Eros International Media Ltd. Rs. 154

Transcription

1 India Equity Institutional Research Media & Entertainment Result Update Eros International Media Ltd. Rs. 154 Movies lined-up for FY15E looks promising BUY Catalogue monetization led positive surprise at both revenue and margin front Revenue grew by 17% YoY to Rs.433 crore in Q3 FY14 against our expectation of Rs.404 crore. Positive surprise at revenue front was led by huge spurt in catalogue monetization which increased by around 75% YoY to Rs.60 crore in Q3 FY14. Revenue from other main streams such as theatrical and satellite rights were more or less in with expectation i.e. ~Rs.170 crore (39% of revenue) and ~Rs.110 crore (25% of revenue), respectively, in Q3 FY14. EBITDA margin improved by 679 bps QoQ to 31.3% in 3Q FY14 significantly better than our estimates of 25% margin level. Higher than expected EBITDA margin was primarily led by catalogue monetization as minimum expenditure is incurred for earning the same and hence top-line directly flows to bottom-line. Movies lined-up for FY15E looks promising The company is planning to release in FY15E eight movies of A category of which 4 will be in Hindi and 4 in regional languages such as Tamil & Telugu. Big movies lined up for release in H1 FY15E are Happy Ending (starring Saif Ali), Action Jackson (star cast includes Ajay Devgan and Sonakshi Sinha) and Kochadaiyaan (starring Rajnikanth, Deepika Padukone and music composed by A R Rehman). EBITDA margin is likely to be around 25% in FY14E and FY15E The management expects EBITDA margin to be around 25% in FY14E and FY15E; as compared to historical average i.e. ~22% range, supported by revenue flow from catalogue monetization which has relatively higher margin as compared to other revenue streams. Target Price (Rs):213 Potential Upside :38% Previous TP (Rs): 210 Market Data Shares outs (Cr) 9.2 Equity Cap (Rs Cr) 91.9 Mkt Cap (Rs. Cr) 1, Wk H/L (Rs.) 201/107 Avg Vol (1yr avg) 284,200 Face Value (Rs.) 10 Bloomberg Code EROS IN Market Info: SENSEX 20,634 NIFTY 6,127 Price Performance Parent company committed that new deal terms will be similar to current deal in respect of sharing overseas films right Parent company s top management downplayed the street concerns about significant changes in respect of terms for sharing overseas films rights on deal renewal in October Under the current deal, Parent Company i.e. Eros International Plc pay ~39% of film cost for overseas rights to Eros International Media Ltd. We believe, clarity from Parent Company will remove major overhang on the stock Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Eros Aug-13 Sep-13 Oct-13 Nov-13 Sensex Dec-13 Jan-14 Feb-14 Valuation and view We believe strong movie slate lined-up for release in FY15E will support mid-teen growth rate in the coming year. Moreover, we expect EBITDA margin will continue to be in the range of 25% supported by catalogue monetization. Further, clarity from Parent Company in respect of terms for sharing overseas films rights on agreement renewal will remove major overhang on the stock. We recommend BUY on the stock with a price target of Rs.213 by assigning P/E multiple of 13 times to FY15E adjusted EPS of Rs Exhibit 1: Key Financial Particulars, Rs Crs FY12 FY13 FY14E FY15E Net sales EBITDA Reported PAT PAT after adjustment for amortization EBITDA Margin (%) 22.5% 21.2% 25.3% 25.2% Adjusted NPM (%) 12.0% 10.6% 12.0% 12.3% Adjusted EPS, RS Adjusted P/E, x EV/EBITDA RoE (%) 13.6% 11.4% 11.2% 11.2% Share Holding pattern (%) Particulars Dec-13 Sep-13 % Chg Promoter FII DII Others Total Source: BSE Analysts : Hardik R. Shah hardik.r.shah@krchoksey.com KRChoksey Institutional Research is also available on Bloomberg KRCS<GO>, Thomson Reuters, Factset and Capital IQ 18 th February, 2014

