IPO Report (Shemaroo Entertainment Limited) :: SMC Global Securities Ltd.

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Strengths ŸEstablished brand name: The Company believes that “Shemaroo” brand has high
consumer recall as being associated with quality entertainment. The company
content appears regularly on several television channels and is widely available on
New Media platforms such as mobile and internet and across a vast network of retail
outlets. This gives the “Shemaroo” brand a considerable and constant media
visibility. ŸVast, diverse and growing Content Library: The Company has diverse Content
Library, which is growing continuously with the addition of new releases as well as
through catalogue acquisitions. The company expects that this would enable it to
distribute to platforms catering to a wide range of audiences. ŸDiversified distribution platforms: The Company has a presence in various
distribution platforms such as television, home entertainment, digital New Media
and other media. It believes that it has an extensive distribution network which is its
key strength and sustainable competitive advantage. ŸDe-risked business model: The company has de-risked its business in three
particular way namely; large number of titles, width and depth of distribution
Platforms and Multiple genres and Types of Content. ŸExperienced directors and management team: The Company's directors and
business management group are experienced within their respective specialized
segments, as well as in the entertainment industry. The company believes its
management has in-depth knowledge of content consumption habits of customers
across various platforms. ŸStrong relationships in the industry: As an established entity, in various aspects of
the entertainment industry in India, the company believes that it has managed to
create, maintain and build its goodwill with other industry participants. The
company has aggregated content rights across various segments including Hindi film
content, regional language content, devotional content, music content and special
interest content.

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Strategy ŸScaling up its content library driven by return on investment: The Company aims
to own the complete intellectual property rights in a film by acquiring Perpetual
Rights, as well as, to monetize them over a maximum number of distribution
platforms. Moreover, the company also aims to strengthen its competitive
advantage by building on and augmenting its Aggregation Rights for television
broadcast and further leveraging its portfolio approach. ŸEnhancing monetization of its Content Library through existing and emerging
media platforms: The strategy of the company is to further consolidate its position
through a combination of compelling content ownership, identifying viewership
tastes and preferences and understanding of channel positioning and strategies.
Moreover, the company intends to broad base its revenue streams by further
increasing its distribution of its content through New Media avenues, such as MVAS,
internet, DTH, video on demand services and IPTV platforms. ŸEnhancing revenue predictability through strategically packaged sales: The
Company believes that it has a vast and diverse Content Library that will allow it to
monetize satellite licensing, digital New Media licensing and home video
distribution efficiently, as it will be able to aggregate and package several films
together instead of monetizing each title on an individual basis. ŸOptimizing content monetization across its life-cycle: Managing the monetization
of content across various distribution platforms over its life-cycle is a key part of the
company's strategy to enhance profitability and generate revenue. ŸCreating a sustainable competitive advantage through marketing strategy and
moving up the value chain: The Company's marketing strategy is based on (i)
leveraging industry relationships; (ii) monitoring distribution platforms; (iii)
tracking varying consumer preferences; (iv) adapting its content offering; and (v)
enhancing visibility and recall of its content titles.
Risks
Revenues and profitability are directly linked to the exploitation and growth: The
revenues and profitability of the company are directly linked to the exploitation and
growth of its Content Library. Any failure to source content could adversely affect its
profitability and business growth.
Distribution of content may not generate adequate revenues: The Company
distributes its content through various mediums such as (i) broadcast syndication, (ii)
New Media, (iii) home entertainment, and (iv) other media. If the distribution of content
fails to generate adequate revenues to recover associated costs, this could impact its
growth plans and may adversely impact its profitability.
Depend on relationships with platform owners to exploit its Content Library: As the
company depends on its relationships with platform owners to exploit its Content Library.
Any failure to maintain and grow these relationships could adversely affect its ability to
distribute content on favourable terms or at all, which would in turn affect its growth and
profitability.
Intensified competition: The Company faces competition from both new as well as
existing players in the films and television media segments. Intensified competition may
result in content cost escalation which may restrict its ability to access content at
favourable terms or at all.
Required huge working capital funds: The Company requires huge working capital funds
for content acquisition. Any failure to obtain additional financing in the form of debt or
equity in a timely manner or on terms commercially favorable to the company or at all,
may adversely affect its content acquisition and its future profitability.

Valuation

Considering the P/E valuation on the upper end of the price band of `170, the stock is 

priced at pre issue P/E of 12.37x on its FY14 EPS of `13.74. Post issue, the stock is priced 

at a P/E of 16.78 x on its EPS of ` 10.13. Looking at the P/B ratio at `170, the stock is 

priced at P/B ratio of 1.93x on the pre issue book value of `87.89 and on the post issue 

book value of `109.43, the P/B comes out to 1.55x. 

On the lower end of the price band of `155 the stock is priced at pre issue P/E of 11.28x on 

its FY14 EPS of `13.74 Post issue, the stock is priced at a P/E of 15.30x on its EPS of `10.13. 

Looking at the P/B ratio at `155, the stock is priced at P/B ratio of 1.76x on the pre issue 

book value of ` 87.89 and on the post issue book value of `109.43, the P/B comes out to 

1.42x.

Outlook 

Though Shemaroo Entertainment is today an established integrated media content house 

in India with activities across content acquisition, value addition to content and content 

distribution but in reality, the entire entertainment sector looks stressed. So, one should 

maintain a cautious approach but those investors who have risk taking appetite can opt 

for the issue for long term to gain healthy returns.