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Friday, December 23, 2016

SHEMAROO ENTERTAINMENT LTD: ENTERTAINING AT ITS BEST !!!

Scrip Code: 538685 SHEMAROO
CMP:  Rs. 374.30; Market Cap: Rs. 1,017.43 Cr; 52 Week High/Low: Rs. 422.00 / Rs. 221.10
Total Shares: 2,71,82,239 shares; Promoters : 1,78,91,920 shares – 65.82 %; Total Public holding :  92,90,319 shares – 34.18 %; Book Value: Rs. 134.24; Face Value: Rs. 10.00; EPS: Rs. 21.52; Dividend: 14.00 %; P/E: 17.39 times; Ind. P/E: 34.80; EV/EBITDA: 9.36x
Total Debt: Rs. 212.39; Enterprise Value: Rs. 1,228.75 Cr.

SHEMAROO ENTERTAINMENT LIMITED: The Company was incorporated in 1962, Shemaroo Entertainment Ltd is Mumbai based integrated media content house with activities across content acquisition, value addition to content and content distribution. Shemaroo distribute entertainment content through television such as satellite, terrestrial and cable television; mobile, internet, direct to home and other ways. Shemaroo is also an official channel partner for Google and managing 32 channels. Shemaroo's content library consists of over 1000 titles across new Hindi films, Hindi films classics, and titles in other regional languages like Marathi, Gujarati, Punjabi, Bengali etc. and a variety of non-film content. The company came out with an IPO on September 16, 2014 offering 77,41,885  equity shares of Rs. 10 each for Rs. 170 per share with retail discount of Rs. 10 per share at Rs. 153 raising Rs. 131.62 Cr. The shares of the company got listed on October 1, 2014 at Rs. 180 making a high of Rs. 181 and low of Rs. 171.00 on listing day. The object of the issue was to fund working capital requirements, to fund expenditure for general corporate purposes, and listing of its equity shares will enhance visibility and brand name among existing and potential customers and business. Shemaroo Entertainment Limited is a holding company. The Company is an entertainment company engaged in the business of motion picture, video and television program distribution activities. Its business activities include content library; distribution platforms, including broadcast syndication, new media, home entertainment and other distribution platforms; content licensing, and other business activities. Its Content Library consists of over 3,400 titles spanning various Hindi films. The Company also has non-film content and titles in various other regional languages, such as Marathi, Gujarati, Punjabi and Bengali, among others. Its content is distributed over various Internet video platforms, such as YouTube, Hooq, Hotstar, Apple iTunes, Google Play and Spuul. Shemaroo Entertainment Ltd is locally compared to EROS International, ZEE Media Corporation Ltd, TV Today Network ltd, NDTV Ltd, TV 18 Broadcast Ltd, Sahara One Media, BAG Films, Raj Television, Diksat Transworld, Sun Tv Network, Sri Adikari Bros, Jain Studios, 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: 
Shemaroo Entertainment was incorporated in October 29, 1962 as a book library, Shemaroo Entertainment Ltd (Shemaroo) is a Mumbai based integrated media content house. It is involved in content aggregation, content acquisition, value addition to content and content distribution. Shemaroo's content library consists of over 1000 titles across new Hindi films, classic Hindi films, titles in other regional languages such as Marathi, Gujarati, Punjabi and Bengali, and a variety of non-film content. It has three subsidiaries, of which two are foreign companies. Together with film based copyrights and other entertainment rights, the brand "Shemaroo" is synonymous with quality entertainment. In 1979, they set up India's first video rental business and thereafter in 1987, they forayed into distribution of content through the home video segment in the video home system (“VHS”) format. Over the years, this Company has successfully adapted to changing content consumption patterns by expanding into content aggregation and distribution for broadcasting on television platforms. Shemaroo’s  content library consists of more than 2,800 titles spanning new Hindi films like The Dirty Picture, Kahaani, OMG: Oh My God!, Black, Ishqiya, Slumdog Millionaire, Ajab Prem Ki Ghazab Kahani, Omkara, Dil Toh Baccha Hai, Chandni Chowk to China, Bheja Fry 2, amongst others. Hindi films classics like Zanjeer, Beta, Dil, Disco Dancer, Mughal-e-Azam, Amar Akbar Anthony, Namak Halaal, Kaalia, Madhumati etc., titles in various other regional languages like Marathi, Gujarati, Punjabi, Bengali among others as well as non-film content. Shemaroo is also India’s one of the largest independent content aggregators in Bollywood. Currently, Shemaroo distribute content over which they have either complete ownership rights or limited ownership rights. Titles over which we have complete ownership rights are referred to as “Perpetual Rights”, which allows Shemaroo to distribute content worldwide for a perpetual period across all mediums. Titles over which they have limited ownership rights are referred to as “Aggregation Rights”. Aggregation Rights are restricted by either period of usage, distribution platforms, medium and geography or combination thereof. Titles where Shemaroo have Perpetual Rights or Aggregation Rights are known as our “Content Library”. Shemaroo also distribute their content through various mediums such as television such as satellite, terrestrial and cable television; new media platforms consisting of mobile, internet, direct to home (“DTH”) and other applications; home entertainment; and other media. The Indian media and entertainment industry is estimated at Rs 1.10 trillion as of 2016. Television and print (primarily newspapers) account for more than 70 % of the industry's revenue. Shemaroo’s recent initiatives include tying up as an official channel partner for Google Inc.’s You Tube where it is managing 32 channels. It is also moving beyond providing just content, to providing content management solutions to partners including Reliance Communications Re 1 WAP