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IPO Note Eros International Media Ltd
Recommendation Subscribe Background
Price Band Rs.158 – Rs.175 Eros International Media Limited (Eros) is a part of the
Bidding Date
th st
17 - 21 Sept., 2010 Eros Group, a global player within the Indian media and
entertainment sector having a track record of around
Book Running Lead Manager Enam, Kotak, MS, RBS
three decades. Eros Group is in the business of sourcing
Sector Media Indian & other film content and exploiting it worldwide
Retail Application- Detail At Cut off Price through its offices in India, UK, USA, UAE, Singapore,
Number of Shares 560 Australia, the Isle of Man and Fiji. Eros has various rights
Application Money 98000 to over 1,000 films which include Hindi, Tamil and other
Amount Payable 98000 regional language films which is its competitive
Valuation advantage. Eros plc, the holding company of Eros Group,
Diluted EV/S (U/L)* 2.74/2.55 is the promoter of Eros & is listed on the Alternative
Diluted P/E (U/L)* 19.44/17.96 Investment Market of the London Stock Exchange.
Eros sources content primarily through acquisitions from
No of Equity Shares Offered 2.0 Cr third parties & through co-productions and occasionally,
Post Issue Promoter Holding 78.12% through its own productions. The company acquires
Offer structure for different categories films from third party producers at various stages of a
QIB 60% film‘s production for an agreed contractual value, & also
Non-Institutional 10% co-produce films from inception with certain producers
for a pre-agreed fixed budget. Eros distributes Indian
Retail 30%
film content within India, Nepal & Bhutan through
Lot Size 40
multiple formats such as theatres, home entertainment,
Post issue Equity (Rs. in crore) 91.41 principally in the form of DVDs, VCDs and audio CDs and
Issue Size (Rs. in crore) 316.0-350.0 licenses the broadcasting rights to major satellite
Face Value (Rs.) 10 television broadcasting channels and cable television
Shareholding pattern (Post issue) channels. Eros also exploits and distributes content via
Promoter & Promoter Group 78.12% digital new media such as mobile ring tones, wallpapers
Public Shareholding 21.88% and downloads, IPTV, DTH and other internet channels
and also licenses films to airlines for in-flight viewing.
Sunil Jain, V.P. Equity Research In 2007, Eros set up a visual effects facility, EyeQube.
Ph –(022)-3027 2377 Renowned visual effects expert Charles Darby who has
E-Mail: sunil.jain@nirmalbang.com
been associated with films like Matrix, Harry Potter and
the Prisoner of Azkaban and Harry Potter & the Goblet of
Niraj Garhyan, Research Associate
Ph –(022)-3027 8215 Fire, is the Creative Director of EyeQube. Eros Music
E-Mail: niraj.garhyan@nirmalbang.com Publishing, a wholly owned subsidiary, signs up artists
and composers and it has a strategic tie-up with EMI, for
*(U/L) Upper and lower band the administration & collection of music publishing
royalties for EMI‘s catalogues in India. Eros has entered
into a joint venture agreement with Universal Music
India through which it intends to discover and manage
new acting and singing talent and provide them film and
music platforms to showcase their talent.
IPO Note Eros International Media Ltd
The broad structure of the business is:
Sourcing Content
•Indian Content Library
•Acquisition/Output Deals
•Co-production/Production
End-to-End Distribution
•India
Eros •Theatrical
•Home Entertainment / Digital New Media
India •Satellite, Terrestrial & Cable Television
Group •Music
•International Sales (licensing thorugh the relationship agreement)
New Initiatives
•EyeQube Studios (Production Planning and VFX facilitiy)
•Universal JVA
•EMI tie-up (through Eros Music Publishing)
Objects of the Issue
The issue compromises of issue of 2.0 Crs equity shares of face value of Rs.10
within a price band of Rs.158 and Rs.175. The issue size is Rs.316.0 Crs at the lower
price band and Rs.350.0 Crs at the upper price band. Post issue the holding of
promoter will reduce to 78.12% from the current holding of 100%.
Proceeds of the issue will be used for:
• Eros intends to use up to Rs.280.0 Crs for acquiring and co-producing Indian
films, including primarily Hindi language films as well as certain Tamil and other
regional language films which the company plans to release in fiscal 2011 and 2012
• Eros will utilize the balance proceeds for growth and expansion through organic
and inorganic route like acquisitions as well as general corporate purposes
IPO Note Eros International Media Ltd
Investment Thesis
Extensive content library of over 1,000 film titles
The Eros India Library comprises of over 1,000 film titles which includes Hindi,
Tamil and other regional language films. The diverse content library is constantly
updated by the addition of Eros’ new releases as well as further library
acquisitions. This extensive library is Eros’ key competitive advantage and enables
it to exploit the increasing number of existing and new distribution channels in the
Indian entertainment market. The Eros India Library also allows it to take
advantage of technological developments and re-monetise the same films across
different formats such as VCD, DVD, DTH, IPTV, cable, Blu-Ray as technologies
advance over time.
