S t o c k I d e a Date: 01-June -12 CMP: `161 TARGET: `209 Upside: 30% B U Y SENSEX 15965 NIFTY 4842 Eq. Cap. (` Crs) 91.78 Face Value (`) 10.0 M. Cap (` Crs) `1,478 BSE Code 533261 NSE Code Financial Year EROSMEDIA Apr-Mar 52-w H/L 277/148 Avg. Daily Vol. 35,814 TTM EPS (`) 16.11 TTM P/E (x) 10.0x BVPS (`) 90.94 P/BVPS (x) 1.8x Stock vs. Sensex Latin Manharlal Securities Pvt Ltd. 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052 www.latinmanharlal.com EROS INTERNATIONAL MEDIA LTD. (EROS) Incorporated in 1994, Eros International Media Ltd (Eros) part of Eros Group - is one of the market leaders in the Indian film industry and has been one of the pioneers in taking Indian films to the global audiences by leveraging its wellestablished distribution network. The company co-produce, acquire and distribute Indian language films in multiple formats worldwide including; theatrical, television syndication & digital platforms. Strong Parentage + Over 3 decades of presence Being part of the Eros group, it enjoys strong parentage. The group has three decades of experience in its domain and has come a long way from being a mere film distributor to being a content aggregator. It has built a successful business model by co-producing, acquiring and distributing Hindi and other Indian regional language films across multiple channels such as theatre, television and digital new media platforms. Unparalleled market position of Eros Largest library of Indian entertainment with over 1,100 titles, Exploitation of old content on new platforms, Stable, recurring cash flows. Well established distribution network of Theatre / TV, Internet and mobile, Music / Radio / Ringtones / Print. Long-term relationship with talent: Mutually advantageous and long-term partnerships with film talent over many years, Timely execution of talent deals gives Eros International a significant competitive advantage. Healthy Box Office performance in FY12 The company released a total of 77 films during FY12, including 27 Hindi and 50 regional language films. In CY2011, 4 of the top 10 Box Office grossing Hindi language films in India were Eros films (Source: Box Office India). Positive Start to FY13E: Housefull 2 (Blockbuster) + Vicky Donor (Super Hit) Housefull 2 has so far crossed earned a net Box Office collection of `144 Crs worldwide. Vicky Donor a small scale movie release has reported a net Box Office collection of `45 Crs worldwide so far. With several high budget Hindi releases lined up across the year, CY2012E is expected to sustain the growth momentum witnessed in CY2011. Catalogue Monetization: reliable source of recurring cash flow Eros currently has a library comprising 1,100-plus films, which provides a reliable source of recurring cash flow. Even if the company does not produce any films, it can still earn revenues by monetizing its library. Currently, ~15 % of the total revenues come purely from Eros library monetization and the company expects that this percentage will grow going forward given that there are going to be lot more platforms to deliver the content. Acquisition of B4U Television Network to boost its presence Eros has plans to acquire the remaining 76% in B4U Television Network in a cash-plus-stock deal worth US$53.1 mn. B4U generates bulk of its revenues internationally, mostly through the fees earned from being a part of a cable or satellite service provider s subscription package, and also from advertising within India. We believe the deal will boost Eros presence in the entertainment value chain. At the CMP of `161, the stock is trading at 7.7x its FY13E EPS of `20.87. We recommend BUY on the stock with a 12-18 months target price of `209, providing an upside of 30% from the current levels. Please Refer DISCLAIMER on the Last Page
Company Profile Over 3 decades of presence in Indian film industry Eros International Media Ltd (Eros) part of Eros Group - is one of the market leaders in the Indian film industry and has been one of the pioneers in taking Indian films to the global audiences by leveraging its well-established distribution network. The company co-produce, acquire and distribute Indian language films in multiple formats worldwide including; theatrical, television syndication & digital platforms. Eros has aggregated rights to over 1,100 films in its library, plus an additional 700 films for which it hold digital rights only. A strong film slate, unparalleled distribution network, a remarkable film catalogue backed by its de-risking of revenues approach has been the backbone of growing profits for the company. Operating Activities Content Aggregation IPR Owner Maximum Monetization Source: Company Revenue Model Revenue Streams Medium Risk Low Risk All India Theatrical Rights International Rights Broadcast Rights Home Entertainment Music Rights Mobile/Internet etc ~40% of Revenue + ~60% of Revenue Eros International Media Ltd. 2 01-June-2012
INVESTMENT POSITIVES Strong Parentage + Over 3 decades of presence Strong distribution network spans over 50 countries Being part of the Eros group, it enjoys strong parentage. The group has three decades (35 years) of experience in its domain and has come a long way from being a mere film distributor to being a content aggregator. It has built a successful business model by co-producing, acquiring and distributing Hindi and other Indian regional language films across multiple channels such as theatre, television and digital new media platforms. The group has a strong distribution network that spans over 50 countries, with offices in India, UK, USA, Dubai, Australia, Fiji, Isle of Man and Singapore. In 2006, Eros International Plc, the holding company of the Eros Group, became the first Indian media company to list on the Alternative Investment Market (AIM) of the London Stock Exchange. Media & Entertainment Sector poised for growth India's M&E sector expected to double to `1457 bn by CY2016 from current `728 bn in CY11 20% 15% 10% Movie cost break-up 55% Artist Fees (Star cast, Director, Camera man) Pre-Production Exp. Production Post-Production Expenses Indian media industry has been one of the fast growing sectors in the economy, on the back of (i) Young India s propensity to spend on discretionary entertainment and (ii) Rising per capita income levels. According to FICCI-KPMG Report 2012, India's media and entertainment (M&E) sector registered 12% growth in 2011 to reach `728 billion and it is expected to register a CAGR of 15% by 2016 to reach `1457 billion (to double from 2011) The growth trajectory is backed by strong consumption in Tier 2 and 3 cities, continued growth of regional media, and