2 Other Key Highlights The company s net debt at the end of Q3 FY14 stood at Rs.280 crore which is more or less at the same level in Q3 FY13. With the tie-up with Tata Sky in December 2013, Eros has covered around 80% of 80 million DTH homes. The company is witnessing significant traction for HBO premium channels and expect momentum to pick up further once it starts marketing services aggressively, going forward. Production cost during 9M FY14 stood at Rs.600 crore and for FY14E is likely to be in the range of Rs.750 crore to Rs800 crore. In FY15E, production cost will be in the range of Rs.800 crore to Rs900 crore. The company has attractive movie slate lined-up for FY15E especially Q1 FY15E looks very strong supported by release of Kochadaiyaan, Action Jackson and partial revenue flow from Happy Ending. Release date Upcoming Movies Director Star cast Q4 FY14E 28-Feb-14 Shaadi Ke Side Effects Saket Chaudhary Farhan Akhtar,Vidya Balan 21-Mar-14 Dishkiyaaoon Sanmjit Singh Talwar Sunny Deol, Harman Baweja 28-Mar-14 Happy Ending Raj and DK Saif Ali Khan, Ileana D'Cruz Q1 FY15E 11-Apr-14 Kochadaiyaan (Tamil, Hindi, Telugu) Soundarya Ashwin Rajnikanth, Deepika Padukone, Music A R Rehman 6-Jun-14 Action Jackson Prabhu Deva Ajay Devgn, Sonakshi Sinha Q2 FY15E 12-Sep-14 NH-10 Navdeep Singh Anushka Sharma, Neil Bhoopalam FY15E Tanu Weds Manu Season 2 Anand RaI R. Madhavan, Kangana Ranaut Tewar Amit Sharma Arjun Kapoor, Sonakshi Sinha R.Balki Untitled R.Balki Amitabh Bachchan, Dhanush Sarkar 3 Ram Gopal Varma Amitabh Bachchan, Abhishek Bachchan Exact release date AANKHEEN 2 Apoorva Lakhia Abhishek Bachchan yet to be announced Ku Ku Mathur ki Jhand ho gayi Aman Sachdeva Siddharth Gupta, Simran Kaur Mundi Illuminati Untitled Arif Ali Armaan Jain Dekh Tamasha Dekh Feroz Abbas Khan Satish Kaushik & others Purani Jeans Tanushree Basu Aditya Seal Chalo China Shashank Ghosh Vinay Pathak, Lara Dutta 2 KRChoksey - Institutional Research

3 Exhibit2: Q3FY14: Result Key Financials Particulars Q3FY14 Q3FY13 YoY 9M FY14 9M FY13 YoY Revenue % % Total operating expenses % % EBITDA % % EBITDA Margin (%) 31.3% 24.5% 679 bps 27.6% 21.6% 601 bps Depreciation % % Interest Exp. (net) % % Other income % % Exceptional items Profit before tax % % Tax % % Net Profit (before minority interest) % % Minority interest Net profit % % Adjusted Net Profit % % Adjusted Net Profit Margin (%) 21.3% 17.7% 361 bps 19.3% 14.3% 497 bps Adjusted EPS (In Rs.) % % Exhibit 3: Profit and Loss Statement Net sales Expenditure Operating expenses Changes in inventories of finished goods Employee benefit expenses Other expenses EBITDA (Excl OI) Other income Depreciation EBIT Interest expense PBT Tax PAT before MI Minority interest Reported PAT PAT after adjustment for amortization EBITDA 22.5% 21.2% 25.3% 25.2% Adjusted NPM 12.0% 10.6% 12.0% 12.3% Exhibit 4:Cashflow Statement Cash flow from operating activity Operating profit before working capital changes Cash generated from operations Taxes paid Net cash generated from operating activities Net cash used from investment activities Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Net cash and cash equivalents Source: Company data, KRChoksey Research 3 KRChoksey - Institutional Research

4 Exhibit 5: Balance Sheet Share Capital Reserves and Surplus Shareholders' funds Minority interest Non Current liabilities Long term borrowings Deferred tax liabilities (Net) Other long term liabilities Long term provision Current liabilities Short term borrowings Trade payable Other current liabilities Short term provisions Total Assets Fixed assets Tangible assets Intangible assets Content advance (net) Non current investments Deferred tax assets Long term loans and advances Other non current assets Current assets Current investments Inventories Trade receivables Cash and bank balance Short term loans and advances Other current assets Total Exhibit 6: Ratios Particulars FY12 FY13 FY14E FY15 Leverage Ratio Debt / Equity Interest Coverage Ratio Turnover ratio Capital Turnover ratio Fixed Assets Turnover ratio Debtors Turnover ratio Inventory Turnover ratio Profitability Ratio ROE or RONW 17.7% 15.7% 15.0% 15.0% ROCE 13.3% 12.5% 13.0% 13.1% Operating margins 22.5% 21.2% 25.3% 25.2% Net Profit margins 15.7% 14.5% 16.2% 16.5% 4 KRChoksey - Institutional Research

5 Rajiv Choksey Director Anuj Choksey Head-Institutional Equities Eros International Media Ltd Rating Legend CMP (Rs) TP (Rs) Recommendation Our Rating Upside Buy More than 15% 18-Feb BUY Accumulate 5% - 15% 28-Jan BUY Hold 0 5% Reduce -5% 0 3-Jan BUY Sell Less than -5% Disclaimer: This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, investors are advised to satisfy themselves before making any investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, KRC Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of KRC Investment Advisory Services. As per SEBI requirements it is stated that, Kisan Ratilal Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale thereof while this report is in circulation. Please send your feedback to research.insti@krchoksey.com Visit us at Kisan Ratilal Choksey Shares and Securities Pvt. Ltd. Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai Phone: ; Fax: Corporate Office: ABHISHEK, 5th Floor, Link Road, Dalia Industrial Estate, Andheri (W), Mumbai Phone: ; Fax: KRChoksey - Institutional Research