Widespread content distribution network
Eros has a well developed distribution network which enables it to monetise on its
film content without solely relying on sub-licensing to third parties. The company
has a national theatrical distribution network, in-house music distribution
capability having its own music record label, Eros Music, an in-house television
syndication team as well as home entertainment distribution division. The
company’s own distribution network enables it to have more control and greater
flexibility over the distribution process and also provides higher revenue margins.
Eros’s music and home entertainment distribution allows it monetise library films
and new films across traditional and new formats as long as it holds the rights
rather than limiting revenue to a one-off sale.
Plans to strengthen the regional presence
As of now, in addition to English and Hindi film titles, Eros India library has movies
in few regional languages like Punjabi, Marathi and Tamil too in its content library.
The company plans to enrich its content library by acquiring movies in other Indian
regional languages as well as International languages other than English. The
portfolio of films in Eros India Library generates diversified revenues and reduces
reliance on the box-office success of individual films. Eros’ typically follows a
‘bundle’ model for distributing its films in television, home entertainment and
digital new media wherein it bundles different categories of films including new
releases and catalogue films.
Sustained growth in performance
Though the film distribution business is considered risky because of the inherent
risk of some movies not doing well on the box office, Eros has shown a sustained
performance over the last 5 years. For the period of FY 2006-10, Eros had a CAGR
IPO Note Eros International Media Ltd
of 58.3% in revenues and a CAGR of 156.5% in the bottom line. This consistent
performance results from the strategy of choosing profit driven film distribution
model rather than hit film driven business model. Eros as a co-producer of films
lowers the cost of production by asking the top stars to lower their professional
fees in lieu of profit sharing after the release. Also, because of the wide number of
projects in which Eros is involved, it reduces its dependency on a single movie and
assures sustained profitability.
Strong long standing relationships with talent within the industry
The strong relationships Eros enjoys with various production houses and top acting
talent, having worked with most of them, provides the company with sustained
access to talent and content. To cite a few notable associations, Eros has ongoing
relationship with talent such as Shah Rukh Khan and with production houses such
as Nadiadwala Grandson Entertainment Private Limited and Venus Films Private
Limited. In Indian film industry, which has been traditionally driven by talent and
family-owned production houses, such relationships gives an edge to Eros.
Investment Concerns
Risk of a big budget movie not being a hit
Even though, Eros at a time is involved in many projects, there is a risk that one or
more of its big budget movies may not do well on the box office. It will negatively
impact the profitability.
Increasing Competition from larger players
The company is facing increasing competition from both domestic and
international players who have either entered the film distribution and/or
production business or planning to do the same. Eros might lose its market share
in such scenarios.
Dependence on Indian Box Office
Over 45% of revenues of Eros are derived by releasing the movies in Indian box
offices. In case of events like forthcoming commonwealth games to be hosted by
India, theatres may see a fall in the number of viewers. Also recurrence of past
events like stand offs with multiplex owners will hamper the distribution and sales
collection of new releases.
IPO Note Eros International Media Ltd
Valuation:
Peer Comparison
We have compared Eros International Media Limited with UTV Software Communications and Shree
Ashtavinayak Cine Vision Ltd as they operate in similar kind of business. Eros had the highest CAGR
at 58.3% in revenues among its peers over the past five years. While UTV Software Communications
had a CAGR of 33.60% in revenues, Shree Ashtavinayak Cine Vision had a CAGR of 41.7% in revenues
during the same period. It has much better EBITDA margins than UTV Software Communications
while bit lower than that of Shree Ashtavinayak Cine Vision.
Eros UTV Software Shree
International Communications Ashtavinayak
Particulars (FY 2010) (Rs in Crs) Media Ltd Ltd Cine Vision Ltd
Sales 640.9 664.1 243.3
EBITDA 111.0 69.2 48.3
EBITDA Margins 17.3% 10.4% 19.9%
EPS 9.00 13.13 0.30
Networth (Post issue) 587.5 772.3 482.5
Book Value (per share) 64.3 190.1 6.1
Price (as of 17 September 2010) 175.0 554.2 27.7
Diluted Equity Shares (Nos) 9.1 4.1 79.7
M. Cap 1,599.6 2,251.5 2,208.8
Debt 271.6 962.7 341.3
EV 1,755.9 3,123.0 2,543.4
P/BV 2.72 2.92 4.58
EV/Sales 2.74 4.70 10.45
EV/EBITDA 15.82 45.12 52.62
P/E 19.44 42.20 92.33
Source:RHP,Nirmal Bang Research
Recommendation
Based on price of Rs 175 (upper end of the price band) and company’s FY 2010 earnings the
company will trade at a P/E multiple of 19.44x which is lower than its peers. Also, company looks
attractive in terms of P/BV and EV/Sales multiple given that company is expected to grow at a rapid
pace as compared to its peers. The pipeline of movies to be released by Eros over the next two years
will contribute to its top line growth as well as enrich its existing content library. The company is in a
strong position to maintain a sustained financial performance by leveraging its business model as
well as its extensive content library and looks attractive as compared to its peers. Therefore, we
recommend SUBSCRIBE to this issue.
