Eros International : BUY : ICICI Securities

Box office collections growing well…
• Eros reported its Q1FY15 numbers wherein the topline was at | 241.5
crore, up 29.6% YoY vs. estimate of | 200.1 crore on account of
higher-than-expected growth in theatrical revenues even as the
number of movies declined from 12 in Q1FY14 to nine in Q1FY15
• The EBITDA came in at | 58.4 crore (I-direct expectation of | 36.0
crore) due to higher growth in revenue and relatively lower cost of
movies due to a higher number of medium to low budget releases
• The company reported a PAT of | 35.8 crore, which could have been
higher but for the high interest costs of | 14.5 crore on account of
higher debt and lower interest income
Theatrical revenue continues to grow at good pace
Eros is a leading producer/distributor and has a one of the largest film
libraries of over 1200 films. Eros International has exhibited strong growth
in the number of movie releases by reaching the tally of total 77 movies in
FY13 and 69 movies in FY14 across Hindi, Tamil/Telugu and other
languages. The company continues to get it’s movie selection right,
evident from its presence in five out of top 10 box office releases in the
year gone by. Movies such as “Goliyon Ki Rasleela – RamLeela’, ‘Jai Ho’,
‘R…Rajkumar’, ‘Grand Masti’, ‘One Nenokkadine’(Telugu), ‘Raanjhanaa’,
‘Singh Saab the Great’, ‘Krrish 3’ (Overseas), ‘Yeh Jawaani Hai Deewani’
(Overseas) turned out to be good bets for the company. In addition, Eros
also enjoys a competitive advantage in terms of strong international
presence owing to its parent company Eros PLC. We believe theatrical
revenues (inclusive of overseas) will grow at a 17.7% and 15.9% YoY to
| 904.1 crore and | 1048.1 crore in FY15E and FY16E, respectively, from
| 768.3 crore in FY14.
De-risked business model
For large budget movies, Eros generally recovers the 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. In addition, monetisation of its huge movie
library over pay TV, innovative box office performance linked satellite
rights and preview over premium TV (HBO Defined and HBO Hits) will
further reduce its dependence on theatrical revenue, which currently
stands at ~40%. We expect revenues from TV licensing to grow at 14.0%
CAGR in FY14-16 to | 352.7 crore in FY16E.
Regional movies gaining share
Eros is expanding its regional presence with a number of releases in the
Telugu, Tamil and other regional markets. FY14 ended with about 32
regional films, which accounted for about 20-25% of revenues. The
company expects the same to reach about 30-35% of revenues.
GST, if implemented, to lead to EBITDA margin expansion
Varying entertainment tax across states impacts EBITDA margins.
Implementation of GST would immensely reduce entertainment tax,
which can aid EBITDA margins by 100-200 bps.
Maintain BUY with revised target price of | 260
We expect consolidated revenue growth of 15.3% over FY14-16E and
PAT CAGR over FY14-16E of 15.3%. We continue to maintain BUY rating
valuing it at 9x P/E multiple. Hence, we arrive at a target price of | 260.

Technicals - Eros, SKS, Dr Reddy, tata communications, Sterlite Industries, :: Business Line

Eros international Media Ltd :: Team Microsec Research

Dear Sir/Madam,

Eros international Media Ltd (Eros) announced its consolidated Q3 FY2013 results on 12 February 2013. While the company’s top line came in line with Bloomberg Consensus estimates, it slightly lagged our estimates. However, Eros’ bottom line came in line with our, but significantly above street estimates. A glimpse of the company’s quarterly performance vis-à-vis comparable quarters and estimates is as follows:

Eros’ revenues decreased 9.6% y-o-y to `369.3 Crores whereas its net profits contracted 6.4% y-o-y to `65.2 Crores in Q3 FY2013. The decline in top and bottom line were on expected lines as the year ago quarter included three of the country’s top five grossing movies’, including Ra One, performance, which were held in Eros’ portfolio, in its financials. However, the company reported better than expected profits on account of lower than expected finance costs and tax outlays. During the quarter, Eros’ performance was aided by successful releases of ‘English Vinglish’, ‘Son of Sardar’, ‘Maatraan’, ‘Thuppaki’, and ‘Khiladi 786’. Furthermore, overseas performance of ‘Dabangg 2’ supported its performance in Q3 FY2013. The company also launched two premium HD channels under its collaboration with HBO to garner benefits of digitization. Moreover, Eros offloaded 2.8% stake during the quarter to align its promoter shareholding with the SEBI guidelines. Added to that, the company announced an interim dividend of `1.5 per share to reward its shareholders.

