Companies

Investment Focus -Eros International: Buy

K. Venkatasubramanian | Updated on September 17, 2011

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Investors with a one/two-year horizon can buy the shares of Eros International Media. As a film distribution company that co-produces mainly Hindi movies, the company has had a good track record in identifying sound projects and managed to de-risk its revenues by sale of movie rights to other media platforms such as DTH providers.

At Rs 216, the share trades at 12 times its likely FY12 earnings, leaving a reasonable scope for upside, given its growth prospects. Movies released in the first quarter of this fiscal such as Ready and, more recently, Zindagi Na Milegi Dubara have been blockbusters, collecting more than Rs 100 crore each. Singham, another recent release, too has been declared a hit. These are films that Eros acquired and later distributed. While Ready has already had a desirable effect in bolstering Eros' June quarter numbers, the other two hits would drive revenues and profitability over the next couple of quarters.

During the April-June 2011 quarter, revenues increased by 26.8 per cent and net profits by 60.3 per cent over the same period last year. Eros' subsidiary (51 per cent), Ayngaran International, too has had a good period with release of hit Tamil movies such as Ko and Avan Ivan.

Apart from distribution to theatres, Eros derives revenues from sale of rights to commercial satellite channels. The steady increase in the adoption of DTH by households in the metros and the players' focus on improving their own revenues by offering new movies have helped drive demand from this source for Eros. The company has been able to recover 35-40 per cent of its costs by selling movie rights to general entertainment channels such as Colors, Zee TV and Star Plus.

In co-production, Eros tends to enter into revenue sharing arrangements with other co-producers only after it recovers a significant portion of its investment. Together, these strategies reduce the risk inherent in the film production and distribution business.

Eros' pipeline of movies such as the Shah Rukh Khan starrer Ra One too was monetised by this model. Other films such as Mausam, Rock Star and Desi Boyz with strong star cast are going to be released in the coming months. The sale of overseas rights to Eros plc and Eros Worldwide, sometimes even before a Hindi movie is released in India, means that Eros has been able to tap into the lucrative expatriate market as well. In FY11, Eros' revenues increased 10.3 per cent over the previous year to about Rs 707 crore, while net profits expanded by 42.8 per cent to Rs 117.2 crore.



Published on September 03, 2011

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