.70	15.70	13.70	15.40
ROCE (%)	16.20	15.90	13.40	15.30

I would buy EROS INTERNATIONAL MEDIA LTD for Medium to Long term for target of Rs. 175 and for the Shorter term it could be Rs. 150. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 123.51 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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