Going forward, Eros is likely to come up with releases of ‘Attacks of 26/11’, ‘3G’, ‘Warning (3D)’, and ‘Go Goa Gone’ during Q4 FY2013E. Including these movies, the company has strong movie pipeline for next 24 months. Some of the key titles in the upcoming releases include ‘Ram Leela’, ‘Kochadaiyaan’, ‘Tanu weds Manu Season 2’, ‘Sarkar3’, ‘Rana’, ‘Ye Jawani Hai Diwani’, ‘Krrish 3’, and ‘Bajirao Mastani’. With strong movie pipeline and deals with HBO and Endemol, Eros is likely to keep reporting sustainable growth in its top and bottom line in the upcoming quarters as well. We continue to rate the company a BUY with a target price of `326 per share.

Regards,

Team Microsec Research

Buy Eros International; Target : | 267 ::ICICI Direct

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.

Eros – The ‘Blockbuster’ in Making :: Microsec

We rate Eros International Media Limited (Eros) a ‘STRONG BUY’. Our rating
underpins the company’s strategized business model, continued expansion of
content library, strong distribution network and initiatives to enhance revenues
through new business avenues. However, piracy of content and the
government’s plans to launch uniform tax impedes our optimism a bit.

LKP BYTES : EROS MEDIA (Buy@Rs.165, Target Rs.240)

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

Eros International Media (Rs 175): BUY ::Business Line

Kotak Sec:: PDF link: DLF, Essar Oil, Tata Power, IDFC, RCom, Shriram Transport Finance, Reliance Capital, Eros, MTNL, Puravankara, JSW steel, Sun TV, Tata Steel, IndusInd Bank,

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Daily Alerts
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Change in Reco
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IndusInd Bank: Limited risks to business; valuations cap returns in the near
term


Sector
Consumer products: Hale and hearty, for now
Economy
Economy: IIP growth likely to be near the bottom

Eros International Media Limited (Eros) Target Price: ` 292.00 :: Omi Advisors 2012 Ideas

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About the Company
Eros International Media Limited is a leading global company in the Indian film entertainment industry. The company is part of Eros
International Plc. It acquires and co-produces filmed entertainment content and distributes it across theatres, home entertainment,
television and new media formats within India and abroad.
Eros has rich experience of over three decades in establishing a global platform for Indian cinema. The movie library of the company
has more than 1,100 films of various languages. The group has an enviable distribution network that spans across 50 countries and
27 dubbed foreign languages. It has offices in India, US, UK, Dubai, Australia, Fiji and Singapore. The company releases an average
of 76 films every year.
The company distributes content through both physical formats such as DVD, VCD, Bluerays etc as well as the latest digital
mediums such as VOD, DTH, Internet, Mobile and inflight entertainment.
Investment Rationale
In the first half of the current fiscal (H1FY12), Eros has released 42 movies in various languages. This includes 12 Hindi movies, 28
Tamil and 2 other languages movies. Satellite revenue witnessed a healthy growth in the first half.


