The story so far ………..
Eros Media is one of India's leading integrated film producing and distributing company with a robust business model built around co-production of films and content acquisition from third parties for distribution across media formats like Theatres,Television and Digital Media. It also has a controlling stake in 'Ayngaran' an established player in Tamil content and distribution business in South India. It has a strong balance sheet and diversified revenue stream with one of the largest content library comprising of more than 1100 films coupled with a large global distribution network across more than 50 countries. Its recent deal with Viacom Colors Channel bears testimony to its ability to unlock value from its content library
The story ahead ………..
Eros adopts an acquisition and co-production model (due to its long standing relationship with production houses) which allows rapid ramp-up and visibility of its movie slate. Simultaneous screening across multiplexes and digital screens ensures substantial revenues in the first two weeks of the movie release and although poor box office performance of movies distributed can dent performance,its strategy of pre-selling satellite and music rights to TV channels and Internet even before the movie release for theatrical screening helps mitigate this risk besides reducing working capital.
Given the increased demand for Tablets and 3G enabled Mobiles, contribution of library revenues is expected to increase as Eros has already digitalised its content library.
A scalable business model generating an ROE of 20 percent available at 8xFY'13E earnings of Rs20 makes Eros Media an attractive bet at CMP of Rs165. Buy with a price target of Rs240
Thanks and Regards
LKP Advisory
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