The entertainment industry, though dependent on the economic environment, has select players that are able to thrive. Eros International Media (Eros) is one such film distributor and co-producer of Hindi and select regional movies. The company has managed to derive significant revenues from mega and large budget movies, while reducing business risks by monetising the cable and satellite rights for such films.
Investors can buy the shares of Eros with a two-year investment horizon. At Rs 164, the share trades at eight times its likely per share earnings for FY13. This is lower than the valuation enjoyed by multiplex players as well as the historical multiples that it enjoys.
A slew of top movie releases that have been successful in the current fiscal, a strong pipeline of star-studded films and the ability to monetise movie rights by selling them to satellite channels are key positives for the company.
In FY12, Eros revenues increased 34.5 per cent over the previous fiscal to Rs 963.2 crore, while net profits rose 26.1 per cent to Rs 147.8 crore. Movies such as Zindagi Na Milegi Dobara, Rockstar, Ready, and to some extent Ra.One had a good run at the box office and also had substantial TV audience.
In the present slowing economic environment, the company is not going big on mega budget movies of Rs 100-150 crore, like it did in the last fiscal.
The budget sizes have been much more moderate in the current fiscal.
Movies such as Housefull2, a blockbuster grossing an estimated Rs 144 crore, and Vicky Donor, a low-budget film that grossed Rs 45 crore, would show up for Eros in the current fiscal. A couple of recent movies, however, did not have that strong a run.
The company recovers 35-40 per cent of its costs by selling movie rights to channels such as Colors, Zee TV and Star Plus. In co-production, Eros tends to enter into revenue-sharing arrangements only after it recovers a significant portion of its investment. Together, these strategies reduce the risk inherent in the film production and distribution business.
The pipeline of movies, especially in Tamil, is quite promising. Films such as Kochadaiyaan, English Vinglish, Maatran and Yohaan Adyayam Ondru have strong casts as well as established directors.