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Eros International Media (EROS) :Pre‐sales reduce risk; PER of 8x FY12F
EROS, a recently‐listed entertainment company, produces/ acquires,
and distributes Indian movies. In an industry marked by high risk,
EROS reduces risk significantly through pre‐sales of up to 70% of a
movie. Our FY12F EPS growth of 41% is underpinned by revenue
growth of 20% and GM expansion of 300bp to 34%. We like EROS for
its leading market share, risk‐mitigated business model, and net
cash B/S. Our TP of Rs192/sh is based on P/BV of 2x FY12F and ROE
of 21%, similar to its peer UTV Software Communications (UTV).
Initiate with BUY.
FY12F revenue to increase 20%, led by 9 big‐budget releases
Revenue growth will be driven by strong movies pipeline, 40%
increase in sale of broadcast rights; and conservative 12% increase in
movie ticket sales on growing volume and reach. Ticket sales or
theatrical revenue accounts for 70% of total revenue and is main
driver for FY11 revenue growth of 12%.
Stable content cost; FY11F GM of 31%
Increasing scale helped GM rise to 29% in FY09 from 20% in the
previous 3 years. In FY10, GM dipped slightly to 27% due to delays in
movie releases caused by an exceptional strike by theater owners.
We believe increasing scale will reduce dependence on specific
movies in future. We forecast GM to increase to 31% in FY11F and
34% in FY12F.
Net cash B/S will help fund acquisition of big‐budget movies
EROS raised Rs3.5bn in new capital in September (28% increase in
number of shares). This would help increase acquisition of big‐budget
movies to 9 movies a year from 6 in FY11.
Available at 33% PER discount to closest peer UTV, re‐rating likely
The EROS stock trades cheap relative to its EPS growth of 41% and
ROE of 21% in FY12F. We believe the 20% discount to its IPO price of
Rs175/sh is unjustified. We expect the stock to re‐rate after a few
quarters of strong and consistent earnings growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eros International Media (EROS) :Pre‐sales reduce risk; PER of 8x FY12F
EROS, a recently‐listed entertainment company, produces/ acquires,
and distributes Indian movies. In an industry marked by high risk,
EROS reduces risk significantly through pre‐sales of up to 70% of a
movie. Our FY12F EPS growth of 41% is underpinned by revenue
growth of 20% and GM expansion of 300bp to 34%. We like EROS for
its leading market share, risk‐mitigated business model, and net
cash B/S. Our TP of Rs192/sh is based on P/BV of 2x FY12F and ROE
of 21%, similar to its peer UTV Software Communications (UTV).
Initiate with BUY.
FY12F revenue to increase 20%, led by 9 big‐budget releases
Revenue growth will be driven by strong movies pipeline, 40%
increase in sale of broadcast rights; and conservative 12% increase in
movie ticket sales on growing volume and reach. Ticket sales or
theatrical revenue accounts for 70% of total revenue and is main
driver for FY11 revenue growth of 12%.
Stable content cost; FY11F GM of 31%
Increasing scale helped GM rise to 29% in FY09 from 20% in the
previous 3 years. In FY10, GM dipped slightly to 27% due to delays in
movie releases caused by an exceptional strike by theater owners.
We believe increasing scale will reduce dependence on specific
movies in future. We forecast GM to increase to 31% in FY11F and
34% in FY12F.
Net cash B/S will help fund acquisition of big‐budget movies
EROS raised Rs3.5bn in new capital in September (28% increase in
number of shares). This would help increase acquisition of big‐budget
movies to 9 movies a year from 6 in FY11.
Available at 33% PER discount to closest peer UTV, re‐rating likely
The EROS stock trades cheap relative to its EPS growth of 41% and
ROE of 21% in FY12F. We believe the 20% discount to its IPO price of
Rs175/sh is unjustified. We expect the stock to re‐rate after a few
quarters of strong and consistent earnings growth.
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