During the first half, the company has successfully executed 360 degree release campaigns. This includes brand tie-ups, outdoor,
television, print, in-cinema, radio, mobile and online medium to generate momentum and pre-release anticipation for a particular
movie. This strategy has applied in Eros’s recent releases like ‘Ra One’ and ‘Zindagi Na Milegi Dobara’.
Eros’s super hero action film, ‘RaOne’, has set a new record at Indian box office. The film has earned ` 1,700mn worldwide in the
first five days of release. Weekend gross collection in India stood at ` 1,372.50mn and net collection ` 960mn. ‘RaOne’ opened in
more than 4,000 screens worldwide. Among them around 3,100 screens were in India. Its other releases ‘Desi Boyz’ and ‘Rockstar’
also performed well in box office.
The company has expanded its future movie slate by adding a number of high profile movies. This includes more than 10 Hindi
movies. Majority of these movies will release in the next two fiscals, which gives good revenue visibility for the company in the
coming two fiscals. The revenue from the sale of satellite rights to TV channels will also expected to improve significantly in the time
ahead on the back of increasing competition among channels to improve their TRP. Eros’s pre-licensing deal with television
broadcasters in India helps it to secure itself from risk associated with the cost of movie.
Valuation
The stock is currently trading at a P/E of 10.31x for FY13E and 8.21x for FY14E. At ` 198 per share the stock is trading at 1.87x to
the book value of FY13E and 1.52x to the book value of FY14E. Consolidated revenue and net income of the company are expected
to grow at a compounded rate of 18% and 23% respectively over FY11 to FY14E. We set the target price at ` 292 for this scrip.

Eros International: Understanding Eros India-Plc Relationship Agreement ::Kotak Securities

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Eros International (EROS)
Media
Understanding Eros India-Plc Relationship Agreement. We attempt to ease
concerns about the relationship agreement between Eros India-Plc through the example
of two recent successful movies overseas, ZNMD and RA.One. These will be cash
profitable for Eros Plc despite the argued stiff cost benchmark (30% of total cost of
production plus 30% gross margin for Eros India). Eros Plc’s overall profitability will be
dragged down by smaller movies (average performers) but supported by a large library
and a strong ancillary rights market (C&S TV, Home Video, VoD and Digital). We
upgrade Eros India to BUY (REDUCE previously) with FY2013E FV of Rs270.

Eros International: Marginally weak 2QFY12 ::Kotak Securities

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Eros International (EROS)
Media
Marginally weak 2QFY12. Eros reported 2QFY12 EBIT at Rs473 mn (-15% yoy),
marginally below estimates. The yoy performance seems weak due to (1) unfavorable
base in 2QFY11 (contribution from sale of library) and (2) forex losses (at PAT level). The
structural drivers remain intact: (1) C&S TV licensing income, (2) Digital Cinema et al;
Eros has also put forth a robust initial film slate for FY2013E-14E with potential for
accruals through acquisitions. However, valuations (14X FY2013E EPS) have caught on;
downgrade to REDUCE with limited upside to FY2013E FV of Rs270.

UBS: BUY Eros International -The ‘Rockstar’ of film distribution

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UBS Investment Research
Eros International Media
T he ‘Rockstar’ of film distribution [EXTRACT]
􀂄 We initiate coverage with a Buy rating
Eros International Media (Eros) is one of the largest film studios in India with a
strong film pipeline for FY12-13E. It primarily co-produces and acquires film
content in Hindi and regional languages from third parties and distributes it on
different media formats. Its film library, distribution network and relationships
with celebrities and production houses are key competitive strengths, in our view.
􀂄 FICCI-KPMG forecasts 10% industry revenue CAGR for next five years
Films are a major source of entertainment in India, the second largest film market
in the world. FICCI-KPMG forecasts an industry revenue CAGR of 10% for 2011-
15. We expect industry revenue growth to be led by: 1) multiplex penetration and
more digital screens; 2) rising ticket prices; 3) strong demand for films from
broadcasters; and 4) new revenue streams, such as the internet.
􀂄 Studio model + arrangements with Eros plc = low box office dependence
The domestic box office contributes about 40% to Eros’s revenue compared with
75% for the industry. Intense competition among Hindi entertainment channels for
film rights has helped Eros pre-sell satellite rights at good prices, and recover a
large proportion of costs before the films are released. It recovers 39% of its total
Hindi film costs from the sale of international distribution rights to parent
company, Eros International plc. The ‘studio model’ enables it to work on several
big-budget films simultaneously, thus reducing dependence on any one film, and
also making it a scalable business.
􀂄 Valuation: price target of Rs300.00 based on 9x FY13E EBITDA
We value Eros at a 15% discount to other India media stocks under UBS coverage.
Eros is trading at 11.1x FY13E PE (on our 25% FY11-13 EPS CAGR and 22%
FY13 ROE forecasts).

