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Eros International (EROS)
Media
Strong 1QFY12 as Eros was ‘Ready’ for IPL. Eros reported strong 1QFY12 EBIT at
Rs299 mn (+24% yoy), ahead of our Rs275 mn expectation, led by robust performance
of Ready and Chalo Dilli, despite an expanded IPL Season 4; Eros has also formulated its
strategy to manage IPL in future (small- and mid-budget films). Reiterate BUY with
FY2013E fair value of Rs250 (Rs230 previously). Eros and Dish TV are two media stocks
insulated from the economic cycle. Eros has multiple structural drivers: (1) C&S telecast
licensing, (2) Digital Cinema and (3) reduced competition for screens.
Robust 1QFY12 results: Eros was ‘Ready’ for IPL; strategy in place to manage IPL in future
Eros reported strong 1QFY12 EBIT at Rs299 mn (+24% yoy) led by robust performance of its
films Ready and Chalo Dilli. We highlight that the robust performance of niche film Chalo Dilli
was despite a complete and extended IPL Season 4 (74 matches versus 60 matches in Season 3,
which was split between 4QFY10 and 1QFY11).
The IPL Season 4 ratings disappointed and though some of the impact may be temporary (given
an extended cricket season with ICC CWC ‘2011 in 4QFY11), we expect only moderate increase
in viewership in IPL Season 5 since the initial euphoria has cooled off. Nonetheless, we have
seen small- and mid-budget movies doing well even during strong sports calendar in 4QFY11-
1QFY12 (Tanu Weds Manu, Raginni MMS, Faltu, Haunted 3D, Chalo Dilli et al). Small, niche
movies would be the focus for Eros during IPL given the benefit from lack of competition from
mass movies (for screens, for audience mindshare).
Reiterate BUY as structural drivers remain in place and valuations remain attractive
Eros has a robust film slate in place for FY2012E-13E (~3 films per remaining quarter in FY2012;
FY2013E visibility likely to increase going ahead). Two of films released in 2QFY12 (Murder 2 and
Zindagi Na Milegi Dobara) are already hits, providing near-term visibility on financials. Eros’ film
slate includes two widely anticipated movies in FY2012E-13E (RA.One with Shahrukh Khan in
FY2012E, though we see risk on account of its scale/cost; Rana with Rajnikanth in FY2013E).
Finally, except modest impact on C&S telecast licensing in FY2012E (>70% of film slate is presold),
Eros is largely insulated from the economic downturn.
The structural drivers for the film industry and Eros remain intact: (1) C&S telecast licensing (Colors
Movies likely to launch by end-FY2012E). (2) Digital Cinema, which has resulted in wider release at
reduced cost (higher margins). (3) Visibly reduced competition for screens, as availability of more
multiplexes has resulted in simultaneous success of new movies (Delhi Belly, Bbuddah and
Transformers 3 released on July 01, 2011). Reiterate BUY with revised FY2013E fair value of Rs250
(Rs230 previously; 8.5X target EV/EBIT at ~25% discount to regional print and ~35% to C&S TV)
given reasonable ~7X and ~10X FY2013 EV/EBIT and P/E valuation. The digital media (3G, DTH)
potential may be the next driver, but unlikely before FY2013E.
Eros reported 1QFY12 revenues at Rs1.54 bn (+22% yoy), ahead of our Rs1.3 bn
expectations. The revenue growth was led by (1) superlative BO performance of Ready
movie (~Rs650 mn Eros share from BO alone), (2) sale of overseas rights (3 global releases
and 4 overseas releases including Murder 2, which was released in 2QFY12 but revenues
from sale of overseas rights booked in 1QFY12) and (3) contribution from Tamil business
(19 films with success in Avan Ivan, Engeyum Kadhal and Ko).
Eros reported 1QFY12 direct film costs of Rs1.1 bn (+23% yoy), ahead of our Rs850 mn
estimate, given (1) partial booking of Murder 2 cost (overseas rights) and (2) acquisition
and amortization cost of third-party catalog rights.
1QFY12 employee costs declined 6% yoy as Eros did not have cost of stock options in
1QFY11. 1QFY12 overhead costs increased 18% yoy despite capex in owned office in
FY2011 given increased investments in digital media.
The weakness in advertising market, its impact on C&S broadcasting market and passthrough
impact on value of C&S telecast rights is one potential risk in FY2012E. Our
discussions with IBN18 and Zee lead us to believe that the C&S telecast rights budget will
likely remain static versus FY2011. However, we see two mitigating factors (1) Eros has
already pre-sold >50% of its FY2012E film slate and (2) delayed launch of Colors Movies
(likely end-FY2012E) provides comfort in FY2013E.
Additionally, media reports have indicated a recurrence of producer-multiplex dispute
from 2009. However, Eros has clarified that the prior agreement continues for the time
being as the new agreement is being negotiated. We believe revenue sharing terms are
unlikely to change (see Exhibit 7) but the incentive benchmark (Rs175 mn) may change
given the increase in multiplex screens in last 2 years.
