EROS INTERNATIONAL MEDIA LTD - Microsecmicrosec.in/static/pdf/Eros International Media Result Update...

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Eros International Media Limited

Microsec Research 13 September 2013

Analyst: Nitin Prakash Daga [email protected]

EROS INTERNATIONAL MEDIA LTD Update Report Q1 FY2014

Fewer releases impacted Q1 FY2014 performance, but long term outlook remains promising

In the Report:

Q1 FY2014 Results Analysis

Outlook – Q2 FY2014E

Revised Estimates: FY2014E FY2015E

Target Price Cut From `326 To `265

Maintain the ‘STRONG BUY’ rating for the Stock

Key Financial Data (In ` Crores unless specified)

Particulars FY2011A FY2012A FY2013A FY2014E FY2015E

Revenues 706.97 943.88 1,067.95 1,253.18 1,494.79

Growth (%) 10.3% 33.5% 13.1% 17.3% 19.3%

EBIDTA 399.64 560.08 695.44 855.97 1,054.33

EBIDTA Margins (%) 56.5% 59.3% 65.1% 68.3% 70.5%

Net Profit 117.23 147.84 154.53 169.52 213.82

Net Profit Margins (%) 16.6% 15.7% 14.5% 13.5% 14.3%

Net Profit Growth (%) 42.8% 26.1% 4.5% 9.7% 26.1%

Diluted EPS 14.35 16.16 16.81 18.44 23.26

BVPS 82.07 91.23 107.31 125.75 149.01

PE 13.92 13.79 11.17 7.45 5.91

PBV 4.80 2.72 1.28 1.09 0.92

RoE (%) 17.5% 17.7% 15.7% 14.7% 15.6%

Source: Company Data, Microsec Research

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Eros International Media Ltd (Eros) announced its consolidated Q1 FY2014

results on 12 August 2013. The company reported 27.5% y-o-y decline in top

line to `186.3 Crores during the quarter. Absence of high profile releases and

launch of comparatively lesser number of movies were the primary reasons for

declining revenues. Although Eros reported significant y-o-y as well as q-o-q

improvement in margins, subdued numbers at the top resulted in a decline in

net income as well. A glimpse, of the company’s Q1 FY2014 results and its

performance versus estimates, is as follows:

Valuation

Delay in high profile movies such as Kochadaiyaan kept the performance below

estimates in near term. However, from a long term perspective, such events

may result in deferment of revenues not the loss of the same. As a result, in

the long term, the company is likely to do well, in our view. Nevertheless,

below expected near term performance at revenues as well as net profits

levels led us to reduce our FY2014E and FY2015E estimates for the company.

Consequently, we reduced our estimated Diluted EPS for FY2014E to `18.44

from `22.74. Apart from subdued near term performance, slight increase in

diluted number of shares accounted for this decline.

Factoring in this reduction and a targeted PE of 14.40x, we arrived at the target

price of `265 for the stock. Our revised target price represents 18.7% reduction

to the previous target price of `326 for the stock. Furthermore, it reflects an

upside of 92.9% from the current market price of `137.40 per share.

With this, we continue to rate the stock a ‘STRONG BUY’ from a long term

perspective.

QoQ YoY

Revenues 186.3 212.3 257.0 -12.2% -27.5%EBIT 39.5 40.1 51.7 -1.5% -23.6%

EBIT Margins (%) 21.2% 18.9% 20.1% 230 bps 108 bps

Net Profit 29.3 31.8 31.4 -7.7% -6.6%PAT Margins (%) 15.7% 15.0% 12.2% 77 bps 353 bps

EPS 3.19 3.46 3.42 -7.8% -6.7%

Quarterly Numbers

Source: Company Data, Microsec Research, In ` Crores

Particulars Q1 FY14A Q4 FY13A Q1 FY13A Change

Microsec Bloomberg

Revenues 186.3 324.1 221.2 -42.5% -15.8%EBIT 39.5 65.8 27.5 -40.0% 43.6%

EBIT Margins (%) 21.2% 20.3% 12.4% 90 bps 876 bps

Net Profit 29.3 42.4 39.1 -30.9% -25.0%PAT Margins (%) 15.7% 13.1% 17.7% 266 bps (193)bps

EPS 3.19 4.62 4.26 -31.0% -25.1%Source: Company Data, Microsec Research, In ` Crores

