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Eros International (EROS IN) Summary

Core Content and Key Information

Eros International (EROS IN) is a leading Indian media and entertainment company with a current share price of INR571 and a target price of INR720, representing a 26% increase. The company has a market capitalization of USD 807M and an average daily trading volume (ADTV) of USD 5M. The firm is rated as a BUY with no change in recommendation.

The company is experiencing strong momentum, driven by the success of its new movies and digital revenue streams. EROS has a diversified movie pipeline and is expanding its presence in regional languages and markets such as China, South Korea, and South America. EROS NOW, its digital platform, is seeing rapid user growth and is expected to play a significant role in future revenue.

Main Points and Growth Drivers

• Revenue and Earnings Growth: EROS is projected to double its revenue and earnings over the next three years. This is expected to be driven by:

  • An increasing number of movies for production and distribution.
  • Expansion into regional-language markets (Bangla, Marathi, Punjabi, Malayalam).
  • Leveraging its in-house production platform, Trinity Pictures.
  • Launching original content on EROS NOW, including remakes and new series.

• Movie Pipeline:

  • FY16-17 includes several high-profile films such as Bajrangi Bhaijaan, Srimanthudu, Life of Josutty, and Welcome Back.
  • EROS is banking on a strong 2QFY16 with Bajrangi Bhaijaan expected to significantly boost net profit.
  • The company also has plans for a substantial Hindi movie in 2H and satellite rights sales.

• Digital Expansion:

  • EROS NOW users increased by 39% to 26.5 million in 1QFY16.
  • The platform is expected to reach 100 million users over time through enhanced marketing, bundling with telcos, and new pricing models.
  • The company is looking to attract advertisers to EROS NOW in the future.

• Valuation and Market Position:

  • EROS is currently trading at a 32% discount to its parent company, EROS Plc, despite contributing 80% of its profits.
  • The target price of INR720 is based on a 16x FY17 P/E, which is a 60% premium over the 5-year average PER of 10x.
  • The company expects its valuation gap with EROS Plc to narrow due to consistent earnings, improving growth visibility, and potential consensus upgrades.

• Financial Highlights:

  • Revenue in 1QFY16 increased by 35% YoY to INR3.3B, with normalised EBITDA margins at 27%.
  • Core net profit for 1QFY16 was INR3,210.2M, with core EPS at INR35.
  • The company's core P/E ratio is expected to decrease from 26.3x in FY14A to 10.2x in FY18E.

Key Metrics

Valuation and Performance

• Share Price Performance:

  • 1-month return: -9.4%
  • 3-month return: +31.5%
  • 12-month return: +150.9%
  • Relative to the index: -7.5%, +30.6%, +137.5%

• Market Recommendations:

  • 6 positive, 3 neutral, 0 negative recommendations.
  • Maybank's consensus target price is INR720, while the average target price is INR550, resulting in a 30.9% spread.

Business Structure and Relationships

• EROS Plc retains ownership of EROS NOW due to high upfront investment requirements.
• EROS India continues to produce content for EROS NOW, similar to its current setup with EROS Plc.
• A global accounting firm has been appointed to determine revenue-sharing and transfer pricing rules.
• EROS is exploring an Indian Depositary Receipt structure to allow shareholders to own both NYSE- and India-listed companies.

Strategic Outlook

• EROS aims to expand its movie pipeline and increase its production/distribution capacity.
• The company is focusing on both domestic and international markets to drive growth.
• EROS is optimistic about the potential of EROS NOW and its ability to generate significant revenue through advertising.

Summary of Key Growth Drivers

• Strong movie pipeline with multiple hits expected.
• Expansion into regional languages and new markets.
• Digital platform EROS NOW showing rapid user growth and potential for monetization.
• Valuation discount with parent company is expected to narrow.
• Improved financial performance and growth visibility.