Eros International: Time for a valuation check::Kotak Sec,

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Eros International (EROS)
Media
Time for a valuation check. We expect a reality check on Eros stock post 39%
outperformance versus BSE-30 Index in the past three months. The structural drivers
remain intact: (1) C&S TV rights revenues and (2) improved BO performance (Digital
Cinema); (3) Regional movies and (4) new media revenues could provide impetus in
future. However, valuations at ~11X FY2012E and ~8X FY2013E EV/EBIT have caught
up; we reiterate our ADD rating with a revised FY2013E TP of Rs270 (Rs250 previously)
as upside to current earnings estimates exists. The film business is a robust defensive
play in an economic downturn, as seen from the Hollywood experience.


Eros’ valuations have caught up with structural and cyclical drivers
Exhibit 1 presents the valuation of Eros stock; the gap versus Indian regional print and C&S TV
stocks has bridged led by robust structural drivers (1) C&S TV rights revenues (high competitive
intensity in weak economic environment) and (2) improved BO performance of Hindi movies
(Digital Cinema in Tier-II/III cities). Additionally, Eros stock has also been helped by robust BO
performance of the Indian film industry in general during the current economic downturn, which
has adversely impacted the Indian media industry; the film industry is a robust defensive play in an
economic downturn, as witnessed in Hollywood (Exhibit 2).
However, current valuations must be seen in the context of the inherent nature and emerging
stage of Indian film business: (1) Exhibit 3 presents the free cash flows of Eros and compares it to
Indian regional print media. Eros will continue to invest in scaling-up the legacy/core (Hindi films)
and new (regional films) business for some time (FY2012E-13E). (2) The street also seems enthused
by Eros’ FY2012E film slate thus far, with above normal performance (Exhibit 4); however, the law
of averages may catch up. Eros has de-risked its business model to a large extent with the pre-sale
of film rights, resulting in profits even for films with average BO performance. However, the
quantum of profits is dependent on the performance of the film slate.
Reiterate ADD with FY2013E TP of Rs270; expect earnings upgrades
We highlight that our ratings on Eros stock changed to ADD (BUY previously) with the shift in KIE
ratings system to absolute upside ratings. We reiterate our positive view on Eros, but for relatively
fair valuations as the structural drivers remain intact: (1) the slowdown in C&S TV advertising has
not impacted Eros given higher competitive intensity and (2) shifting consumption patterns in Tier-
II/III towns of India (expanded film distribution through Digital Cinema). The company is also
investing in future growth drivers: (1) regional films and (2) new media.
We leave our earnings estimates unchanged but highlight likely upsides: (1) robust performance of
the film slate thus far in FY2012E and (2) tail revenues (ancillary/new media) from the FY2012E
film slate in FY2013E. Eros is finalizing its FY2013E film slate but it is likely to be larger in volume
and value terms; we increase our FY2013E TP to Rs270 (Rs250 previously).

Investment Focus -Eros International: Buy:: Business Line,

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Investors with a one/two-year horizon can buy the shares of Eros International Media. As a film distribution company that co-produces mainly Hindi movies, the company has had a good track record in identifying sound projects and managed to de-risk its revenues by sale of movie rights to other media platforms such as DTH providers.

At Rs 216, the share trades at 12 times its likely FY12 earnings, leaving a reasonable scope for upside, given its growth prospects. Movies released in the first quarter of this fiscal such as Ready and, more recently, Zindagi Na Milegi Dubara have been blockbusters, collecting more than Rs 100 crore each. Singham, another recent release, too has been declared a hit. These are films that Eros acquired and later distributed. While Ready has already had a desirable effect in bolstering Eros' June quarter numbers, the other two hits would drive revenues and profitability over the next couple of quarters.

During the April-June 2011 quarter, revenues increased by 26.8 per cent and net profits by 60.3 per cent over the same period last year. Eros' subsidiary (51 per cent), Ayngaran International, too has had a good period with release of hit Tamil movies such as Ko and Avan Ivan.

Apart from distribution to theatres, Eros derives revenues from sale of rights to commercial satellite channels. The steady increase in the adoption of DTH by households in the metros and the players' focus on improving their own revenues by offering new movies have helped drive demand from this source for Eros. The company has been able to recover 35-40 per cent of its costs by selling movie rights to general entertainment channels such as Colors, Zee TV and Star Plus.