Actual vs Estimates

Particulars Q1 FY14A Q1 FY14E Microsec

Bloomberg Estimates

Variation vs Estimates

Fewer releases impacted performance

Update Q1 FY2014 Sector – Film

Promoters74.9%

FII11.4%

DII3.0%

Others10.8%

Shareholding Pattern

BSE Code 533261

NSE Code EROSMEDIA

Bloomberg Ticker EROS IB

Reuters Ticker EROS.BO

Face Value (INR) 10.00

Equity Share Capital (In ` Crores) 91.92

Average P/E 17.1x

Beta vs Sensex 1.07

Average Daily Volume 60,918

Dividend Yield 1.1%

PEG Ratio 0.35

STOCK SCAN

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Eros Sensex

Analyst:

Nitin Prakash Daga

[email protected]

Current Market Price (`) 137.40

Target Price (`) 265.00

Upside (%) 92.9%

52 Week High / Low (`) 235.05 / 106.50

Market Capitalization (` Crores) 1,263.00

MARKET DATA

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Key highlights – Q1 FY2014

Fewer number of releases dented top line. Eros released just 12 films during the quarter compared with 23

films in Q1 FY2013. Of these, 7 were in Hindi films while 5 movies were in Tamil. Among Hindi movies,

Raanjhanaa did extremely well on box office and being a modestly budgeted movie, it helped Eros report

improvement in margins as well. Top three releases by the company with effective gross box office collections

are as follows:

Raanjhanaa - `100 Crores

Ye Jawaani Hai Deewani - `60 Crores (Overseas)

Go Goa Gone - `42 Crores

Apart from less number of releases, higher share of movies, for which the company had overseas rights, also

impacted Eros’ top line. However, contribution from Television (TV) licensing deals supported its revenues in

Q1 FY2014.

Margins expanded due to improved movie mix and performance of other businesses. Eros’ movie portfolio did

not include high profile movies in Q1 FY2014. In addition, Raanjhanaa, the company’s moderately budged

movie did well and touched gross box office mark of `100 Crores. This factor, coupled with higher share of

overseas movies and contribution from ancillary businesses enabled Eros report 108 basis points (bps)

improvement in the operating margins to 21.2% during the quarter.

Higher other income capped the decline in bottom line. Eros reported other income of `7.89 Crores in Q1

FY2014 versus a comparable number of `2.22 Crores, a year earlier. Moreover, the income came even above

`6.40 Crores, which was the full year other income for FY2013. With significant increase in other income, the

company was able to limit the y-o-y reduction in net profits to just 6.6% compared with a 27.5% y-o-y decline

in top line and 23.6% y-o-y drop in operating profits.

Initiatives to increase presence on TV and strengthening of Eros Now remained in focus. The company continued

with its initiatives to strengthen the presence on TV platform. While licensing of its movie library and new

releases on TV remained progressive, the company announced collaboration with HBO Asia to launch two new

premium channels. The advertisement free channels are expected to exhibit content from Bollywood and

Hollywood. Eros launched these channels – HBO Defined and HBO Hits on two of the leading Direct-to-Home

(DTH) platforms of the country – Dish TV and Airtel DTH. It plans to further extend the offering to other DTH

and cable operators.

Eros’ initiatives to monetize its content library through Eros Now are also progressing well. Additionally, the

company expects the popularity of the same to grow with the gaining traction of 3G and 4G technologies and

increased usage of smart phones.

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Going Forward – Healthy movie pipeline boosts outlook

Healthy movie pipeline assures long term growth for theatrical business. With a notable quantum of high profile

movies scheduled to be released by Eros in next couple of years, the company is likely to report healthy

performance, going forward. Among these films, Kochadaiyaan, Krrish 3 (Overseas), Ram Leela, and Rambo

Rajkumar may get released within FY2014E. In FY2015E, Eros’ high profile releases are likely to include Sarkar

3, Tanu Weds Manu Season 2, Rana, and Aankheen 2 etc. A detailed list of upcoming releases by the company,

coupled with the probable year of release is displayed in the following table:

Although Eros underperformed in Q1 FY2014, its wealthy movie pipeline is likely to help the company report

strong performance in FY2014E and FY2015E. With this, on the theatrical business front, Eros may witness an

upturn in the top line in the upcoming quarters. However, such growth is likely to be skewed towards the third

quarter due to seasonality.

Digitization, strong content library is likely to strengthen TV platform. Eros’ TV licensing deals supported its

performance in Q1 FY2014. The business is likely to do so in the upcoming quarters as well. Continued addition

of new releases to the company’s already strong content library is likely to keep the business’ revenues

northward.

