Eros International Media - Q4FY13 - Lack of big hits in Q4FY13 fails to spice up numbers - GEPL Capital

Q4FY13 - Lack of big hits in Q4FY13 fails to spice up numbers; big hits expected in FY14; good long term consumption story

- Eros International Media Ltd (EROS) reported Sales of Rs. 10,680mn for FY13 vs Rs. 9,439mn in FY12, growth of 13% Y-o-Y. This was in line with our Net Sales estimates of Rs. 10,550mn. We had factored in lack of major hits in FY13 which led to the sublime topline growth.

- EBITDA was Rs. 2,263mn in FY13 vs Rs. 2,124mn in FY12, up 36% & 4% lower than our estimates(Rs. 2,348mn). Film-related expenses were similar to FY12 but Op. exp. increased as % of Sales from 10% in FY12 to 13% in FY13 due to advertising, print & media costs for its various releases. Consequently, EBITDA margin came in at 21.2% in FY13 vs 22.50% in FY12.

- PAT was at Rs. 1,545 mn in FY13 vs Rs. 1475 mn in FY12, up 5% and 5% higher than our estimates(Rs. 1,470mn). Reason was 31% drop in Int. Exp. for FY13. However, Other Inc.(Rs. 64 mn) was 67% lower due to sale of investments worth Rs. 111 mn in FY12. Consequently, PAT Margin dropped 119 bps to 14.5% in FY13 vs 15.7% in FY12.

Muted topline growth due to lack of big hits in Q4FY13

EROS failed to produce any big hits in Q4FY13. "Table No.21", "The Attacks of 26/11", "3G", etc. failed to make material impact at box office. Consequently, Net Sales dropped 43% Q-o-Q & EBITDA dropped 54% Q-o-Q. EBITDA margin came in 307 bps higher at 19.62% in Q4FY13 vs16.55% in Q4FY12. PAT margin too was slightly better at 14.97% in Q4FY13 vs 14.36% in Q4FY12. This shows that operationally EROS is doing well & presence of hits (expected in FY14 due to big banner releases) will certainly prop up revenues and margins of the company.

"Rajnikant effect" to set in FY14

Sublime growth in topline during Q4FY13 was due to postponement of Rajnikant starrer "Kochadaiyaan" to FY14. The movie which was to release in Nov'12 will now (as per sources) release in Jul'13. Rajnikant has huge fan following in South India & his movies regularly enter the coveted "100 crore club". The recently released "Yeh Jawani Hai Deewani", for which EROS has overseas distribution rights, has got a rousing opening in Dubai, US & several overseas territories. Considering hype & star cast of the movie, it is expected to do well at B.O. EROS' release slate for FY14 has got some big & highly anticipated movies such as "Ranjhaana", "Krrishh", "Ram Leela", "Rambo Rajkumar" & so on. Hence, we expect FY14 to be an optimistic year for EROS. We expect revenues to grow 32% Y-o-Y in FY14E.

Other initiatives to start showing value accretion in FY14E - FY15E

EROS has struck innovative deal with HBO to launch two new digital channels in India which could be potential game-changers as digitization gains prominence. Alliance with Endemol for TV content & co-production tie-up with Sony are some exciting avenues to look out for in FY14.

Valuation & Viewpoint

At the CMP of Rs. 164, EROS is trading at 5.64x its FY15E EPS of Rs. 29. EROS reported sublime numbers for FY13 due to lack of any major hits, the company's slate for FY14E looks lucrative with multi-starrer and big banner movies and other initiatives for monetizing its library. We attach a 6.5x exit PE multiple to arrive at the target price of Rs. 190 with an ACCUMULATE rating.

Source : Equity Bulls

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