store and Airtel digital television in connection with an interactive devotional service, namely “iDarshan”. The Indian Media and Entertainment (M&E) industry is projected to grow at a CAGR of 15 % between 2012 and 2017 to reach Rs 1.66 trillion. This industry has been on a steady growth trajectory over the past five years barring 2009 due to an economic slowdown. Continuous expansion into different segments, steady growth in television and print, and emergence and rapid expansion of new segments such as digital have been key growth drivers. The industry’s revenue is expected to grow at 13 % CAGR over the next five years. Growth would be driven by a revival in advertising spends. Advertising revenue is estimated to increase 13 to 14 % in 2015, as companies hike spends across major advertising channels. The film industry’s revenue is projected to record 11 % CAGR, driven by increasing number of multiplexes, higher average ticket prices and expansion into tier II and tier III cities. While radio could see steady revenue growth, the much awaited FM Phase III auctions would provide a fillip. The number of Cable and Satellite (C&S) households in India base is expected to grow to 17.3 Cr by 2017, representing 91 % of TV households. With the mandatory Digital Access System (DAS) getting implemented in the four metros of Delhi, Mumbai, Kolkata and Chennai is seen as a revolutionary step in the media industry. The Subscription revenue for broadcasters is estimated to grow at a CAGR of 26 % by 2017. Increase in the declared subscriber base and aggregation of distribution on behalf of broadcasters is expected to drive up the share of subscription to total broadcaster revenue from 36 % in 2012 to 48 % in 2017. Hindi and regional General Entertainment Channels (GECs) account for major portion of the total viewership for over 50 % of the total viewership. GECs are the key drivers of television viewership, accounting for 65 % to 75 % of Hindi and regional markets. Hindi GEC and Hindi movie genres consolidated their position with a viewership share of 30 % and 11.9 % in 2016, compared to 26.5 % in 2014. Movie acquisition costs continued to soar as broadcasters retained their strategy in using block-buster movies to sustain viewer interest and buzz. Star Network is reported to have invested approximately Rs. 300 Cr on movie acquisitions in the past year. Zee Entertainment on the other hand is reported to have invested Rs. 200 Cr to acquire 10 movies during the year. New media continues its growth trajectory in 2016, with growth in advertising revenues of close to 40 % over last year. Coming in at approximately Rs. 2200 Cr in revenue in 2016, digital ad spends reached approximately 6.7 % of the total M&E industry advertising revenue. As expected, mobile and wireless connections continued to drive the growth of internet penetration in India. By the end of 2016 there were 14.4 Cr internet connections in India, a rise of 41 % over last year. Online streaming is a major growth engine for the music industry, both globally and in India. According to Strategy Analytics, globally, online streaming revenues will grow at nearly 5 times the rate of growth for download revenues in 2015, at 40 % versus 8.5 %. Until recently there were few legal sources for buying media content in India. In 2012 the Indian digital music industry saw the debut of Flipkart’s Flyte and Apple’s iTunes stores featuring comprehensive selection of local and international music from all the major labels and thousands of independent labels. Shemaroo Entertainment (Shemaroo) is India’s leading media content house. Shemaroo sports a content library of 3,011 titles, with 781 perpetual (complete) rights and 2,230 aggregated (limited) rights. The company benefits from the strong relationships with producers and the expertise and brand name associated with high consumer recall and media visibility. On the distribution side, Shemaroo is aligned with big names such as SONY, Star, Colors, etc. On the New Media side, it sells its movies to media platforms such as YouTube, Hooq, Apple iTunes, Hotstar through their pacts with telecom operators like Airtel, BSNL, Vodafone, RCom, Tata Teleservices etc. These business relationships are enabling Shemaroo to cash in on the developing trends in technology. Post the first stage of film cycle Shemaroo enters into the fray due to which the risk related with the success of the film reduces significantly, due to higher visibility of performance vis-à-vis the first cycle of launch. It has been observed that the subsequent stages of film cycle are growing at a good rate due to increasing advertisement spends and onset of digitization. The risk of piracy also reduces to a great extent as maximum piracy occurs in the first cycle of films. Increasing internet penetration, proliferation of smartphones, and 4G roll out, National Optical Fibre rollout programme may benefit Shemaroo along with the advent of new global media platforms like Netflix coming to India. As SEL generates revenues from distribution of content, diverse and wealthy content library bodes well for its top line growth. Shemaroo’s flagship business has been to buy content from production houses, producers etc and to sell this content to broadcasting channels, cable TV companies, home entertainment purpose. Indian television industry has six genres and movies genre is the second largest genre after General Entertainment Channels (GEC). Furthermore, the company continuously reported increase in its inventory levels, which represents ongoing addition of content to support the future growth opportunities. SEL’s rich content library is complemented by its presence across the traditional and new distribution platforms. During the past several years, the company has invested heavily to further enrich its content library. With a strong foothold in Indian media space, possession of some of the well-known movie titles, and rich content library, Shemaroo is an eminent brand in the Indian media space.  