IPO Note Eros International Media Ltd
Financials
Income Statement
Particulas (Rs in crs.) FY 2008 FY 2009 FY 2010 Q1 FY 2011
Sales and Service Income 474.7 626.5 640.9 126.3
Operating Expenses 366.2 422.0 446.8 84.1
Employee Remuneration 8.5 15.5 19.7 5.8
Administrative Expenses 44.9 75.2 63.3 12.2
Total Expenditure 419.6 512.7 529.9 102.1
EBITDA 55.1 113.8 111.0 24.2
Depreciation 1.8 5.0 4.4 0.8
Amortization of Goodwill 0.0 0.1 0.0 0.0
EBIT 53.3 108.7 106.6 23.4
Other income 15.5 1.3 14.7 1.7
Finance Costs (Net) 2.8 6.1 9.0 2.0
EBT 66.0 103.9 112.2 23.0
Tax 23.3 29.1 29.5 8.4
PAT (before Minority Interest) 42.7 74.8 82.8 14.6
Share of Minority Interest 1.6 1.4 0.5 -1.0
PAT after Minority Interest 41.1 73.3 82.3 15.5
Source:RHP,Nirmal Bang Research
Profitability Ratios FY 2008 FY 2009 FY 2010 Q1 FY 2011
EBITDA 11.6% 18.2% 17.3% 19.1%
PAT 8.7% 11.7% 12.8% 12.3%
RONW 50.5% 46.4% 34.7% 6.1%
Source:RHP,Nirmal Bang Research
Growth Ratios FY 2008 FY 2009 FY 2010 Q1 FY 2011
Sales 117.8% 32.0% 2.3% -21.2%
EBITDA 239.6% 106.5% -2.5% -12.9%
PAT 210.1% 78.3% 12.2% -24.6%
(Annualized figures for Q1 FY2011 considered while calculating the Growth Ratios)
Source:RHP,Nirmal Bang Research
IPO Note Eros International Media Ltd
Balance Sheet
Particulas (Rs in crs.) FY 2008 FY 2009 FY 2010 Q1 FY 2011
Share Capital 5.1 5.1 71.4 71.4
Stock Options Outstanding 0.0 0.0 1.3 2.5
Reserve & surplus 76.3 152.9 164.7 181.8
Net Worth 81.4 158.0 237.5 255.7
Secured Loans 123.4 211.4 217.5 235.6
Unsecured Loans 0.5 0.4 0.0 0.0
Deferred Tax Liability (Net) 8.8 28.1 49.9 54.9
Minority Interest 2.2 4.0 4.2 3.3
Capital Employed 216.4 401.9 509.1 549.4
Gross Block 466.3 772.3 1,004.7 1,065.5
Less: Depreciation 324.5 552.9 732.7 783.4
Net Block 141.9 219.5 272.0 282.1
Capital Work in Progress 0.0 0.0 0.3 0.8
Investments 6.0 8.0 8.0 8.0
Deferred Tax Assets (net) 0.0 0.1 0.1 0.1
Current Assets
Inventories 69.5 97.8 40.9 40.7
Sundry Debtors 104.6 158.8 130.3 158.3
Cash & Bank Balances 118.2 36.1 107.2 40.5
Loans and Advances 364.7 600.5 446.6 496.6
Current Liabilities 586.4 714.9 485.6 465.3
Provisions 2.3 4.0 10.6 12.4
Net Current Assets 68.4 174.4 228.7 258.4
Capital Deployed 216.4 401.9 509.1 549.4
Source:RHP,Nirmal Bang Research
IPO Note Eros International Media Ltd
NOTE
Disclaimer
This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities PVT LTD). The
information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been
obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This
document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang
Research, its directors, officers or employees shall not in any way be responsible for the contents stated herein. Nirmal
Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this
connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang
Research, its affiliates and their employees may from time to time hold positions in securities referred to herein.
Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other
services for any company mentioned in this document
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