Eros International (EROINT) | 165 Target : | 190 Target Period : 12 Months Potential Upside : 15% Strong Content Pipeline in FY18E…
Total Page:16
File Type:pdf, Size:1020Kb
Result Update November 16, 2016 Rating matrix Rating : Buy Eros International (EROINT) | 165 Target : | 190 Target Period : 12 months Potential Upside : 15% Strong content pipeline in FY18E… • Revenues came in at | 478.8 crore, down 5.2% YoY and up 17.3% What’s changed? QoQ vs. our estimate of | 430.6 crore. The delta was owing to Target Changed from | 225 to | 190 recognition of overseas revenues at 48% of production costs of the EPS FY17E Changed from | 22.1 to | 21 films under the revised Relationship Agreement with the parent with EPS FY18E Changed from | 28.2 to | 23.7 Rating Changed from Hold to Buy effect from April 1, 2016 vs. 39% earlier. The impact of Q1FY17 overseas revenues also seem to be incorporated in the Q2FY17 Quarterly performance numbers. Consequently, overseas revenues formed 39.1% of overall Q2FY17 Q2FY16 YoY (%) Q1FY17 QoQ (%) revenues. Furthermore, the company recognised satellite sales of Revenue 478.8 504.9 -5.2 408.2 17.3 Dishoom, Housefull 3 and Sardaar Gabbar Singh (Hindi) in Q2FY17. EBITDA 89.2 135.8 (34.3) 81.0 10.2 The domestic theatrical, however, remained soft at | 171.4 crore EBITDA (%) 18.6 26.9 -825 bps 19.8 -121 bps (~35.8% of the revenues) vs. our estimate of | 203 crore PAT 63.0 90.4 (30.3) 58.9 7.0 • EBITDA came in at | 89.2 crore vs. our expectation of | 75.5 crore Key financials with margins at 18.6% (estimated 17.5%). Margins came in higher | Crore FY15 FY16 FY17E FY18E than estimated owing to positive operating leverage driven by Net Sales 1,421 1,583 1,621 2,103 superior overseas revenues recognition EBITDA 349 324 299 433 • PAT came in at | 63 crore, higher than our estimate of | 45.4 crore. Net Profit 247 214 196 222 The beat was due to superior revenues and margins EPS (|) 26.7 22.9 21.0 23.7 Post tough FY17, FY18 to be better… Valuation summary Eros, a producer/distributor, has a large film library of over 2000 films. FY15 FY16 FY17E FY18E The company has also launched Trinity Pictures to focus on franchise P/E 6.27.27.97.0films. The first movie from the arm is likely to get released by FY18E. The Target P/E 7.1 8.3 9.1 8.0 company released 63 movies in FY16 across Hindi, Tamil/Telugu and EV / EBITDA5.45.17.45.7other languages. Eros continues to get its movie selection right and P/BV 1.0 0.9 0.8 0.7 boasts of blockbusters such as Bajrangi Bhaijaan, Bajirao Mastani, Tanu RoNW 16.7 12.1 10.5 10.6 Weds Manu Returns from its stable. Hence, FY16 saw 28.0% YoY growth RoCE 16.2 13.5 10.6 12.9 in domestic theatrical revenues to | 693.2 crore. FY17 has been a rather Stock data quiet year in terms of box office performance on a high base of FY16. Particular Amount Thus, we expect muted domestic theatrical collections of | 654.3 crore in Market Capitalization (| Crore) 1,546.7 FY17E. We also expect Eros to postpone a few of its H2FY17 releases Total Debt (FY16) (| Crore) 421.3 owing to “demonetisation” move impacting footfalls in theatres. However, Cash (FY16) (| Crore) 304.2 going ahead with strong movie slate of Kahaani 2 (overseas), Badlapur 2, EV 1,663.9 Sarkaar Raj 3, untitled Shah Rukh Khan movie among others, we expect 52 week H/L 247/ 126 domestic theatrical revenues of | 709.1 crore in FY18E. Equity capital 