20140606-Maybank_KERPL-Eros_International_Media___EROS_IN_A_sustainable_growth_story_11页_384kb

Eros International Media (EROS IN) Summary

Core Content and Financial Overview

• Share Price: INR198
• Target Price: INR267 (+35%)
• Market Cap (USD): 307M
• Average Daily Trading Volume (USD): 1.1M
• Stock Performance:
  • 1 Month: +17.5%
  • 3 Months: +24.7%
  • 12 Months: +20.0%
• Relative to Index:
  • 1 Month: +5.4%
  • 3 Months: +6.0%
  • 12 Months: -6.1%

Key Financial Metrics

Key Highlights

• Sustainable Growth: EROS is expected to maintain its growth trajectory with a strong movie slate across Hindi and regional languages in FY15 and FY16.
• EPS Forecasts:
  • FY15F: INR26.7 (+6% from previous forecast)
  • FY16F: INR31.9 (+6% from previous forecast)
• Target Price: INR267, representing a 16% increase from the previous target.
• PER: Current PER is 7.4x for FY15 and 6.2x for FY16, which is considered undemanding.
• Earnings Revisions:
  • FY15F Revenue: INR13,218m (down 1% from previous forecast)
  • FY16F Revenue: INR15,402m (up 5% from previous forecast)

What's New

• 4QFY14 Performance:
  • EPS: INR4.5 (+30% YoY)
  • Revenue: INR3.1b (+48% YoY)
  • Strong performance from big-budget movies like 'Jai Ho' and '1: Nenokkadine'.
• Content Agreement Renewal:
  • The agreement with parent Eros International Plc is set to renew in October.
  • Renewal is expected on similar terms, allowing EROS to recover 39% of production costs.
• IPO of Eros International Plc:
  • USD55m IPO provides financial strength to EROS.
  • Eros International Plc's MCap is USD784m, up 45% since the IPO.

Strong Movie Slate for FY15F

• Expected Movies: 'Kochadaiyaan', 'Action Jackson', 'Happy Ending', 'Tanu Weds Manu - Season 2', 'Tewar', etc.
• Strategy: Acquiring movie rights during production or post-production stages.
• Co-Productions: With Rajanikant, including 'Lingaa' (Diwali 2014) and 'Rana' (FY16).
• Profitability: Even with poor box-office performance, EROS can achieve good returns through minimum-guarantee deals and satellite rights.

HBO Channels and EROS NOW

• HBO Channels: Expected to reach 5m subscribers by FY15, adding INR1-1.1b to EROS's PBT.
• EROS NOW:
  • Crossed 2b video views on YouTube.
  • Monthly run rate: INR50m video views.
  • Focus on monetising a library of over 1,200 movies.
  • Expected long-term growth from subscription and advertisement income.

Market Position and Peer Comparison

• Eros International Plc:
  • MCap: USD784m
  • ROE: 10.5%
  • PER: 12.7x
• Peer Comparison (FY15F):
  • Entertainment One: MCap USD1,518m, PER 14.7x
  • Lions Gate Entertainment Corp: MCap USD3,805m, PER 17.6x
  • Viacom Inc: MCap USD37,610m, PER 13.8x
  • Twenty-First Century Fox: MCap USD81,559m, PER 20.4x
  • Time Warner Inc: MCap USD62,523m, PER 15.4x

Share Price Performance and Analysis

• 52-week High/Low: INR198 / INR111
• 3-month Average Turnover (USDm): 0.2
• Free Float (%): 25.2
• Major Shareholders:
  • Eros International Plc: 74.8%
  • Indus Capital Advisors (UK) LLP: 4.7%
  • Norges Bank Investment Management: 2.2%

Strategic Insights

• Differentiated Approach: EROS has successfully focused on marketing small-to-mid budget movies and regional language films.
• Marketing Success: Movies like 'Ram Leela', 'Son of Sardar', 'Housefull 2', 'Vicky Donor', 'Ferrari kiSavari', 'English Vinglish', 'Raanjhana', and 'Grand Masti' have shown strong box-office performance.
• Regional Expansion: EROS has increased its presence in regional movies, contributing to strong revenue from television and music rights.

Future Outlook

• Growth Momentum: Expected to pick up in FY15 and sustain in FY16 due to strong movie slate and marketing strategies.
• Potential Re-rating: Current PER is undemanding, with potential to increase to 10x for FY15F.
• Online Platform: EROS NOW is a key asset for unlocking shareholder value through subscription and advertisement income.

Company Analysis

• Financial Health:
  • EBITDA growth of 32.5% in FY14.
  • Strong core net profit growth of 29.3% in FY14.
• Liquidity and Efficiency:
  • Current ratio improves from 0.9 to 2.0.
  • Dividend cover increases from 11.2 to 8.0.
• Leverage and Expenses:
  • Net debt/equity drops from 23.4% to 2.3%.
  • Capex/revenue ratio decreases from 70.7% to 0.0% in FY15.

Research Offices

• India:
  • Jigar SHAH: Head of Research
  • Urmil SHAH: Analyst
• Malaysia:
  • WONG Chew Hann, CA: Head of Research
  • Desmond CH'NG, ACA: Strategy
  • LIAW Thong Jung: Banking & Finance
• Singapore:
  • NG Wee Siang: Head of Research
  • Gregory YAP: Banking & Finance
  • Wilson LIEW: Consumer
• Indonesia:
  • Wilianto IE: Head of Research
  • Rahmi MARINA: Strategy
  • Aurelia SETIABODU: Banking & Finance
• Philippines:
  • Luz LORENZO: Head of Research
  • Laura DY-LIACCO: Strategy
• Thailand:
  • Maria LAPIZ: Head of Institutional Research
  • Jesada TECHAHUSDIN, CFA: Consumer / Materials
  • Kittisorn PRUITIPAT, CFA, FRM: Financial Services
  • Sukit UDOMSIRIKUL: Head of Retail Research

Conclusion

EROS International Media is positioned for sustainable growth with a strong movie slate and effective marketing strategies. The company's focus on both Hindi and regional language films, combined with its online platform EROS NOW, is expected to drive future performance. Despite its current undemanding valuation, the company has significant potential for re-rating, supported by its strong financials and strategic initiatives. The content agreement with its parent company is expected to be renewed, ensuring continued profitability.