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Eros begins FY12 with a strong release slate that should drive 30% top-line growth.
Realisations on TV licensing and new media are improving. We expect EBIT margin to rise
262bp as project costs are largely locked in. At 9.7x FY12F EPS, the stock looks attractive to
us given the FY11-13F PAT CAGR of 27%.
Strong big-ticket Hindi film slate to drive revenue growth in FY12
Eros’s FY12 release slate includes seven big-ticket films vs four in FY11. The film “Ready”
has made a good start, becoming one of the top-five all-time grossing Indian films. In addition
to more releases, drivers for higher realisation per film are in place: 1) more screen
coverage, with digitisation, and 2) higher TV licensing rates, with a significant portion presold. Also, better exploitation of the digitised library and secondary licensing of some older
titles could drive catalogue revenues. We forecast 30% revenue growth in FY12.
Margin expansion should continue in FY12, as budgets are still under control
Eros expanded EBIT margin by 491bp in FY11, due to success with big-budget film releases.
In addition, the full-year impact of the formal transfer pricing agreement for overseas rights
with its parent was felt in FY11. We expect continued margin expansion of 262bp in FY12, as
costs are expected to be stable (barring two large releases), while realisations are improving.
Comfortable balance sheet position provides significant headroom for growth
Eros raised Rs3.19bn through its IPO in 2010 and has already deployed about 60% in FY11,
including Rs970m repaid to its parent. The company had Rs1.1bn of net cash at the end of
4Q11. On a conservative net debt/equity of 0.5x, more than Rs4bn of additional debt could
be raised for current/future projects, not counting cash flow from FY12 releases. Hence, we
see room to add more releases. Our current FY12 forecast largely builds in only the announced
pipeline. Despite a large release slate in FY12, we see a window of opportunity in 2Q/4Q12.
Strong performance in next three quarters should drive valuation upside, in our view
The release of seven big-budget films should translate into strong growth in FY12 – we forecast
revenue and EBIT growth of 30% and 46%, respectively. We find valuation at 9.7x FY12F EPS
attractive in the context of our estimated 27% PAT CAGR over FY11-13. Any major new film/VFX
projects could drive further upside to our current forecasts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eros begins FY12 with a strong release slate that should drive 30% top-line growth.
Realisations on TV licensing and new media are improving. We expect EBIT margin to rise
262bp as project costs are largely locked in. At 9.7x FY12F EPS, the stock looks attractive to
us given the FY11-13F PAT CAGR of 27%.
Strong big-ticket Hindi film slate to drive revenue growth in FY12
Eros’s FY12 release slate includes seven big-ticket films vs four in FY11. The film “Ready”
has made a good start, becoming one of the top-five all-time grossing Indian films. In addition
to more releases, drivers for higher realisation per film are in place: 1) more screen
coverage, with digitisation, and 2) higher TV licensing rates, with a significant portion presold. Also, better exploitation of the digitised library and secondary licensing of some older
titles could drive catalogue revenues. We forecast 30% revenue growth in FY12.
Margin expansion should continue in FY12, as budgets are still under control
Eros expanded EBIT margin by 491bp in FY11, due to success with big-budget film releases.
In addition, the full-year impact of the formal transfer pricing agreement for overseas rights
with its parent was felt in FY11. We expect continued margin expansion of 262bp in FY12, as
costs are expected to be stable (barring two large releases), while realisations are improving.
Comfortable balance sheet position provides significant headroom for growth
Eros raised Rs3.19bn through its IPO in 2010 and has already deployed about 60% in FY11,
including Rs970m repaid to its parent. The company had Rs1.1bn of net cash at the end of
4Q11. On a conservative net debt/equity of 0.5x, more than Rs4bn of additional debt could
be raised for current/future projects, not counting cash flow from FY12 releases. Hence, we
see room to add more releases. Our current FY12 forecast largely builds in only the announced
pipeline. Despite a large release slate in FY12, we see a window of opportunity in 2Q/4Q12.
Strong performance in next three quarters should drive valuation upside, in our view
The release of seven big-budget films should translate into strong growth in FY12 – we forecast
revenue and EBIT growth of 30% and 46%, respectively. We find valuation at 9.7x FY12F EPS
attractive in the context of our estimated 27% PAT CAGR over FY11-13. Any major new film/VFX
projects could drive further upside to our current forecasts.
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