In co-production, Eros tends to enter into revenue sharing arrangements with other co-producers only after it recovers a significant portion of its investment. Together, these strategies reduce the risk inherent in the film production and distribution business.

Eros' pipeline of movies such as the Shah Rukh Khan starrer Ra One too was monetised by this model. Other films such as Mausam, Rock Starand Desi Boyz with strong star cast are going to be released in the coming months. The sale of overseas rights to Eros plc and Eros Worldwide, sometimes even before a Hindi movie is released in India, means that Eros has been able to tap into the lucrative expatriate market as well. In FY11, Eros' revenues increased 10.3 per cent over the previous year to about Rs 707 crore, while net profits expanded by 42.8 per cent to Rs 117.2 crore

Eros International: Management meeting takeaways and annual report analysis::Kotak Sec,

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Eros International (EROS)
Media
Management meeting takeaways and annual report analysis. Key takeaways of
our meeting with the management: (1) ~20 films target for FY2013E in core Hindi film
business and (2) top management focus shifting to new growth drivers (a) regional films
and (b) digital formats. Key takeaways from FY2011 annual report: (1) adjusted free
cash flows of Rs0.9 bn in FY2011 and (2) net cash balance of Rs1.0 bn at end-FY2011
denotes the strength of the balance sheet. Fine-tuned estimates based on the annual
report; reiterate BUY with FY2013E TP of Rs250 (unchanged).


FY2011 annual report analysis: balance sheet strength to scale up business
􀁠 Exhibit 1 presents the financial summary of Eros; Eros reported FY2011 free cash outflows at
Rs0.5 bn. However, adjusted free cash flows at Rs0.9 bn are a better measure of current
operations. The Rs1.4 bn negative variance is largely explained by the (1) Rs0.7 bn increase in
production advances (non-earning asset, for FY2012E-13E film slate) and (2) Rs0.9 bn decline in
advances from parent, in line with the guidance of the company.
􀁠 The net working capital (excl. cash) was reasonable at 130 days, despite the increase in
production advances (given by Eros to its content partners) and a decline in overseas advances
(taken by Eros from parent company in lieu of overseas rights on completion of film).
Key takeaways from meeting with management: focus on regional and digital
We met with Mr. Kishore Lulla, ED, and Mr. Sunil Lulla, MD, Eros International, to understand
current business operations and strategies: (1) The core Hindi film business is targeting ~20 films
for FY2013E, led by Mr. Sunil Lulla along with a team of professionals. The improvement in perfilm
revenue and profitability is driven by (a) a larger number of screens (multiplexes, Digital
Cinema), (b) pre-sale model for rights and (c) partnership model for content. (2) The focus of the
top management has shifted to two future growth drivers: (1) regional film markets and (2) digital
distribution of film content/library. Eros is looking at collaboration opportunities in the former and
has assembled a team of professionals to drive the latter.
Reiterate BUY with FY2013E TP of Rs240 (Rs250 previously); fine-tuned estimates
We have fine-tuned our FY2012E-13E EPS estimates based on our FY2011 annual report and
reiterate our BUY rating on Eros stock with revised FY2013E TP of Rs250 (unchanged), based on
8.5X FY2013E EV/EBIT. We highlight that Eros stock already trades at 9.0X FY2012E EV/EBIT,
potentially limiting the near-term upside; however, the Eros management highlighted in our
discussions that its FY2013E film slate (~20 films) was already ~80% committed and will soon be
made visible (likely end-1HFY12). We continue to remain positive on Eros given (1) its focused
approach to film business and (2) along with the favorable macro-environment for the industry.