fast increasing new media business. The growing M&E sector and improving technologies like Digital screens, Video-On-Demand (VOD) and Blu Ray output formats augur well for Eros. Cable digitisation, launch of diverse content delivery platforms, the promise of wireless broadband, increasing DTH penetration, digitisation of film distribution, growing Internet use also holds positive for the M&E sector. Co-Production Movie making: a risk mitigating measure positive for the M&E sector Co-production is not only about collaborating but a risk mitigating measure that is gaining importance for the Indian film industry faced with the vagaries of box office performance. However in recent years, a number of filmmakers and film production houses collaborated as partners, thereby sharing the cost of the film and along with it the risks and gains too. Co-production not only mitigates risk but it does improve prospects for bringing in funds through the organised sector. This also attract institutional financiers to offer funds for co-production film projects as they see it less riskier than where one producer is involved. Eros International Media Ltd. 3 01-June-2012
Unparalleled market position of Eros Largest library of Indian entertainment with over 1,100 titles, Exploitation of old content on new platforms, Stable, recurring cash flows. Indian 2006-10 Box Office Share (Hindi movies) United Kingdom 2006-10 Box Office Share Source: Company Strong relationship with talent and production houses Well established distribution network of Theatre / TV, Internet and mobile, Music / Radio / Ringtones / Print. Long-term relationship with talent: Mutually advantageous and longterm partnerships with film talent over many years, Timely execution of talent deals gives Eros International a significant competitive advantage. Healthy Box Office performance in FY12 The company released a total of 77 films during FY12, including 27 Hindi and 50 regional language films. The list includes Hindi hits like Ra. One, Zindagi Na Milengi Dobara, Ready, Rockstar and Desi Boyz and Tamil films like Velayudham, Mambattiyan, Engeyum Kadhal, Vedi, 3, Rajapattai, Nanban. Released a total of 77 films during FY12, including 27 Hindi and 50 regional language films. Source: Company, LMSPL Research In CY2011, 4 of the top 10 Box Office grossing Hindi language films in India were Eros films (Source: Box Office India). Apart from that Eros has the overseas distribution rights for Agneepath which was one of the biggest grosser of FY12. Eros International Media Ltd. 4 01-June-2012
Positive Start to FY13E: Housefull 2 (Blockbuster) and Vicky Donor (Super Hit) Housefull 2 becomes the first movie in FY13 to cross net Box Office collection of `100 Crs and has so far crossed earned a net Box Office collection of `144 Crs worldwide. Vicky Donor a small scale movie release has got very good response and has reported a net Box Office collection of `45 Crs worldwide so far. Eros has already signed up for almost 60 % of the film slate in FY2013E With several high budget Hindi releases lined up across the year, CY2012 is expected to sustain the growth momentum witnessed in CY2011. The Indian film industry (currently at ~`93 billion) is projected to grow at a CAGR of 10.1% to touch `150 billion in 2016. (Source: FICCI-KPMG 2012 report). Given this backdrop and with the company having already signed up for almost 60 % of the film slate in FY2013E, backed by strong Balance sheet, size, scale, robust content, and distribution strategy we believe Eros is well poised to take advantage of this projected growth. Good Visibility for FY13E & FY14E Source: Company Eros International Media Ltd. 5 01-June-2012
Catalogue Monetization: reliable source of recurring cash flow ~15 % of the total revenues come from Eros library monetization Eros currently has a library comprising 1,100-plus films, which provides a reliable source of recurring cash flow and enables the company to adopt a "bundling" licensing strategy which is a key competitive advantage. Even if the company does not produce any films, it can still earn revenues by monetizing its library. The company monetizes its film catalogue via television syndication deals and providing digital content for DTH satellite, IPTV, VOD, internet channels and other such services which further diversify the company revenue streams. Eros has also digitized its movie library to take further advantage of digital opportunities (digitalization). Currently, ~15 % of the total revenues come purely from Eros library monetization and the company expects that this percentage will grow going forward given that there are going to be lot more platforms to deliver the content. Eros has also started making its content 3Gcompatible due to increased demand for tablets and 3G enabled mobiles. Acquisition of B4U Television Network: will boost its presence in the entertainment value chain The acquisition will also open up a new revenue stream for Eros Eros has plans to acquire the remaining 76% (as it already holds 24% stake) in the digital broadcasting firm B4U Television Network in a cash-plus-stock deal worth US$53.1 mn (`270 Crs). B4U Television is a global television network that provides Indian programming across two digital television channels, B4U Music and B4U Movies. B4U is available in more than 100 countries, including India, the UK, the US, Canada and countries in Middle East and Africa. It generates bulk of its revenues internationally, predominantly through the fees earned from being a part of a cable or satellite service provider s subscription package, and also from advertising within India. We believe the deal will boost Eros presence in the entertainment value chain from being a content creator and distributor to a company reaching the last-mile content consumer. The acquisition will also open up a new revenue stream for Eros and that, too, with an apparently profit-making entity. CONCERNS Financials are depended on fate of Movies released. Other entertainment sources like Cricket affect footfalls in Multiplexes affecting Film performance at Box Office. Eros International Media Ltd. 6 01-June-2012
VALUATIONS At the CMP of `161, the stock is trading at 7.7x its FY13E EPS of `20.87. We recommend BUY on the stock with a 12-18 months target price of `209, providing an upside of 30% from the current levels. Source: Company, Capitaline Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai 400 052. Tel. (022) 4082 4082, Fax (022) 2649 7997. research@lmspl.com www.latinmanharlal.com, LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. Eros International Media Ltd. 7 01-June-2012