MOVIE STAR CAST Releasing in

Warning (3D) Santosh Barmola, MadhurimaTuli, Manjari Phadnis (Anubhav Sinha) FY14

Dekh Tamasha Dekh Satish Kaushik & others (Feroz Khan) FY14

Kochadaiyaan (Tamil, hindi,Telugu) Rajnikanth, Deepika Padukone, (Soundarya Rajnikanth) Music - A.R. Rehman FY14

Dishkiyaaoon Sunny Deol, Harman Baweja, (Sanamjit Singh Talwar) FY14

Singh Saab The Great Sunny Deol (Anil Sharma) FY14

Ram Leela Ranveer Singh, Deepika Padukone (Sanjay Leela Bhansali) FY14

Rambo rajkumar Shahid Kapoor, Sonakshi Sinha (Prabhu Deva) FY14

Krrish 3 (overseas) Hrithik Roshan, Priyanka Chopra (Rakesh Roshan) FY14

Happy ending Saif Ali Khan, Ileana D’Cruz (Raj and DK) FY14

Purani Jeans Aditya Seal (Tanushree Basu) FY14

Illuminati Untitled Armaan Jain (Arif Ali) FY14

Ku Ku Mathur Ki Jhand ho Gayi (overseas) Siddharth Gupta, Simran Kaur Mundi (Aman Sachdeva) FY14

Chalo China Lara Dutta,Vinay Pathak FY15

Tanu Weds Manu Season 2 R. Madhavan, Kangana Ranaut (Anand Rai) FY15

Boney Kapoor Untitled Arjun Kapoor, Sonakshi Sinha (Okkadu remake) FY15

Sarkar 3 Amitabh Bachchan, Abhishek Bachchan (Ram Gopal Varma) FY15

Rana (Tamil, hindi,Telugu) Rajnikanth (K.S.Ravikumar) FY15

R.Balki Untitled (R.Balki) FY15

Bajirao Mastani (Sanjay Leela Bhansali) FY15

Tamil Untitled Rajnikanth FY15

Aankheen 2 Abhishek Bachchan (Apoorva Lakhia) FY15

Illuminati Untitled Saif Ali Khan (Saket Choudhary) FY15

3 films endemol India Various FY15

3 films Phantom films Various FY15

Source: Company Data, Microsec Research; Releasing in represents the expected releasing year of the movie, which may be different, if the release gets delayed or preponed

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Furthermore, Eros’ entry into the broadcasting space through pact with HBO is likely to reap healthy benefits

in the long run. The company has already introduced the two channels on Dish TV and Airtel DTH and plans to

launch the same on other platforms as well. The Indian government’s digitization spree across the nation,

which is likely to result in enhanced and transparent addressable user base, is expected to further boost the

business’ performance.

Rising internet penetration is expected to propel Eros Now. Eros Now is the company’s e-portal that helps Eros

monetize its content by enabling on demand provision of the same on internet. Streaming of live and buffering

free videos require high internet speeds. As a result, increased penetration of broadband user base and

advancement of current internet platforms to 3G and 4G is likely to remain beneficial for online entertainment

platforms such as Eros Now. Coupled with enhanced internet speeds at affordable rates, the platform is

expected to get support from ongoing expansion in the company’s content library through new releases and

rising smart phone sales in the country.

With theatrical business expected to perform well led by healthy movie pipeline and non-theatrical business

gaining traction, Eros is likely to report strong fundamentals in the upcoming years. However, in Q2 FY2014E

the company may continue to report moderate numbers, as displayed below.

Amongst the key contributors, the quarter’s performance is likely to be aided by tail end exhibition revenues of

Raanjhanaa, full collections of Bajatey Raho and overseas earnings of Grand Masti and Lootera. Furthermore,

TV licensing deals and Eros Now may continue to factor in the quarterly numbers. Go Goa Gone has already

been displayed on the small screen and Raanjhanaa is scheduled for the same on 15 September 2013.

Movement of Stock – Eros’ stock witnessed a sharp volatility recently, primarily due to reasons other than

fundamentals. Despite a successful ‘Offer for Sale’ at floor price of `200 per share, the stock was failed to

manage strength. However, we continue to believe that the company’s strong fundamentals and promising

movie pipeline may help it come over the short term constraints. On valuation front as well, at CMP of `137.40,

the stock discounts FY2014E EPS at 7.45x and FY2015E EPS at 5.91x, which seems attractive. In addition, at

these levels, the stock is trading at 8.20x of its TTM EPS, which is at significant discount to its three year

average PE of 12.96x.