92.5 Face value 10 Delivering on clearer transfer pricing terms… As per transfer pricing changes, the overseas rights including global digital media rights to Eros International Plc, are to be now transferred at 40% of production cost of each film with an additional mark-up of 20% vs. 30% of production cost with a mark-up of 30.0% earlier. During the quarter, overseas revenues were recognised under the revised Relationship Agreement with the parent. The impact of Q1FY17 overseas revenues was also incorporated in the Q2FY17 numbers. Eros India will also hold an equity stake of 10-15% in the global digital business structure at a marginal cost. Hence, it can participate in the long term value creation of the ErosNow business. We have not assigned any value to Eros Now currently as revenues remain marginal/unclear as of now. FY18 line-up to cheer earnings; upgrade to BUY The company has done its best to come clear of the recent allegations. Research Analyst The new transfer pricing mechanism is an added positive. We continue to Bhupendra Tiwary await clarity on the Eros Now potential and rationale for 10-15% stake. [email protected] We value Eros at 8x FY18E EPS arriving at a target price of | 190. We Sneha Agarwal upgrade the stock to BUY recommendation as we believe that most [email protected] negatives seem to be priced in. Furthermore, a strong FY18 pipeline also bodes well for the company, going ahead. ICICI Securities Ltd | Retail Equity Research Variance analysis esl Q2FY17 Q2FY17E Q2FY16 Q1FY17 YoY (%) QoQ (%) Comments Revenue 478.8 430.6 504.9 408.2 -5.2 17.3 The delta was owing to recognition of overseas revenues at 48% of the production costs of the films under the revised Relationship Agreement with the parent wef 1st April, 2016 vs 39% earlier. The impact of Q1FY17 overseas revenues also seem to be incorporated into the Q2FY17 numbers. Other Income 9.9 2.5 5.1 2.2 96.1 353.9 Raw Material Expenses 0.0 0.0 0.0 0.0 NA NA Employee Expenses 16.6 17.7 14.2 17.5 16.9 -5.1 Administrative Expenses 65.0 21.5 13.8 63.9 370.8 1.8 Operating Expenses 276.3 315.9 340.7 275.0 -18.9 0.5 Changes in inventories of finished goo 31.7 0.0 0.4 -29.2 7,106.8 -208.7 EBITDA 89.2 75.5 135.8 81.0 -34.3 10.2 EBITDA Margin (%) 18.6 17.5 26.9 19.8 -825 bps -121 bps Margins came in higher than estimated owing positive operating leverage driven by superior overseas revenues recognition. Depreciation 2.0 2.2 1.7 2.2 16.9 -7.8 Interest 10.7 10.3 10.5 9.4 1.8 13.4 Total Tax 24.0 19.7 37.5 18.1 -36.0 32.2 PAT 63.0 45.4 90.4 58.9 -30.3 7.0 PAT came in higher than estimates due to superior revenues and margins. Source: Company, ICICIdirect.com Research Change in estimates FY17E FY18E (| Crore) Old New % Change Old New % Change Comments Revenue 1,679.6 1,621.3 -3.5 2,157.5 2,102.9 -2.5 We have further lowered our catalogue revenue estimates EBITDA 339.2 299.2 -11.8 498.5 433.4 -13.1 EBITDA Margin (%) 20.2 18.5 -175 bps 23.1 20.6 -249 bps The lower margin estimate is owing to cut in topline PAT 206.8 196.4 -5.0 263.6 221.8 -15.9 EPS (|) 22.1 21.0 -5.0 28.2 23.7 -16.0 Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 2 Company Analysis Strong content pipeline for FY18E The company released 63 movies in FY16 across Hindi, Tamil/Telugu and other languages, of which six were high budget, 16 were medium budget and 41 low budget movies. The company