Visit us at www.sharekhan.com October 23, 2013 Index Stock Update >> Eros International Stock Update >> V-Guard Industries Viewpoint >> Hero MotoCorp Mutual Gains >> Debt Mutual Fund Picks For Private Circulation only Sharekhan Ltd, Regd Add: 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos. BSE-Cash-INB011073351 ; F&O-INF011073351 ; NSE – INB/INF231073330; CD - INE231073330 ; MCX Stock Exchange: INB/INF-261073333 ; CD - INE261073330 ; United Stock Exchange: CD - INE271073350 ; DP-NSDL-IN-DP-NSDL- 233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMS-INP000000662 ; Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX -00132 ; (NCDEX/TCM/CORP/0142) ; NSEL-12790 ; For any complaints email at [email protected]; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Do’s & Don’ts by MCX & NCDEX and the T & C on www.sharekhan.com before investing. investor’s eye stock update Eros International Reco: Buy Stock Update Ahead of expectations, outperformance on net income led by lower tax rate CMP: Rs146 Company details Result highlights Price target: Rs165 Beats expectations, company focus on high-content right budget movies paying Market cap: Rs1,341 cr off: For Q2FY14 Eros International Media Ltd (EIML) has reported a much better performance as compared with that of Q1FY2014, which was a relatively soft 52 week high/low: Rs235/107 quarter. The company has exceeded our estimate on the top line by 6%, margin NSE volume: 1.5 lakh by 384 basis points and net income by 34%. The company’s strategy of targeting (no. of shares) high-content right budget movies has paid off yet again in this quarter with the BSE code: 533261 super success of Grand Masti with a box office collection over Rs100+ crore (in NSE code: EROSMEDIA Q1FY2014 Raanjhanaa was a big success). For the seasonally strong December Sharekhan code: EROSMEDIA quarter, EIML has five big budgets movies lined up (a) Krrish 3 (November 1, Free float: 2.3 cr overseas); (b) Ram-Leela (November 15); (c) Singh Saab the Great (November (no. of shares) 22); d) R… Rajkumar (December 6); and (e) Kochadaiyaan (December 12). We expect EIML to report a strong Q3FY2014 driven by a strong movie slate and Shareholding pattern monetising of the satellite right deals. Foreign Revenues ahead of expectations: For the quarter, the revenues of EIML declined Public & Others 13% 7% Institutions by 12.3% year on year (YoY) to Rs201 crore, which is ahead of our expectation 2% Non-promoter corporate Results (consolidated) Rs cr 4% Particulars Q2FY14 Q1FY13 YoY % Q1FY14 QoQ % Net sales 201.1 229.3 -12.3 186.3 7.9 Promoters Direct costs 146.1 175.0 -16.5 138.1 5.7 74% Gross profit 55.0 54.3 1.3 48.2 14.1 SG&A 3.9 12.1 -68.1 8.7 -55.8 Price chart EBITDA 51.2 42.3 21.1 39.5 29.5 250 Depreciation 1.3 1.7 -25.0 1.3 0.8 230 EBIT 49.9 40.6 23.0 38.2 30.5 210 190 Other income 0.4 1.8 -76.4 7.9 -94.7 170 Interest expenses 6.2 2.7 126.3 4.6 34.5 150 PBT 44.1 39.6 11.4 41.5 6.2 130 110 Tax provision 8.5 15.2 -44.2 13.5 -37.1 90 PAT 35.6 24.4 46.0 28.0 27.1 Minority interest -1.4 -1.7 -20.1 -1.3 2.3 Jul-13 Oct-13 Oct-12 Jan-13 Apr-13 Net profit 37.0 26.1 41.8 29.3 26.0 Price performance Equity capital (FV Rs10/-) 91.9 91.9 91.9 EPS (Rs) 4.0 2.8 41.8 3.2 26.0 (%) 1m 3m 6m 12m Margin (%) GPM 27.4 23.7 25.9 Absolute 7.2 7.0 -15.6 -11.5 EBITDA 25.4 18.4 21.2 EBIT 24.8 17.7 20.5 Relative 4.0 3.0 -23.4 -21.6 NPM 18.4 11.4 15.7 to Sensex Tax rate 19.2 38.4 32.5 Sharekhan 2 October 23, 2013 Home Next investor’s eye stock update of Rs190 crore. The revenue outperformance was believe will have long-term benefits. Additionally, the largely on account of a better than expected parent company’s impending listing on the New York performance of Grand Masti, which crossed the Rs100+ Stock Exchange (NYSE) remains a medium-term trigger crore box office collections, for which EIML was the for the re-rating of the stock (the company is sole distributor. Along with that the company also had expected to receive advances of close to Rs1,200 revenues coming in from the overseas rights of movies crore). We have tweaked our earnings estimates to like Phata Poster Nikla Hero for the quarter and incorporate the lower tax rate for FY2014E and monetisation of catalogue (satellite rights). During the FY2015E. We maintain our Buy rating on the stock quarter, EIML released 14 films, which includes four with a price target of Rs165. Hindi, and 10 Tamil and other regional language movies. In Q1FY2013, the company had released 12 films, which Other result highlights included seven Hindi, and five Tamil and other regional During the quarter, the company took a step forward movies. In Q2FY2013, the company released 19 movies, in its monetising initiatives. The company’s online which included high-grossing movies like Cocktail, Vicky entertainment