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Research
Buy Eros International Media - Sharekhan
Posted On : 2012-01-05 11:16:34( TIMEZONE : IST )
Eros International Media
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs298
Current market price: Rs217
Q3FY2012 earnings preview
Impressive box office performance
The October-December period driven by the festive and holiday season is a seasonally strong quarter for the Indian film industry, with major releases lined up during this time. The quarter gone by saw an impressive performance with major releases grossing Rs700-750 crore of collections at the domestic box office. The quarter saw the release of films like Ra.One, Rockstar, The Dirty Picture, Don 2, Desi Boyz etc hogging the limelight.
Seasonally strong quarter
Eros International Media Ltd (EIML) had three major releases during the quarter namely - Ra.One, Rockstar and Desi Boyz. The three films had a decent run at the domestic box office with gross collections crossing Rs330 crore. However they failed to live up to the heightened box office expectations. For Q3FY2012, we expect EIML to report a revenue growth of 54% year on year (YoY) and 146.5% quarter on quarter (QoQ) to Rs430.8 crore. On the other hand, we expect earnings before interest and tax (EBIT) margins to improve by 161 basis points (bps) YoY and 123bps QoQ to 25.4%. The improvement in the margins would be restricted by expected foreign exchange (forex) losses owing to adverse currency movements. We have built in Rs15 crore of losses for Q3FY2012 as compared to Rs5.86 crore in Q2FY2012 and Rs0.33 crore in Q3FY2011. On a net profit level, we expect EIML to report a growth of 64.9% YoY and 157.4% QoQ to Rs70.5 crore.
Valuation
We continue to view EIML as a pertinent value play on the Indian entertainment sector. With a strong slate of films scheduled over the next two years, coupled with traction in the new media space, EIML has a strong business visibility going forward. We expect EIML's earning to grow at a compounded annual growth rate (CAGR) of 31% over FY2011-13E. At the current market price of Rs217, EIML trades at 13x FY2012E and 9.8x FY2013E earnings. We continue to remain positive on the company and maintain our Buy rating on the stock with a price target of Rs298.
