The international success of Agneepath as well as good numbers for the December quarter had helped the Eros International Media (EIML) scrip outperform the markets during the first half of February. Though it has lagged markets since then, led by the change in overall market sentiment, a strong movie release pipeline and changing revenue mix indicate its prospects remain healthy.
On the flip side, while the company says it has a de-risked model that will depend less on the success of theatric releases and more on pre-sales, failures at the box office could have a big impact on financials. At Rs 183, the stock is trading at nine times its FY13 estimates. Analysts have targets ranging Rs 240-260, indicating a 30-42 per cent upside from these levels.
Strong pipeline
The company had recently announced it grossed Rs 16 crore from international collections for Agneepath. It will also be able to book some revenues from the movie Agent Vinod (March release) and from pre-sales of Houseful 2, scheduled for a mid-April release, all of which indicate the March 2012 quarter should be fruitful.
| ROBUST REVENUE GROWTH | ||||
| In Rs crore | FY11 | 9M' FY12 | FY12E | FY13E |
| Net sales | 707.0 | 737.0 | 919.1 | 1102.9 |
| % chg y-o-y | 10.3 | 24.4 | 30.0 | 20.0 |
| Ebidta | 168.2 | 184.7 | 225.2 | 270.2 |
| Ebidta (%) | 23.8 | 25.1 | 24.5 | 24.5 |
| Net profit | 117.2 | 115.1 | 152.4 | 198.5 |
| % chg y-o-y | 42.8 | 10.5 | 30.0 | 30.3 |
| P/E (x) | 14.5 |
– | ||
Even for FY13, the company's movie release pipeline is robust. Sunil Lulla, vice-chairman and managing director, Eros International, said the company has excellent visibility, with 50 films scheduled for release over the next 12 to 18 months. The company releases about 70 movies a year across all languages, with 16-20 films in Hindi. It is also focussing on widening its product portfolio by adding Tamil and Punjabi movies, by launching them on global scale. This will help cater to a broader spectrum of audience and leverage untapped markets, says Lulla. Over the next year, Eros International is likely to include global releases of seven-eight Hindi movies and a couple of Tamil and Punjabi movies. While there is visibility in the near to medium term, Manoj K Behera of Equirus Securities in a December 2011 report says poor box office performance remains the biggest risk. "The company derives 45 per cent of revenues from domestic theatric collections and, hence, poor box office performance of any movie distributed by Eros can significantly dent financial performance." The company, however, says its de-risked business and changing revenue share of major segments should help protect the downside.
De-risked biz
The company follows a policy of pre-licensing content before the release of its movies. Pre-licensing involves selling of the satellite, music and new media (digital) rights. This way it recovers between 40 and 80 per cent of the costs before the movie hits the theatre, says the company's CFO, Kamal Jain. He says the company was able to recover 80 per cent of the cost of the movie Desi Boyz before the release of the film. The second area that ensures stable revenues is the company's ever-growing catalogue of 1,100 movies. Revenues from catalogue sales are expected to improve from Rs 80 crore in FY11 to Rs 100-120 crore this fiscal. Revenues from these will be in the region of 10-12 per cent of overall sales, says Jain. More, the dominance of theatric revenues to the overall pie is likely to change. Revenue split, heavily tilted towards theatric, will be split evenly between theatricals, cable and satellite and new media, says Jain.
Outlook
Powered by some high-profile releases, the company recorded a 45 per cent year-on-year jump in the December 2011 quarter revenues. For the nine months ended December, revenue was up 24.4 per cent, helped by 61 releases (of which 19 came in the December quarter). Given the robust pipeline and revenue visibility, analysts expect a 20-25 per cent growth in revenue and an 18-20 per cent rise in net profit for FY13.
