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Eros International (EROS)
Media
Strong storyline. BUY. Eros International Media (EROS) is a leading Indian film studio
with promising prospects arising out of (1) rising market share in the Hindi film industry
post the economic downturn, (2) expansion into emerging but lucrative regional film
markets, (3) strengthening theatrical and digital distribution network, (4) increasing
competition on C&S TV for film content and (5) large and expanding film
catalog/library. We initiate coverage with a BUY rating and 12-month forward fair value
of Rs200, based on 8.5X FY2012E EV/EBIT.
12-month forward fair value of Rs200 offers 40% potential upside
We initiate coverage on EROS with a BUY rating at 12-month forward fair value of Rs200, based
on 8.5X FY2012E EV/EBIT, ~30% discount to regional print and ~35% discount to broadcasting in
India. Our relative valuation comparables capture the early stage of development of the Indian
media industry coupled with strong growth (emerging ancillary revenue streams including C&S TV
licensing); the discount captures film business dynamics.
EROS: Leading Indian film ‘studio’ with increasing focus on content
Eros group is the leading Hindi film studio in overseas markets with the widest distribution
network and strongest movie library (>2,000 films). Eros International Media (EROS) is the Indian
subsidiary of the Eros Group, transforming into one of the leading Indian films studios within the
last decade, establishing an extensive domestic theatrical and ancillary distribution network. EROS
aims to (1) strengthen the content focus of the group, (2) increase its market share in Hindi film
market and (3) expand in emerging regional film markets. EROS’ large, diverse and expanding film
library is the key differentiator.
Financials: Larger new release film slate, expanding catalog key drivers
We model strong 32% CAGR in EBIT between FY2011E and FY2013E led by 27% CAGR in
revenues driven by (1) larger new film release slate (rising market share), (2) transformation of
Indian film industry (multiplexes, emerging ancillary revenue streams) and (3) expanding catalog of
films. (1) Decline in cost of film production (profit share with talent) and (2) reduced print costs
(digitization of box office) are likely to be key margin drivers.
Key risks: Execution, costs, Hollywood, piracy, capital, Eros Group dependence
Key risks to the Indian film industry include (1) ‘hit or miss’ nature of business, (2) limited
availability of quality talent, (3) slowdown in theatre expansion, (4) rising clout of Hollywood and
(5) continued problem of extensive piracy. The key risks to EROS include (1) hard-to-predict TV
licensing income, (2) dependence on Eros Group, (3) sustained capital requirement given ‘long-tail’
of revenues and (4) execution risks in new business initiatives.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eros International (EROS)
Media
Strong storyline. BUY. Eros International Media (EROS) is a leading Indian film studio
with promising prospects arising out of (1) rising market share in the Hindi film industry
post the economic downturn, (2) expansion into emerging but lucrative regional film
markets, (3) strengthening theatrical and digital distribution network, (4) increasing
competition on C&S TV for film content and (5) large and expanding film
catalog/library. We initiate coverage with a BUY rating and 12-month forward fair value
of Rs200, based on 8.5X FY2012E EV/EBIT.
12-month forward fair value of Rs200 offers 40% potential upside
We initiate coverage on EROS with a BUY rating at 12-month forward fair value of Rs200, based
on 8.5X FY2012E EV/EBIT, ~30% discount to regional print and ~35% discount to broadcasting in
India. Our relative valuation comparables capture the early stage of development of the Indian
media industry coupled with strong growth (emerging ancillary revenue streams including C&S TV
licensing); the discount captures film business dynamics.
EROS: Leading Indian film ‘studio’ with increasing focus on content
Eros group is the leading Hindi film studio in overseas markets with the widest distribution
network and strongest movie library (>2,000 films). Eros International Media (EROS) is the Indian
subsidiary of the Eros Group, transforming into one of the leading Indian films studios within the
last decade, establishing an extensive domestic theatrical and ancillary distribution network. EROS
aims to (1) strengthen the content focus of the group, (2) increase its market share in Hindi film
market and (3) expand in emerging regional film markets. EROS’ large, diverse and expanding film
library is the key differentiator.
Financials: Larger new release film slate, expanding catalog key drivers
We model strong 32% CAGR in EBIT between FY2011E and FY2013E led by 27% CAGR in
revenues driven by (1) larger new film release slate (rising market share), (2) transformation of
Indian film industry (multiplexes, emerging ancillary revenue streams) and (3) expanding catalog of
films. (1) Decline in cost of film production (profit share with talent) and (2) reduced print costs
(digitization of box office) are likely to be key margin drivers.
Key risks: Execution, costs, Hollywood, piracy, capital, Eros Group dependence
Key risks to the Indian film industry include (1) ‘hit or miss’ nature of business, (2) limited
availability of quality talent, (3) slowdown in theatre expansion, (4) rising clout of Hollywood and
(5) continued problem of extensive piracy. The key risks to EROS include (1) hard-to-predict TV
licensing income, (2) dependence on Eros Group, (3) sustained capital requirement given ‘long-tail’
of revenues and (4) execution risks in new business initiatives.
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