Retail Equity Research - PDF document

September 7, 2015 Retail Equity Research Management Meet Note We met the management of Eros International to get a deeper insight into the growth triggers that would favour the company in coming years. Eros, producer/distributor with a large film library of over 2000 films, is a force to reckon with in the Indian film exhibition and production space. The company is actively working towards making its content available across different platforms to combat the divergence of audiences towards digital platforms. Eros has entered into partnerships with three Chinese film companies to explore joint opportunities in China. In addition, it has also launched Trinity Pictures to focus on franchise films. The parent company had recently launched the official marketing campaign for its digital platform Eros now, which already has 26.5 million registered users. The domestic company would provide content to Eros Now at an arms length transfer pricing. The company will soon make disclosures with regards to the deal between the domestic and parent company that will help us gauge the incremental revenue potential from Eros Now and be comforting to its investors. With stellar Q1 results and a better-than-expected box-office performance in Q2, the robustness in FY16E numbers is already visible. We continue to maintain rating valuing Eros at 16.0x FY17E EPS to arrive at a target price of | 612. De-risked business, diversifying content delivery platformsEros generally recovers whole production cost even before theatrical release in the form of sale of music rights, satellite rights and 39% guaranteed cost recovery from its parent for international distribution. In addition, monetisation of huge movie library over pay TV, innovative box office performance linked satellite rights and preview over premium TV (HBO Defined, HBO Hits) will further reduce its dependence on theatrical revenue. Moreover, as Eros Now that already has a subscriber base of 26 million, picks up further, we would see incremental revenues from the same. We expect collective revenues from other segments to grow at 24.2% CAGR in FY15-17 to | 686.4 crore in FY17E, forming 35.2% of overall revenue. However, we have not included revenue from HBO channels in our estimates. Heavy content pipeline ahead…. languages, of which seven were high budget movies. Though the whole of FY15 was relatively weak for the movie industry, Eros managed to grow box office collections (domestic and overseas) by ~27%. Bhaijaan has already stolen the show by being one of the highest grossers for the company. Going ahead, with a robust pipeline of films Singh is BlingBajirao Mastani and strong regional portfolio the year is expected to be a stellar one for Eros. We expect theatrical revenues (inclusive of overseas) to grow at 13.8% CAGR in FY15-17E to | 1265.1 crore in FY17E Maintain BUY with target price of 612…. Coupled with its strong footing in India, Eros also enjoys a competitive advantage in terms of strong international presence owing to its parent company Eros PLC. We derive comfort from the management’s intent on clarifying the transfer pricing deal with the parent, going ahead, which would be a boost to investor confidence and transparency. The consolidated revenue and PAT is expected to grow at of CAGR of 17.2% and 19.7%, respectively, in FY15-17E. We continue to maintain BUY rating valuing it at 16.0x FY17E EPS to arrive at a target price of | 612. Eros International (EROINT) Rating matrix Rating:BuyTarget:| 612Target Period:12 monthsPotential Upside:27% What’s changed? TargetUnchangedEPS FY16EUnchangedEPS FY17EUnchangedRatingUnchanged Key financials | CroreFY14FY15FY16EFY17ENet Sales 1,135 1,421 1,678 EBITDA 300 349 432 532 Net Profit 200 247 292 354 EPS (|) 21.7 26.7 31.6 38.2 Valuation summary FY14FY15FY16EFY17EP/E 22.118.015.212.6Target P/E 28.2 22.9 19.4 16.0 EV / EBITDA15.613.511.49.6 3.7 3.0 2.5 2.1 RoNW16.516.716.716.8RoCE 16.6 16.7 17.2 17.2 Stock data ParticularAmountMarket Capitalization (| Crore) 4,440.5 Total Debt (FY15) (| Crore) 425.0 Cash (FY15) (| Crore) 169.7 EV 4,695.8 52 week H/L 634 / 236 Equity