Outlook and Valuation:

Shemaroo Entertainment Limited, is today an established integrated media content house in India with activities across content acquisition, value addition to content and content distribution. Over the years, the Company has successfully adapted to changing content consumption patterns by expanding into content aggregation and distribution for broadcasting on television platforms. It is continuing its expansion into New Media platforms. Shemaroo acquires content only after the movie is released from its first copyright holders (usually TV broadcasters). So essentially, Shemaroo is a trading company which buys content, re-packages and markets it to various Exhibitors. Besides this Shemaroo has other smaller business like the Home Entertainment Business which has a product presence of 1,300 titles across over 2,000 retail stores across India like Planet M, Music World, Crossword etc. This business sells DVDs and Blue Ray Discs in line with the emerging industry trend of shifting from physical to digital formats. Other Media business includes media platforms like Airborne rights for in-flight entertainment, international film festivals and overseas markets such as USA, UK, Singapore, Fiji, UAE, Australia, East Europe and North Africa. The company has launched a first of its kind movie premiere service named ‘Miniplex’ on Airtel Digital TV and Tata Sky. Miniplex is an ad-free, subscription based service which would premiere one movie every week for the first time on Indian television. Miniplex is a cross platform service and in addition to DTH it will be launched across various other platforms like digital, cable etc in phased manner. In line with this recently Shemaroo entered into an agreement with Dish TV based on the subscription fee model. The Miniplex will premiere latest blockbuster movies every Friday. So, in this manner Shemaroo makes a mark on the digital TVbusiness. The subscription fees are fixed at Rs. 60 per month while the service will give a theatre like feeling to customers at home. This business is actually at a nascent stage. As the company moves ahead with more tie-ups, the Miniplex business may attract a huge potential to become a substantial revenue stream for Shemaroo. Very recently the company has secured a new tie-up with Dish TV which is expected to build-up in a big way. Management aims to buy 75 to 100 titles per annum hereon and enhance its movie library. The company benefits from the strong relationships with producers like RK Films, Tips Industries, Red Chillies Entertainment etc. and the expertise and brand name associated with high consumer recall and media visibility. On the distribution side, the company is aligned with big names such as SONY, Star, Colors, etc who regularly buy movies from Shemaroo. On the New Media side, the company sells its movies to media platforms such as YouTube, Hooq, Apple iTunes, Hotstar through their pacts with telecom operators like Airtel, BSNL, Vodafone, RCom, Tata Teleservices etc. These business relationships are enabling Shemaroo to cash in on the developing trends in technology. The company acquires forward content rights, with either complete ownership (perpetual rights) or limited ownership (aggregate rights), which are then sold on a forward rights basis for a period of 5-7 years to broadcasters. In the life span of a movie release, majority revenues like is 90 % to 95 % are generated through domestic and overseas theatricals and television release. The first cycle is typically 5 to 7 years, post which Shemaroo enters the fray. Subsequent movie cycles are typically of 5 year duration. Since Shemaroo is absent in the first cycle, the risk reduces somewhat, due to higher visibility of performance vis-à-vis the first cycle of launch. It has been observed that the subsequent stages of film cycle are growing at a good rate due to increasing advertisement spends and onset of digitization. Shemaroo takes utmost care and due diligence while buying a content depending on its success in the first phase of film cycle. The company strives to buy the perpetual rights of a film wherever possible but also tries to strike a balance by spreading its acquisition to aggregate titles too with cost of perpetual rights is 3x to 4x the cost of aggregate rights. Shemaroo’s absence in the first phase of film cycle reduces the risks associated with piracy too. The company intends to monetize their movie content across all media platforms within the digital ambit. As mentioned above, Shemaroo has tie up with almost all of the media platforms be it YouTube, Hooq, Spool etc. More than 50 % to 55 % of the digital media revenues for Shemaroo come from the advertising revenues from YouTube channels. In a way, more the number of media platforms, more will Shemaroo benefit out of it. This is it shelf signifies that Shemaroo is a platform agnostic company. The entry of Netflix in India through a tie-up with Shemaroo in a