continues to get its movie selection right, evident from its presence in three out of top four box office releases. Bajrangi Bhaijaan, Bajirao Mastani, Tanu Weds Manu Returns and Welcome Back were superhits in FY16. In addition, Eros is rapidly increasing its footprint in the regional domain with movies that have fared quite well such as Srimanthudu (Telugu), Lingaa (multi- lingual), Aagadu (Telugu), Kaththi (Tamil), etc. Hence, FY16 saw 28.0% YoY growth in domestic theatrical revenues to | 693.2 crore. Going into FY17, it has been a rather quiet year both in terms of box office performance and the fact that it is on a high base of FY16. Thus, we expect muted domestic theatrical collections of | 654.3 crore. We also expect the company to postpone few of the H2FY17 releases on the back of demonetisation move impacting footfalls in theatres. However, going ahead, with a strong movie slate such as Kahaani 2 (overseas), Badlapur 2, Sarkaar Raj 3, untitled Shah Rukh Khan movie among other, we expect domestic theatrical revenues of | 709.1 crore in FY18E. Exhibit 1: Content pipeline Movie name Language Starcast / (Director) Expected Kahani 2 (overseas) Hindi Vidya Balan, Arjun Rampal / (Sujoy Ghosh) Q3 FY17 Rock On 2 Hindi Farhan Akhtar, Arjun Rampal / (Excel / Shujaat Saudagar) Q3 FY17 Chaar Sahibzaade 2 Punjabi 3D Animation / (Harry Baweja) Q3FY17 Amar Prem ( Bengali Rudra, Shivangi / (Haranath Chakraborty) Q3 FY17 Double Faluda Bengali Feluda, Topse / (Sandip Ray) Q3 FY17 Enkitta Mothathe Tamil Nataraj Subramanian, Parvathy Nair, Sanchitta,Radha Ravi, Rajaji / (Ramu Chellapa) Q3 FY17 Saarkar Raj 3 Hindi Amitabh Bachchan, Ronit Roy & Others / (Ram Gopal Verma) Q4 FY17 Ticket to Bollywood Hindi Amyra Dastoor, Diganth Manchale / (Eros) Q4 FY17 7 Kadam Hindi Amit Saadh, Diksha Seth, Ronit Roy & Others / (Mohit Kumar Jha) Q4 FY17 Oru Kidayin Karunai Manu Tamil Vidharth, Raveena / (Suresh Sangiah) Q4 FY17 Bibaho Diaries Bengali Ritwick Chakraborty, Sohini Sarkar / (Moinak Bhowmik) Q4 FY17 Care of Saira Banu Malayalam Manju Warrier, Amala Akineni, Shanenigam / (Antony Sony) Q4 FY17 Untitled Hindi Shahrukh Khan / (Anand L Rai ‐Color Yellow Productions) FY2018 Munna Michael Hindi Tiger Shroff, Nawazuddin Siddiqui / (Sabbir Khan) FY2018 Chanda Mama Door Ke Hindi Sushant Singh / (Sanjay Puran Singh) FY2018 Untitled Hindi Sushant Singh/ Homi Adjania (Maddock Films) FY2018 Sniff Hindi Amole Gupte / (Trinity Pictures) FY2018 Azaad Hindi Sabbir Khan / (Trinity Pictures) FY2018 Buddy Cop Bilingual Krish / (Trinity Pictures) FY2018 Hathi Mera Sathi Hindi Prabhu Soloman / (Trinity Pictures) FY2018 Love in Beijing Indo‐China Siddharth Anand / (Trinity Pictures) FY2018 The Zoo Keeper Indo‐China Kabir Khan / (Trinity Pictures) FY2018 Untitled Hindi Vicky Kaushal, Shewta Tripathi / (Colour Yellow Productions) FY2018 Happy Bhaag Jayegi 2 Hindi Mudassar Aziz / (Colour Yellow Productions) FY2018 Vicky Donor 2 Hindi TBA FY2018 Manmarziyan Hindi Ayushmann Khuranna & Bhumi Pednekar / (Colour Yellow) FY2018 Reunion Hindi Sujoy Ghosh FY2018 Bhavesh Joshi Hindi Harshwardhan Kapoor, / (Vikramaditya Motwane) FY2018 Farzi Hindi Raj & DK FY2018 Badlapur 2 Hindi Sriram Raghavan FY2018 Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 3 Reduced receivables, B/S improves, catalogue sales to rise Catalogue revenues have longer payment cycles associated with them.