QoQ YoYRevenues 226.8 186.3 229.3 21.7% -1.1%EBIT 44.2 39.5 42.3 12.0% 4.7%

EBIT Margins (%) 19.5% 21.2% 18.4% (169)bps 107 bps Net Profit 30.0 29.3 26.1 2.2% 15.0%PAT Margins (%) 13.2% 15.7% 11.4% (252)bps 186 bps EPS 3.26 3.19 2.83 2.2% 15.3%

Source: Company Data, Microsec Research, In ` Crores

Expected Performance - Q2 FY2014E

Particulars Q2 FY14E Q1 FY14A Q2 FY13A Change

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Risks to the rating

Eros’ performance, historically, was impacted by the delays in launch of key movies. A

repetition of the same in future may adversely affect its performance. However, such

phenomenon is short term in nature as deferment of movies lead to shift of revenues in the

quarters to come.

The stock underperformed the broader markets due to reasons, other than fundamentals, in

past. These factors may prevail, going forward as well. However, we believe that the

company’s fundamental performance will help it resist such developments in longer term.

The regulatory environment for film industry remained positive with the government’s push for

digitization. However, the government’s intentions to streamline the tax structure for the

industry, across the nation, may negatively impact its performance. Currently, India imposes

taxes on film industry on a state-by-state basis. A uniform tax structure may deprive the

industry from the entertainment tax benefits prevailing in some states. The subdued

performance of industry could impact Eros’ performance as well. Nevertheless, the company’s

strong content library, which helps it diversify the revenue streams, could help it negate the

impact.

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Revised Consolidated Financials (All data in ` Crores unless specified)

Income Statement FY2011A FY2012A FY2013A FY2014E FY2015E

REVENUES FROM OPERATIONS 706.97 943.88 1,067.95 1,253.18 1,494.79

Purchases / Operating Expenses 251.63 317.76 296.61 306.28 333.34

Changes in inventory of finished goods 0.84 (2.92) (2.55) - -

Employee Benefit Expenditure 25.28 22.55 27.29 30.77 35.21

Other Expenses 29.58 46.41 51.16 60.16 71.91

EBIDTA 399.64 560.08 695.44 855.97 1,054.33

Depreciation including Amortization of Film Rights 247.32 353.69 475.62 609.63 744.40

EBIT 152.32 206.39 219.82 246.34 309.94

Finance Costs 9.39 13.44 9.22 14.31 12.93

Other Income 8.95 19.30 6.40 7.51 8.96

PBT 151.88 212.25 217.00 239.54 305.96

TAX 33.67 63.14 61.19 68.74 90.87

PAT Before Minority Interest 118.21 149.11 155.81 170.80 215.10

Minority Interest 0.98 1.27 1.28 1.28 1.28

PAT After Minority Interest 117.23 147.84 154.53 169.52 213.82

Diluted EPS 14.35 16.16 16.81 18.44 23.26


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Balance Sheet FY2011A FY2012A FY2013A FY2014E FY2015E

EQUITY AND LIABILITIES

Shareholders' Funds

Share Capital 91.41 91.74 91.92 91.92 91.92

Reserves and Surplus 579.07 742.87 894.58 1,064.10 1,277.92

Total Shareholders' Funds 670.48 834.61 986.50 1,156.02 1,369.84

Minority Interest 5.14 6.41 7.69 7.69 7.69

Deferred Tax Liabilities (Net) 68.48 103.68 155.63 155.63 155.63

Non Current Liabilities

Long Term Borrowings 22.87 112.53 130.09 130.09 105.09

Other Long Term Liabilities 7.42 8.26 6.46 6.46 6.46

Long Term Provisions 0.74 0.72 1.19 1.19 1.19

Total Non Current Liabilities 31.03 121.51 137.74 137.74 112.74

Current Liabilities

Short Term Borrowings 215.86 323.71 253.99 219.31 224.22

Trade Payables 29.11 115.34 142.33 151.77 168.29

Other Current Liabilities 340.71 165.34 107.84 112.27 123.29

Short Term Provisions 5.24 3.55 13.25 14.13 15.67

Total Current Liabilities 590.92 607.94 517.41 497.47 531.46

TOTAL EQUITY AND LIABILITIES 1,366.05 1,674.15 1,804.97 1,954.55 2,177.36

ASSETS

Fixed Assets

Tangible Assets 11.45 56.40 49.62 82.96 117.31

Intangible Assets 320.54 472.38 742.64 946.41 1,110.36

Content Advances (Net) 399.20 426.50 438.64 438.64 438.64

Non Current Investments 8.00 8.00 8.00 8.00 8.00

Deferred Tax Assets (Net) 0.74 1.45 2.16 2.16 2.16

Long Term Loans and Advances 16.75 9.50 25.12 25.12 25.12

Other Non Current Assets 12.64 6.93 60.59 60.59 60.59

Total Fixed Assets 816.98 982.66 1,326.77 1,563.89 1,762.19

Current Assets

Current Investments 147.47 43.50 0.20 0.20 0.20

Inventories 4.68 7.03 9.58 10.22 11.33

Trade Receivables 133.49 244.97 214.97 235.09 259.94

Cash and Bank Balances 143.54 300.36 172.50 42.15 20.85

Short Term Loans and Advances 20.20 30.54 24.03 34.33 40.95

Other Current Assets 99.69 65.09 56.92 68.67 81.91

Total Current Assets 549.07 691.49 478.20 390.66 415.17

TOTAL ASSETS 1,366.05 1,674.15 1,804.97 1,954.55 2,177.36


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Cash Flow Statement FY2011A FY2012A FY2013A FY2014E FY2015E