portal Eros Now added a number of Donor and Housefull 2. Bollywood titles acquired from Viacom 18 and UTV. Margin beats estimate; net income outperformance The joint venture with HBO Asia continues to receive led by lower tax rate: The company reported the an encouraging response. The two channels will now EBITDA margin at 25.4% for the quarter, which was be available on two additional platforms, Hathway almost 4 percentage points higher than our estimate Cable and GTPL. Next the response of the local cable of 21.6% and higher by 175 basis points YoY. The operators remains critical for the company. outperformance on the margin front was attributed Television revenues during the quarter were largely to the higher monetisation of the relatively low- driven by the efficient catalogue monetisation and budget movie Grand Masti and also on account of a an increase in revenues by licencing agreement large drop of 68% YoY in the other expenses (on between Viacom 18 (the company has sold the account of lower foreign exchange [forex] losses). satellite rights of Raanjhanaa to Viacom 18). The net income for the quarter was up by 42% at Rs37 crore, which was much higher than our estimate Listing on NYSE on cards: After a long delay owing of Rs28 crore. The outperformance on the net income to the difficult market condition in the USA, EIML’s front was primarily led by a lower than expected tax parent company Eros International Plc has finally filed rate, which was at 19% against our expectation of a registration with the Securities and Exchange 32%. The lower effective tax rate was on account of Commission (SEC) in the USA for listing its ordinary a change in the company’s accounting policy, as the shares on NYSE. EMIL’s parent company will file the company has started routing the monetisation F-1 form with the SEC in the USA. Further, the success revenues through its subsidiary Copsale based in of the NYSE listing will help EIML to get higher movie British Virgin Islands, thus the tax incidence is lower. advances from its parents also strengthen its book to bid for aggressive movie content acquisitions (expects Valuation: The performance of the company for around Rs1,200 crore to come to the books, which Q2FY2014 indicates that the revenue momentum is allows the company to pay off its debts of Rs384 crore back with Q3FY2013 looking very solid in terms of at the end of FY2013). There are three key movie slate (the management expects revenues of implications of the listing: (a) the disclosure levels around Rs1,200 crore for FY2014). The company has of EMIL would improve significantly in line with the taken few more steps towards strengthening its SEC standards; (b) the company also expects advances strategic initiatives like HBO (extended offering to close to Rs1,200 crore from its parent company; and Hathway and Gujarat Telelink Pvt. Ltd [GTPL] (c) a strong listing of its parent will have a positive platforms) and Eros Now Online platforms (acquired rub-off effect on EIML (will potentially get re-rated). movie titles from UTV and Viacom 18), which we Sharekhan 3 October 23, 2013 Home Next investor’s eye stock update Upcoming film slate Film name Star cast (director) Tentative release Ram-Leela Ranvir Singh, Deepika Padukone (Sanjay Leela Bhansali) FY2014 R... Rajkumar Shahid Kapoor, Sonakshi Sinha (Prabhu Deva) FY2014 Kochadaiyaan (Tamil, Rajinikanth, Deepika Padukone Music – A.R. Rehman (Soundarya Rajinikanth) FY2014 Hindi, Telugu) Happy Ending Saif Ali Khan, Ileana Dcruz (Raj and DK) FY2014 Krrish 3 (overseas) Hritihk Roshan, Priyanka Chopra (Rakesh Roshan) FY2014 Singh Saab the Great Sunny Deol (Anil Sharma) FY2014 Dishkiyaaoon Sunny Deol, Harman Baweja, (Sanamjit Singh Talwar) FY2014 Illuminati (untitled) Armaan Jain (Arif Ali) FY2014 Dekh Tamasha Dekh Satish Kaushik & others FY2014 Purani Jeans Aditya Seal (Tanushree Basu) FY2014 Chalo China Lara Dutta, Vinay Patak FY2015 Tanu Weds Manu Season 2 R. Madhavan, Kangana Ranaut (Anand Rai) FY2015 Boney Kapoor (untitled) Arjun Kapoor, Sonakshi Sinha (Okkadu remake) FY2015 Sarkar 3 Amitabh Bacchan, Abhishek Bacchan (Ram Gopal Verma) FY2015 Rana (Tamil, Hindi, Telugu) Rajinikanth (K.S.Ravikumar) FY2015 R.Balki (untitled) (R.Balki) FY2015 Bajirao Mastani (Sanjay Leela Bhansali) FY2015 Tamil (untitled) Rajinikanth FY2015 Aankheen 2 Abhishek Bachchan (Apoorva Lakhia) FY2015 Illuminati (untitled) Saif Ali Khan (Saket Ali) FY2015 3 films Endemol India Various FY2015 3 films Phantom Films Various FY2015 Untitled Paresh Rawal, Amit Sadh, Konkona Sen Sharma, Aditi Rao Hydari FY2015 Source: Company Valuation The performance of the company for Q2FY2014 indicates tweaked our earnings estimates to incorporate the lower that the revenue momentum is back with Q3FY2013 tax rate for FY2014E and FY2015E.