Buy Eros International Media - BP Wealth Diwali Picks 2012

Eros International Media Limited (EIM), incorporated in 1994, is a part of the Eros Group, EIM is one of the market leaders in the Indian Film Industry. EIM co-produces, acquires and distributes Hindi and Other Regional Language Films across multiple channels like theatre, Television, Mobile phones, the Internet, Music, Radio and Print. EIM distributes films in over 50 countries and has offices in India, UK, USA, Dubai, Australia, Fiji, Isle of Man and Singapore.

Investment Rationale

Recent Box office success

Recent Bollywood releases in H1FY13 have been successful in the box office. 'Housefull 2', 'Ferrari Ki Sawari', 'Cocktail' and 'Vicky Donor' fetched Rs.1490 mn, Rs. 390 mn, Rs. 1020 mn and Rs. 450 mn in Net Box Office collection worldwide. EIM released a total of 42 films during H1FY13. In CY11 4 of the top 10 Box Office grossing Hindi films were Eros films and has several high budget releases lined up. EIM has already signed for almost 60% of the film slate in FY13E. This recent success has resulted in a 45% YoY increase in revenue at Rs. 4,903 mn and a 17% YoY increase in Net Profit during H1FY13 at Rs. 574.9 mn.

Has a leadership positions in the market

EIM is a part of the Eros group which has 35 years of experience in the film industry and distribution business for Hindi and other regional language films across multiple channels like television, theatre as well as new digital media platforms. EIM boasts the largest library of Indian films consisting of over 1100 titles and also holds the digital rights to a further 700 films. EIM has gained success along the years by co-producing, acquiring and distributing Indian language films around the world with its well established distribution network.

Financially stable and strong

EIM ensure stable, recurring cash flows by exploiting old content on new platforms. ~40% of EIM's revenue comes from their Theatrical Rights across India and ~60% through International Rights, Broadcast Rights, Home Entertainment, Music Rights and other digital platforms like Mobiles, Internet, etc. Other than the Theatrical rights all other revenue streams ensure a low risk platform for stable and recurring revenues. ~15% of EIM's revenues come from only monetizing its library which comprises of 1100 titles. This provides a reliable source for recurring cash flow and provides revenue even if no films are produced.

Bright future Prospects

EIM, having several high budget releases lined up for CY12, also plans to expand its business further by acquiring the remaining 76% in B4U Television Network, which is a global television network and is available in more than 100 countries and generates its revenues internationally through the fess received from being a part of cable or satellite service providers' subscription package and from advertising in India. EIM will also gain from the growing prospects of the Indian media sector which recorded a 12% growth in CY11 and expected to register a CAGR of 15% by CY16E to Rs. ~150 bn according to the FICCI-KPMG Report 2012.

Valuation & Outlook

The company has a decent film slate for the next 12-18 months and it also had a good start in 2QFY13, with its film Cocktail crossing the Rs 1bn revenue-mark worldwide and English Vinglish still running successfully in theatres. The stock trades at 8.7x FY13E P/E, which seems to be at the lower end compared to peers. We recommend 'BUY' on the stock with a price target of Rs 202.

Technical Outlook

Stock has reversed after getting support at 78.60% retracement of its upmove from 124 to 277, currently the stock is forming broadening wedges descending formation and the breakout point is at 178, a break above this level will open the way for 195-210 while support comes @160-153.

Source : Equity Bulls

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