capital 92.5 Face value 10.0 Price Chart 6,5007,0007,5008,0008,5009,0009,500100200300400500600700Sep-15Jun-15 -15Dec-14Sep-14 Price (R.H.S) Nifty (L.H.S) Research Analysts Bhupendra Tiwary bhupendra.tiwary@icicisecurities.com Sneha Agarwal sneha.agarwal@icicisecurities.com Retail Equity Research Financial summary Profit and loss statement | Crore (Year-end March)FY14FY15FY16EFY17ETotal operating Income1,134.71,421.21,678.31,951.5Growth (%)6.225.218.116.3Operating Expenses767.41,072.91,011.91,282.9Employee Expenses28.235.9 44.658.5Administrative Expenses33.596.7 58.378.1Change in inventory& Other exp.5.8 (132.9) 131.9 - Total Operating Expenditure834.91,072.61,246.71,419.5EBITDA299.8348.6431.6532.0Growth (%)32.516.323.823.3Depreciation5.06.96.36.6Interest32.738.436.961.9Other Income5.019.920.116.0PBT267.0323.2408.4479.6Total Tax73.776.2104.6123.0Minority Interest(6.4) (0.1) 11.9 2.9 PAT199.7247.1291.9353.8Growth (%)29.323.718.221.2EPS (|)21.726.731.638.2 Source: Company, ICICIdirect.com Research Cash flow statement | Crore (Year-end March)FY14FY15FY16EFY17EProfit after Tax199.7247.1291.9353.8Add: Depreciation & Amortization5.06.96.36.6Add: Interest Paid32.738.436.961.9(Inc)/dec in Current Assets-30.0-502.3135.9-45.2Inc/(dec) in CL and Provisions128.4709.2140.1202.2CF from operating activities335.9499.3611.1579.3(Inc)/dec in Fixed Asset-393.8-619.4-800.0-700.0Others51.0105.511.92.9CF from investing activities -342.8-513.9-788.1-697.1Issue/(Buy back) of Equity0.00.50.00.0Inc/(dec) in loan funds-0.941.8150.0200.0Dividend & dividend tax- - - Interest Paid32.738.436.961.9Others-10.4-12.4-62.9-61.9CF from financing activities-11.229.987.1138.1Net Cash flow-18.115.3-89.920.2Opening Cash172.5154.4169.779.7Closing Cash154.4169.779.7100.0 Source: Company, ICICIdirect.com Research Balance sheet | Crore (Year-end March)FY14FY15FY16EFY17ELiabilitiesEquity Capital92.092.592.592.5ESOP's- - - - Reserve and Surplus1,116.71,389.71,655.62,009.4Total Shareholders funds1,208.61,482.21,748.12,101.9Total Debt383.2425.0575.0775.0Other Non Current Liabilities208.6259.2271.1274.0Total Liabilities1,800.42,166.42,594.23,150.9AssetsGross Block2,909.33,113.64,112.44,971.4Less: Acc Depreciation1,868.51,875.41,881.71,888.2Net Block1,040.81,238.22,230.73,083.2Capital WIP578.9994.1795.2636.2Total Fixed Assets1,619.72,232.23,025.93,719.4Investments8.00.00.00.0Inventory4.0136.9145.5148.1Debtors205.3525.7344.9374.3Loans and Advances146.1184.0217.2227.3Other Current Assets5.316.319.422.6Cash154.4169.779.7100.0Total Current Assets515.01,032.6806.8872.2Creditors365.51,081.11,218.51,416.9Provisions27.521.123.827.7Total Current Liabilities393.01,102.21,242.31,444.5Net Current Assets122.0-69.6-435.5-572.3Other Non Current Assets50.73.83.83.8Application of Funds1,800.42,166.42,594.23,150.9 Source: Company, ICICIdirect.com Research Key ratios (Year-end March)FY14FY15FY16EFY17EPer share data (|)EPS21.726.731.638.2Cash EPS22.327.532.239.0 V 131.4160.2189.0227.2DPS0.00.00.00.0Cash Per Share16.818.38.610.8Operating Ratios (%)EBITDA Margin26.424.525.727.3EBIT / Total Operating income26.024.025.326.9PAT Margin17.617.417.418.1Inventory days1.335.231.627.7Debtor days66.0135.075.070.0Creditor days117.6277.7265.0265.0Return Ratios (%)RoE16.516.716.716.8RoCE16.616.717.217.2RoIC29.034.224.821.8 aluation Ratios (x)P/E22.118.015.212.6EV / EBITDA15.613.511.49.6EV / Net Sales4.13.32.92.6Market Cap / Sales3.93.12.62.3Price to Book Value3.73.02.52.1Solvency RatiosDebt/EBITDA1.31.21.31.5Debt / Equity0.30.30.30.4Current Ratio0.90.80.60.5Quick Ratio0.90.70.50.4 Source: Company, ICICIdirect.com Research Retail Equity Research ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy:� 15%/20% for large caps/midcaps, respectively, with high conviction; �Buy: 10%/15% for large caps/midcaps, respectively; Head – Researchpankaj.pandey@icicisecurities.comICICIdirect.com Research Desk, ICICI Securities Limited, Road No 7, MIDC, Mumbai – 400 093 research@icicidirect.com Retail Equity Research ANALYST CERTIFICATION We /I, Bhupendra Tiwary MBA, Sneha Agarwal, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. 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