Eros International - IDBI capital Markets Report - Best period for content monetization yet to come; BUY

IDBI Capital Markets report on Eros International. Highlights of the report:


We reinitiate coverage on Eros International Media (EROS) and recommend BUY with street-high TP of Rs616 based on PER of 15x FY17E.

We believe that the ecosystem for monetization of movie content in getting stronger across the value chain - growth in multiplexes, digitization of television, emergence of digital platforms and consolidation amongst movie studios.

EROS is strongly positioned to benefit from these given its diversified studio model, vast movie library and strong digital presence with EROSNOW having 14m subs in India.

We are bullish about EROS's ability to deliver sustainable growth. It has started FY16E with a blockbuster - 'Tanu Weds Manu Returns' and has a strong movie slate for FY16-17E. We expect strong theatrical performance and growth in TV satellite rights & catalogue sales to drive EPS CAGR of 24% each over FY15-17E. We expect blockbuster performance of 'Bajrangi Bhaijaan' to be near-term catalyst for the stock.

Investment Rational

Strong business model - studio approach, international presence & vast movie library

EROS is one of India's leading movie studios with diversified presence across movie budgets and genres (Hindi, Tamil, Telugu and others). It has strong experience and relationship with actors/directors/standalone producers which it leverages to co-produce or acquire movies at their production or post production stage. Its leadership position enables it monetize its movies across domestic theatrical (38% of revenue), satellite rights & catalogue sales (31.3%) and International geographies (30.7%). It has been adding ~70 movies p.a. to its movie library of over 1,300 movies and has digital rights for another over 700 movies. EROS is also well placed to benefit from digital revolution in India through its video-on-demand platform EROSNOW.

Strong movie slate and catalogue sales to drive revenue CAGR of 23.9% over FY15-17E

We expect EROS to follow-up the blockbuster performance of 'Tanu Weds Manu Returns' with strong slate of big and mid budget movies across genres (refer table 9 on page 9) over rest of FY16 and in FY17. We expect EROS to continue to add movies at their production or post production stage and further strengthen its movie slate. We also expect Trinity Pictures, EROS's newly formed in-house movie production arm, to start contributing from FY17. We expect this and strong growth in catalogue sales to drive revenue CAGR of 23.9% over FY15-17.

Higher contribution from satellite rights & catalogue sales to improve EBITDA margin

EROS's FY15 EBITDA margin was -190bps YoY to 24.5% due to increase in write-off of content advance and receivables. While we do not expect these write-offs to remain at elevated levels, we expect investment in Trinity pictures and consolidation of Techzone to impact EBITDA margin. However, we expect this to be more than offset by higher share of satellite rights & catalogue sales (CAGR of 30.6% over FY15-17E). We expect EBITDA margin to improve by 115bps to 25.6% in FY17E, still lower than 26.4% in FY14. We believe that our EBITDA margin forecast is conservative and has upside triggers from higher than expected revenue growth.

Outlook and Valuation

We forecast EPS CAGR of 24% and RoE of 19% over FY15-17E. We believe that there are significant opportunities for monetization of content on digital platforms which would provide upside triggers to our and consensus forecast. We expect EROS to see significantly re-rating from current PER of 10.5x FY17E and assign target PER of 15x FY17E which higher than the one-year forward PER rang in the last three years. Our TP of Rs616 provides upside of 43%.

Shares of EROS INTERNATIONAL MEDIA LTD. was last trading in BSE at Rs.426.85 as compared to the previous close of Rs. 416. The total number of shares traded during the day was 30656 in over 1198 trades.

The stock hit an intraday high of Rs. 430 and intraday low of 415.5. The net turnover during the day was Rs. 12981326.

Source : Equity Bulls

Keywords