EROS INTERNATIONAL Key takeaways 􀁠 ::Kotak Sec Consumer Congerence,

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EROS INTERNATIONAL
Key takeaways
􀁠 Content models. Eros continues to focus on scaling up its co-production model of content
creation, which offers the best of both worlds to the producer and the studio. The
producer does not need to run around for financing and can focus on creating the good
product. The distributor (Eros) then can focus on marketing and monetizing the content
made available. In effect, co-production model ensures specialization in the value chain
and everyone is doing the job best suited for him.
􀁠 Acquisition model of content. The company will also continue to focus on opportunistic
buys such as Ready and Murder 2 since the model is quite working capital efficient and
the company anyway de-risks itself by pre-selling parts of the movie (C&S TV, ancillary
rights as well as some bits of domestic theatrical rights). The company will not do many
own productions since this is not its USP.
􀁠 C&S rights revenues. The pressure on advertising revenues of C&S players is visible but
subscription revenues continue to grow. The company has not seen any decline in
appetite of C&S players for film content. Nonetheless, Eros has pre-sold C&S telecast
rights of >50% of its movie in FY2012E already (notably high-budget projects such as
RA.One) and thus, the impact is contained.
􀁠 Growth drivers. The company is in the process of finalizing its FY2013E slate (>50% is
already done) and will be releasing the details in some time. Besides increasing in scale
(number of movies), the mix of movies also continues to shift towards more high-budget
movies. Finally, the monetization opportunity in Tier-II/III towns in increasing with
proliferation of multiplexes in these markets (higher ticket prices); the distribution costs
continue to reduce due to digital distribution

Eros International: Strong 1QFY12 as Eros was 'Ready' for IPL::Kotak Sec,

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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.

Eros International Media – Strong start to FY12 :: RBS

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Revenues of Rs1.5bn were 25% above our estimates, while EBIT margin of 18.5% was largely in
line with our estimate of 19.3%, driven by the success of Ready. We are bullish on Eros given the
strong release slate for FY12 and improving TV realizations.


1Q12 results: top line ahead of our expectations, margins broadly in line
 Eros reported consolidated revenues of Rs1.5bn, up 21.8% yoy (+34.6% qoq). This was 25%
ahead of our estimates of Rs1.2bn. The top line growth was driven by blockbuster movie,
Ready (biggest hit in FY12 till date), as well as the success of Chalo Dilli and regional films
released during the quarter. Contribution from catalogue sales also remained strong during
the quarter.
 EBIT margin was stable at 18.5%, flat yoy and up 774bp qoq, broadly in line with our estimate
of 19.3%. Despite solid growth in top line, margins were flat yoy largely due to higher
operating expenses (up 24.7% yoy). In absolute terms, EBIT was up 21.9% yoy to Rs285m,
20% above our forecast of Rs237m.
 Non-operating income was higher than we expected at Rs53m, vs RBS estimate of negative
Rs9.9m, thanks to sharp jump in other income from Rs3.9m in 1Q11 to Rs84.1m, including
Rs25m related to lapse of stock options granted to a director on resignation.
 Driven by strong growth at EBIT level and higher other income, PAT grew by 39.8% yoy and
59.4% qoq to Rs217m. This was 34% ahead of our estimate of Rs162m. Tax rate for the
quarter was at 31.0% versus our estimates of 28.2%. EPS was up 9.2% yoy to Rs2.37,
beating our forecast of Rs1.75.
Outlook looks robust with strong release pipeline
 Following the success of Ready, Eros witnessed successful releases of big-budget movies –
Zindagi Na Milegi Dobara (grossed Rs525m in its opening weekend) and Murder 2 (Rs350m
in its opening weekend).
 Further, we believe the revenue visibility for FY12 is significantly high as the release pipeline
remains strong, with as many as four big-budget films slated for release in 3Q12 (Ra.One,
Agent Vinod, Rockstar and DesiBoyz).
 Management noted that Eros has recovered significant portion of its FY12 release slate
through pre-licensing of TV and music licensing contracts. With the largest ever film pipeline,
improving TV realizations and costs largely locked in, we believe Eros is well on track to meet
our expectations of strong revenue growth (31% yoy) and EBIT margin expansion (262bp
yoy) in FY12.
 The stock currently trades at 12.4x our FY12F EPS.

Eros International Media – Getting 'Ready' for big releases ::RBS

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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.

Eros International Media – Positive news flow on state taxes :: RBS

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The Maharashtra State Budget proposes abolishment of 4% VAT on transfer of copyrights of
films. Separately, the Rajasthan Government proposes removal of 30% E-tax on tickets
priced below Rs50. We see tax rationalisation as a structural driver for profitability.