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EIML is a strong play on the movie business. The company has more than 30 years experience in the fragmented Indian film industry, a ~ Rs89bn market according to FICCI-KPMG 2010 report. A 1000-movie strong library, extensive distribution network, a healthy movie pipeline, and good scale of operations underpin our confidence in the company. Over FY06-FY10, EIML's revenue grew at five-year CAGR of 83% and its market share increased from 2.7% to 6.5%. Aggressive amortization and better exploitation of film rights ensure high ROE (21% in FY10) on expanded net worth (and PBV of Rs63 in FY10). We recommend 'Subscribe' to the issue.

Investment Rationale

Growing movie library: A long-established presence of 30 years in the business has helped the company build one of the largest and strongest movie libraries in India comprising 1000 films. Further, the library will be continuously strengthened with the addition of movies following new releases from the existing pipeline. Over FY08-FY10, the number of films released has grown at 33% CAGR.

Extensive distribution network: An end-to-end presence in the distribution chain gives the company an edge over peers in the industry. Moreover, the company can leverage the distribution network of the Eros International Group and distribute films worldwide at relatively lower cost with assurances of simultaneous release worldwide.

Diversified business model: EIML has always aimed at de-risking its business model through co-production deals, regional diversification, and generating revenue through other sources of media platforms. Moreover, for international rights of movies, the company gets an upfront ~ 39% of the cost of the film from Eros Plc and Eros Worldwide.

Strong movie pipeline: EIML has built a strong movie pipeline across the genre for FY11 and FY12. Visibility of the movie pipeline is further expected to increase following deployment of the IPO proceeds of ~Rs3.5bn.

Healthy cash flows from operations (CFO): EIML's CFO for FY10 was ~Rs3.3bn and in FY09 it was Rs1.2bn. Strong CFO and infusion of Rs3.5bn from the IPO proceeds would help EIML to enter into production/co-production deals, which would improve its profitability.

Strong business performance: Over FY06-FY10, the Indian film industry has grown at 5% four-year CAGR. Over this period, EIML's revenue has grown 83% to Rs6.4bn and its market share increased to 6.5% in FY10 from 2.7% in FY06. Aggressive amortization and better exploitation of film rights ensure high ROE (21% in FY10) on expanded net worth (PBV of Rs63).

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Key Risk Factor: Movie box office success in India and worldwide.

Source : Equity Bulls

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