High growth potential; de-risked model!!!
Eros International, a leading producer/distributor with the largest film
library is best positioned to capitalise on changing dynamics of the film
entertainment industry. While increasing penetration of multiplex screens
& higher average ticket prices will lead to robust growth in theatrical
revenue, advent of premium TV, pay per view, online media & rise in cost
of satellite rights on the back of imminent digitisation will help monetise
the long tail more effectively. Bundled deals with satellite channels and
guaranteed 39% cost recovery from its parent make the company’s
business model relatively de-risked. A consistent track record in
delivering three to four movies in the top 10 grosser at box office each
year & strong movie slate lends stability & visibility to future earnings.
Eros is expected to post revenue & PAT CAGR of 19.4% and 19.1%,
respectively, over FY12-15E. Eros is cheaply valued compared to other
media businesses. Given the structural shift in film entertainment space, a
re-rating is on the cards. We initiate coverage with BUY and TP of | 267.
Explosive growth in cinema screens to drive theatrical revenue…
While just one movie crossed | 100 crore box office collection in 2008
and 2009, 11 movies have breached this barrier in 2012, largely fuelled by
explosive growth in multiplex screens and rising ATP. Multiplex screens
that contribute ~50% of box office collection are expected to grow from
1225 in 2011 to 2200 in 2016. Largest grossing film in 1995 released with
500 prints, in 2009 with 1000 prints while in 2012 largest grosser had
about 3500 prints. Theatre screens would continue to grow at a scorching
pace given that India remains severely under penetrated.
De-risked business model
For large budget movies, Eros generally recovers whole production cost
even before theatrical release in the form of sale of music rights, satellite
rights and 39% guaranteed cost recovery from its parent for international
distribution. With the advent of premium TV, pay per view and increasing
price of satellite rights, its dependence on theatrical revenue would
further decline from ~40% currently. This not only makes Eros far less
risky than its peers but also ensures healthy return ratios.
Robust earnings growth to re-rate stock
The company is trading at a significant discount to other media
companies in spite of having robust return ratios. We believe the
structural shift in the film industry would lead to a re-rating of the stock.
We have valued the stock at 12x FY14E to arrive at a target price of | 267.
No comments:
Post a Comment