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 FINANCIALS | FY16 | FY17E | FY18E | FY19E |
|---|---|---|---|---|
| SALES (₹ Crs) | 374.90 | 438.60 | 517.90 | 613.60 |
| NET PROFIT (₹ Cr) | 52.10 | 68.00 | 86.00 | 106.20 |
| EPS (₹) | 22.10 | 25.10 | 31.70 | 39.20 |
| PE (x) | 14.90 | 13.10 | 10.30 | 8.40 |
| P/BV (x) | 2.40 | 2.10 | 1.70 | 1.40 |
| EV/EBITDA (x) | 8.40 | 7.10 | 6.00 | 5.00 |
| ROE (%) | 15.30 | 17.10 | 18.20 | 18.70 |
| ROCE (%) | 29.50 | 29.40 | 29.40 | 29.50 |
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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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Disclaimer:
Disclaimer:
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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