subscription based model will mean a lot for the company. Netflix would get access to the vast movie library of Shemaroo and in return offer Shemaroo with another huge platform for distributing and monetizing its content. Shemaroo implements different types of business models while dealing with various platforms depending upon the frequency of usage, costing etc. With Google Play, it is a subscription model, wherein users can rent or purchase movie for a fee. Shemaroo is currently showcasing 10 movies on this platform and many more are in the pipeline. Tie-up with Facebook entails pay per download model. There are already five movies live on FB from Shemaroo’s stable and there are four more to hit this platform shortly. Both these tie-ups are based on revenue sharing models. The tie-up with Apple iTunes is also a revenue sharing model in which Apple keep 30 %of the fee while its partner like Shemaroo in the case of this tie-up gains 70 %. While, for every dollar Google Play is making, Shemaroo makes almost 50 to 55 cents out of it. Shemaroo being the only listed player in second stage of film cycle stands an advantage on the back of its expertise, strong relationships with industry players and a wide variety of movie library. The company’s business risk is minimized due to its absence in theatrical release phase thus relatively insulating it from issues like piracy and high competitive intensity. The company has showed consistent performance for the quarter with revenue growing at 20 % YoY and 18 % sequentially on standalone front. On consolidated front the revenue grew by 21.4 % YoY and by 18.4 % sequentially. Revenue from digital media continued the upward curve with 52 % growth rate when compared to corresponding quarter of previous year. On sequential basis the revenue from digital media division grew by 19 %. Share of new media to revenue improved to 21.2 % vs. 17.0 % in corresponding quarter of previous year and stood steady sequentially. Traditional media too continued to grow at a healthy growth rate of 15 % YoY for the quarter under review and sequentially the revenue grew by 19 %. Share in revenue for traditional media stood at 78.8 % vs. 83.1 % YoY and stood steady sequentially. The improving share of digital media continued to drive up the operating margins for the company. EBITDA margin inclined to 29.8 % for the quarter under review against 25.2% in the corresponding quarter of the previous year. However margins stood flat sequentially. Higher operating margins of the company lead to improving profitability. Net profit for the quarter under review came in at Rs 16.9 Cr vs. Rs 11.4 Cr in the corresponding quarter of the previous year climbing by 48 % YoY. However, on sequential basis it was down by 1.8%. On consolidated front net profit grew by 35.5 % YoY to Rs 15.2 Cr and by 8 % sequentially. Higher advertising revenues from platforms like YouTube will lead to a rich pricing mix for the company. Availability of Shemaroo content over all the major digital platforms and quick monetization also leads to better margins. Furthermore, advent of Netflix in India will further enhance margins as it will be based on subscription model and Shemaroo will be paid according to international standards. The company targets 18 % Internal Rate of Return at the portfolio level, thus helping it to decide the cost of content acquisition. This augurs well for the margin growth. 4G rollout and entry of global companies like Netflix will lend a better bargaining power at the market leaders like Shemaroo’s hands thus increasing sales along with margins. Management has guided us for a northward movement in margins from here given the operating leverage they will be getting from the New Media Business with new players entering India and better pricing scenario. On the Traditional Media Business, the company expects margins to remain stable. At the current market price of Rs. 374.3, the stock is trading at a PE of 14.91 x FY17E and 11.80 x FY18E respectively. The company can post Earnings per share (EPS) of Rs. 25.10 in FY17E and Rs. 31.70 in FY17E. 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.

KEY FINANCIALSFY16FY17EFY18EFY19E
SALES ( Crs) 374.90438.60517.90613.60
NET PROFIT (₹ Cr)52.1068.0086.00106.20
EPS () 22.1025.1031.7039.20
PE (x)14.9013.1010.308.40
P/BV (x)2.402.101.701.40
EV/EBITDA (x)8.407.106.005.00
ROE (%) 15.30 17.1018.2018.70
ROCE (%)29.5029.4029.4029.50

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*As the author of this blog I disclose that I do not hold  SHEMAROO ENTERTAINMENT LTD in my any of the portfolios.

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible. 


As a Disclosures I Confirm that : 
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
 

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1 comments :

  1. Very detailed & informative insights! Have a great weekend :)

    ReplyDelete

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