Eros Intl

Eros International Media is entering the capital market on 17^th September 2010 to raise Rs. 350 crore, via a fresh issue of 2 to 2.2 crore equity shares of Rs.10 each (depending on the price discovered). The issue, priced in the band of Rs. 158 to 175 per equity share, constitutes about 22-24% of post-issue paid-up capital of the company and closes on 21^st September 2010.

Eros International Media is the Indian arm of the Eros Group, a global player in the Indian media and entertainment space, sourcing all Indian film content for the Eros Group through acquisitions, co-production and own production (less frequent) and has a library of over 1,000 films, including Hindi, Tamil and regional languages. Notable films in the company’s library include Om Shanti Om, Kambakht Ishq, Lage Raho Munna Bhai, Partner, Mother India, and Tamil film Sivaji.

It has established a joint venture with leading Tamil film distributor Ayngaran, to source Tamil films, in which it holds a 51% stake. Having presence both in the Hindi and regional cinema space, it sourced 115 films in FY10, including 100 films acquired, of which, 88 were Tamil films. For 3 months ended 30^th June 2010, the company acquired 13 films (9 Tamil) and co-produced 1 film. 

The company distributes the content in India, Nepal and Bhutan using the ‘bundle’ model of distribution through various channels, such as theatre, TV, home entertainment, music, digital and new media like internet, mobile etc. It enjoys international distribution reach through its AIM-listed parent company Eros International Plc. It has also ventured into new business fields such as visual effects facility called EyeQube and a joint venture for music publishing royalties with Universal Music.

The company plans to utilize Rs. 280 crore from the IPO proceeds towards acquisition and co-production of 11 film projects (4 in Hindi and Marathi each and 3 in Tamil), all scheduled to be released over FY11 and FY12. Prominent ones among these include Sajid Nadiadwala’s Anjaana Anjaanee, slated for release next week and RA One of Shah Rukh Khan’s Red Chillies Entertainment. Balance funds raised in the IPO will go towards general corporate needs and issue expenses.

For FY10, the company reported a topline of Rs. 656 crore, on consolidated basis, with net profit of Rs. 82 crore, resulting in net margin of 12.6%. EPS for the year was Rs. 11.45. The company’s performance has grown steadily; from FY07 to FY10, its topline increased at a 3-year CAGR of 43% while the net profit rose at double the pace, at CAGR of 84%.

Like multiplex operators, the company’s business is also seasonal in nature, wherein the festive period of the October-December quarter is considered the best, when maximum big banner films are released. For the quarter ended 30^th June 2010, the company’s topline was Rs. 128 crore, net profit was Rs. 16 crore and net margin was 12.1%. The blip in the numbers can be explained by the seasonality factor as also the IPL underway during the start of the quarter.

As on 30^th June 2010, the company’s equity was Rs. 71.4 crore and networth was Rs. 256 crore, resulting in a book value per share of Rs. 35.8, on a consolidated basis. Post issue, if the book gets discovered at the upper end of the price band, the equity will expand by Rs. 20 crore to Rs. 91.4 crore. The company had total debt of Rs. 236 crore, as on 30^th June 2010, resulting in a debt-equity ratio of less than 1.

At the lower and upper end of the price band, the issue is being priced at PE multiples of 13.8 and 15.3 respectively, based on FY10 profitability. PBV, on post-money basis, works out to 2.5 and 2.7 times respectively. The company is expected to have a market cap of Rs. 1,600 crore, considering a price of Rs. 175 per share.

The company can, to some extent, be compared with UTV Software. Other listed peers such as Shree Ashtavinayak, either is grossly overpriced due to speculative forces or stocks like Baba Arts and Mukta Arta are relatively smaller in size. UTV Software, with diversified business such as films, television, broadcasting, games and new media, reported a topline of Rs. 111 crore for the film segment in Q1FY11, which accounted for 56% of its total revenues. UTV Software, with consolidated sales of Rs. 681 crore and net profit of Rs. 53 crore for FY10, is presently ruling at PE multiple of 42 times, based on its historic earnings. Its market cap is over Rs. 2,200 crore while debt, as on 31^st March 2010, was Rs. 963 crore.

Considering all this, issue seems to be fairly priced and those looking to take an exposure in this sector, can go for it!