Movie Time! BUY Eros International with a target of Rs 610/-

Earlier I had recommended PVR which went very quickly to its target price and I think it’s a stock one should continue to hold, another company from the media space but with a different business model which I like is Eros International. The recent correction in the stock gives us a good entry point and I recommend a BUY on Eros with a target of Rs 610/-.

Eros International is a leading company, which acquires, co-produces and distributes Indian films across all available formats such as cinema, television and digital new media. Eros International is part of Eros International Plc, which became the first Indian media Company to raise capital and be listed on the New York Stock Exchange.

Eros International has experience of over three decades and has an extensive growing library of over 1200 films in Hindi, Tamil and other regional languages. This library is available for home entertainment distribution.

With a view to making this content available across various digital platforms Eros has entered into a partnership with three Chinese film companies- China Film Group Corporation (CFGC), Shanghai Film Group Corporation (SFG) and Fudan University. Eros has also announced one of its first projects, co-produced with CFC titled DA TANG XUAN ZANG (Monk Xuan Zang).

 

Eros Now is the parent companies digital platform with 26.5 million registered users and they launched a marketing campaign. Eros International will provide content to Eros Now and we will soon have a disclosure with regard to the transfer pricing and therefore the possible revenues from Eros Now.

 

 

Investment Rationale

The company delivered very good numbers in Q1, fortunately they have had some films that have done extremely well at the box-office so Q2 results will be robust. FY16E earnings in off on a strong trajectory given the visibility of 64 films this year with some high budget movies like Bajirao Mastani still to hit the theaters. The regional pipeline for Eros is also strong. This vertical of the company should continue to grow at ~15% over the next couple of years.

 

In any case the way the business is now structured, Eros recovers cost of production before a theatrical release. The sale of music rights, satellite rights and international distribution ensures this. To add to this we will see revenues from the monetization of the library reduce the dependence on a theatrical release revenue model. Eros Now will also add revenues incrementally as the 26 million-subscriber base continues to expand. Going forward this part of Eros Internationals business will grow at a faster pace than the theatrical revenue bit and though it is a smaller share as of now this could be as much as ~40-45% of the revenues going ahead.

 

BUY the stock with an 18 month time horizon for a target of Rs 610/-.

Comments

  • Any view on Shemaroo..both seems to be operating in similar business.

    ManishOctober 16, 2015
    • I like PVR, also Dish TV and Inox

      Sharmila JoshiOctober 28, 2015
  • This is the first time I am visiting your blog and I am happy to see that my portfolio is more or less comprising of the stocks recommended by you.

    I am looking for an industrial training for a period of eight months as a part of my CA course.

    I shall mail you my C.V if you are willing to interview me and share your deep knowledge during the course of the training.

    Neelay ShahOctober 21, 2015
    • Thanks, but I am sorry but I am not hiring.

      Sharmila JoshiOctober 28, 2015
  • Eros is down 30% from Recommendation… what was the view now…

    yogOctober 26, 2015
    • We need more clarity on the concerns raised by the FII analysts, but in terms of results they will deliver a good set of numbers in India, we should use this opportunity to average our holding.

      Sharmila JoshiOctober 28, 2015
  • R u still bullish.? Stock tanked big time after well forgo downgrade and allegations of false revenue recognition. Do you think they r cooking books. How within a week stock which was touted to be the netflix of India is biting dust. Your opinion will help in understanding the true situation.

    sanjayOctober 26, 2015
    • Yes I am still bullish – we should use this correction to average, the management has given a clarification of sorts but clearly more is awaited. The point to note is that even Wells Fargo didn’t change their recommendation they cut their earnings expectation.

      Sharmila JoshiOctober 28, 2015
  • Hi
    I am a small time investor and invest with my savings. I have put in almost 3L buying this stock all the way from 395 and averaging at lower levels but there seems to be no bottom for this given the analyst report in US. There are class action suits being launched on this company.
    Have you read the Seeking Alpha report ? Do you still suggest hold on this or Should I just sell this morning and cut my losses (huge) ?

    thanks

    ramanaNovember 2, 2015
    • I would suggest that we need to let the dust settle on this. So don’t buy more but lets wait for the results and for management commentary and clarification. But the overhang on this stock will be there for sometime – because the current price suggests that a lot of larger investors have exited, therefore to expect a sharp pull back any time soon would not be prudent. I therefore leave it to you, but ideally hold on without averaging further.

      Sharmila JoshiNovember 2, 2015

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