High debt to changing media market: How Eros International lost its way

Stock price of Eros International Media on Thursday crashed 20 per cent on the BSE

Stock price of one of the country’s best-known moviemakers Eros International Media (Eros) on Thursday crashed 20 per cent on the BSE over debt repayment concerns. The trigger was a ratings downgrade by CARE on Wednesday, citing a slowdown in collection from debtors, which was leading to cash flow issues.

While Eros wasted no time in issuing a statement on the same day, saying the downgrade to ‘default’ from ‘BBB’ was due to a delay in paying off loans for April and May only, its stock price has fallen 39 per cent in 2019 so far (year-to-date) even as the Sensex rose 11 per cent in this period. At the close of trade, Eros’s stock price stood at Rs 53.1 per share and its market capitalisation was Rs 507.15 crore.

Analysts say Eros's woes actually began in 2015 when allegations of accounting fraud were made by foreign investors that year. Though the company, whose parent Eros International is listed on the New York Stock Exchange, clarified then that there were no such issues, even appointing a law firm to conduct an independent review, investor confidence has plummeted since. From a level of Rs 253 per share in 2015, the stock is now down to nearly a fifth of its value, data from the BSE shows. Reliance Industries has a 5 per cent stake in Eros International. 

According to experts, the movie production landscape has also changed in the past few years, forcing Eros to focus on small-budget movies and digital series rather than blockbusters. In the 2018-19 financial year (FY19), for instance, Eros released 72 films, which was three times the number of movies it released in FY18. 

Of these, 65 were small-budget films across languages, while medium-budget films were seven. Interestingly, the producer and distributor of movies such as Bajrangi Bhaiijaan, Andhadhun, Bajirao Mastani and Tanu Weds Manu Returns, had no big-budget movie in FY19, it said in an investor presentation recently, adding it wanted to derisk from films that relied heavily on box-office performance. 

The company also produced 11 digital series in FY19 and also pushed its Eros Now platform aggressively, doubling the number of paying subscribers to 15.9 million. In FY18, Eros Now’s paying susbcribers were 7.9 million. But analysts said all this had come at a price. Its total debt at the end of FY19 stood at Rs 539.9 crore. Though lower than FY18’s total debt of Rs 689.8 crore, this was still above their comfort level. 

While FY19 net sales and net profit improved by 7.4 per cent and 17.35 per cent, respectively, from a year earlier, touching Rs 1,031 crore and Rs 269.1 crore, investors seemed largely unconvinced about its ability to fight players such as Netflix, Amazon Prime and Hotstar, with its stock price remaining largely volatile through 2019 (year-to-date).

Experts also said investor jitteriness was partly linked to a high-level of promoter share pledging at the firm. Almost 75 per cent of Eros Worldwide FZ LLC, a foreign promoter firm, is pledged to lenders here. This firm holds nearly 40 per cent in Eros, with Indian promoter entity Eros Digital holding 22 per cent in the company at the end of March 2019.

(Sources: Capitaline/Company results/BSE; Compiled by BS Research)