We highlight that the results are not comparable below the EBITDA line given IPO in
3QFY11. 1QFY12 net other income at Rs53 mn was a complete turnaround from 1QFY11
net interest expense of Rs4 mn. Eros reported 1QFY12 tax rate at 31% since there was
not much catalog sale its Mauritian subsidiary, Copsale.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Eros International (EROS)
Media
Strong 1QFY12 as Eros was ‘Ready’ for IPL. Eros reported strong 1QFY12 EBIT at
Rs299 mn (+24% yoy), ahead of our Rs275 mn expectation, led by robust performance
of Ready and Chalo Dilli, despite an expanded IPL Season 4; Eros has also formulated its
strategy to manage IPL in future (small- and mid-budget films). Reiterate BUY with
FY2013E fair value of Rs250 (Rs230 previously). Eros and Dish TV are two media stocks
insulated from the economic cycle. Eros has multiple structural drivers: (1) C&S telecast
licensing, (2) Digital Cinema and (3) reduced competition for screens.
Robust 1QFY12 results: Eros was ‘Ready’ for IPL; strategy in place to manage IPL in future
Eros reported strong 1QFY12 EBIT at Rs299 mn (+24% yoy) led by robust performance of its
films Ready and Chalo Dilli. We highlight that the robust performance of niche film Chalo Dilli
was despite a complete and extended IPL Season 4 (74 matches versus 60 matches in Season 3,
which was split between 4QFY10 and 1QFY11).
The IPL Season 4 ratings disappointed and though some of the impact may be temporary (given
an extended cricket season with ICC CWC ‘2011 in 4QFY11), we expect only moderate increase
in viewership in IPL Season 5 since the initial euphoria has cooled off. Nonetheless, we have
seen small- and mid-budget movies doing well even during strong sports calendar in 4QFY11-
1QFY12 (Tanu Weds Manu, Raginni MMS, Faltu, Haunted 3D, Chalo Dilli et al). Small, niche
movies would be the focus for Eros during IPL given the benefit from lack of competition from
mass movies (for screens, for audience mindshare).
Reiterate BUY as structural drivers remain in place and valuations remain attractive
Eros has a robust film slate in place for FY2012E-13E (~3 films per remaining quarter in FY2012;
FY2013E visibility likely to increase going ahead). Two of films released in 2QFY12 (Murder 2 and
Zindagi Na Milegi Dobara) are already hits, providing near-term visibility on financials. Eros’ film
slate includes two widely anticipated movies in FY2012E-13E (RA.One with Shahrukh Khan in
FY2012E, though we see risk on account of its scale/cost; Rana with Rajnikanth in FY2013E).
Finally, except modest impact on C&S telecast licensing in FY2012E (>70% of film slate is presold),
Eros is largely insulated from the economic downturn.
The structural drivers for the film industry and Eros remain intact: (1) C&S telecast licensing (Colors
Movies likely to launch by end-FY2012E). (2) Digital Cinema, which has resulted in wider release at
reduced cost (higher margins). (3) Visibly reduced competition for screens, as availability of more
multiplexes has resulted in simultaneous success of new movies (Delhi Belly, Bbuddah and
Transformers 3 released on July 01, 2011). Reiterate BUY with revised FY2013E fair value of Rs250
(Rs230 previously; 8.5X target EV/EBIT at ~25% discount to regional print and ~35% to C&S TV)
given reasonable ~7X and ~10X FY2013 EV/EBIT and P/E valuation. The digital media (3G, DTH)
potential may be the next driver, but unlikely before FY2013E.
Eros reported 1QFY12 revenues at Rs1.54 bn (+22% yoy), ahead of our Rs1.3 bn
expectations. The revenue growth was led by (1) superlative BO performance of Ready
movie (~Rs650 mn Eros share from BO alone), (2) sale of overseas rights (3 global releases
and 4 overseas releases including Murder 2, which was released in 2QFY12 but revenues
from sale of overseas rights booked in 1QFY12) and (3) contribution from Tamil business
(19 films with success in Avan Ivan, Engeyum Kadhal and Ko).
Eros reported 1QFY12 direct film costs of Rs1.1 bn (+23% yoy), ahead of our Rs850 mn
estimate, given (1) partial booking of Murder 2 cost (overseas rights) and (2) acquisition
and amortization cost of third-party catalog rights.
1QFY12 employee costs declined 6% yoy as Eros did not have cost of stock options in
1QFY11. 1QFY12 overhead costs increased 18% yoy despite capex in owned office in
FY2011 given increased investments in digital media.
The weakness in advertising market, its impact on C&S broadcasting market and passthrough
impact on value of C&S telecast rights is one potential risk in FY2012E. Our
discussions with IBN18 and Zee lead us to believe that the C&S telecast rights budget will
likely remain static versus FY2011. However, we see two mitigating factors (1) Eros has
already pre-sold >50% of its FY2012E film slate and (2) delayed launch of Colors Movies
(likely end-FY2012E) provides comfort in FY2013E.
Additionally, media reports have indicated a recurrence of producer-multiplex dispute
from 2009. However, Eros has clarified that the prior agreement continues for the time
being as the new agreement is being negotiated. We believe revenue sharing terms are
unlikely to change (see Exhibit 7) but the incentive benchmark (Rs175 mn) may change
given the increase in multiplex screens in last 2 years.
We highlight that the results are not comparable below the EBITDA line given IPO in
3QFY11. 1QFY12 net other income at Rs53 mn was a complete turnaround from 1QFY11
net interest expense of Rs4 mn. Eros reported 1QFY12 tax rate at 31% since there was
not much catalog sale its Mauritian subsidiary, Copsale.
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