CASH FLOW FROM OPERATING ACTIVITIES

Profit before tax 151.88 212.25 217.00 239.54 305.96

Depreciation and Amortization 247.32 353.69 475.62 609.63 744.40

Finance Costs (Net) 9.39 13.44 9.22 14.31 12.93

OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 411.16 570.75 710.79 863.48 1,063.29

Increase / (Decrease) in trade payables (33.94) 86.46 27.33 9.44 16.53

Increase / (Decrease) in other current liabilities 7.98 (149.53) (66.39) 4.43 11.02

Increase / (Decrease) in short term provisions 2.38 (0.67) 0.82 0.88 1.54

(Increase) / Decrease in Inventories 36.19 (2.35) (2.55) (0.64) (1.11)

(Increase) / Decrease in trade receivables (5.65) (111.57) 28.23 (20.12) (24.85)

(Increase) / Decrease in short term loans and advances 18.00 (10.34) 6.52 (10.30) (6.62)

(Increase) / Decrease in other current assets 92.93 12.98 (1.33) (11.75) (13.24)

Cash Generated from operations 455.12 409.51 685.26 835.42 1,046.55

Taxes Paid (Net of Refunds) (28.42) (8.26) (45.64) (68.74) (90.87)

NET CASH GENERATED FROM OPERATING ACTIVITIES 426.70 401.25 639.62 766.68 955.69

CASH FLOW FROM INVESTING ACTIVITIES

Capital expenditure on fixed assets with capital advances (547.69) (529.98) (754.86) (846.75) (942.69)

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from issue of equity shares (net) 320.60 3.82 2.32 - -

Proceeds/repayment of Long term borrowings (Net) (33.93) 65.28 24.79 - (25.00)

Proceeds from short term borrowings (Net) 53.31 107.85 (69.72) (34.68) 4.91

Finance charges (6.95) (14.90) (22.33) (15.59) (14.21)

NET CASH GENERATED FROM FINANCING ACTIVITIES 333.35 163.79 (64.85) (50.27) (34.30)

Net increase in cash and cash equivalents 216.95 (117.17) (132.65) (130.35) (21.31)

Cash and cash equivalent at the beginning of the year 83.01 290.86 180.30 172.50 42.15

Effect of exchange rate on consolidation of foreign subsidiaries (9.10) 6.61 5.38 - -

Cash and cash equivalent at the ending of the year 290.86 180.30 53.03 42.15 20.85


Note: The difference between Closing Cash and Cash Equivalents of FY2013A and Opening Cash and Cash Equivalents of FY2014E is due to adjustments of fixed deposits in banks and other investments

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Microsec Research: Phone No.: 91 33 30512100 Email: [email protected]

Ajay Jaiswal: President, Investment Strategies, Head of Research: [email protected]

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment AVP‐Research [email protected]

Naveen Vyas Midcaps, Market Strategies AVP‐Research [email protected]

Sutapa Roy Economy Research Analyst s‐[email protected]

Sanjeev Jain BFSI Research Analyst [email protected]

Neha Majithia Metal, Mineral & Mining Research Analyst [email protected]

Soumyadip Raha Mid Cap Executive Research [email protected]

Saroj Singh Mid Cap Executive Research [email protected]

Kapil Bhati Mid Cap Executive Research Associate [email protected]

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical Senior VP [email protected]

Ranajit Saha Technical Research Sr. Manager [email protected]

Institutional Desk

Puja Shah Institutional Desk Dealer [email protected]

Abhishek Sharma Institutional Desk Dealer [email protected]

PMS Division

Siddharth Sedani PMS Research AVP [email protected]

Ketan Mehta PMS Sales AVP [email protected]

Research: Financial Planning Division

Shrivardhan Kedia FPD Products Manager Research [email protected]

Research‐Support

Subhabrata Boral Research Support Asst. Manager Technology [email protected]

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EROS INTERNATIONAL MEDIA LTD - Microsecmicrosec.in/static/pdf/Eros International Media Result Update...

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