Mumbai-based producer and distributor of films Eros International is hopeful of bettering its margins, catalogue and syndication revenues in FY17. The production house's stock has gained traction on the success of Housefull 3 at the box office and a tie-up with Apple TV to showcase content.In a free-wheeling interview with CNBC-TV18, Kishore Lulla, Executive Director, Eros International, said the company is targeting at least a 15-20 percent increase in revenue growth is in the current fiscal year. His optimism stems from the company securing satellite revenue for all films under its banner for FY17. "The whole slate for satellite has been sold," he said.Lulla expressed confidence in Eros Plc's accounting practices and said a US law firm has completed its internal audit and the concerns regarding malpractices have been redressed. He said the company will adhere to a high standard of financial reporting. The US arm will share a 48 percent production cost with the Indian unit Eros International, he said. Eros International will own 15-20 percent in Eros Now. This will trigger an upside for the Indian unit when Eros Now business grows, he said. Below is the verbatim transcript of Kishore Lulla’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Sonia: Could you start by telling us a little bit about what the revenue outlook is for the company in FY17? What is the amount that you have locked in via presales already?
A: I cannot get into the particulars of how much we have locked in but the whole slate for the satellite has been sold already. So, we have full visibility and analyst have that kind of numbers. We have the full slates also tied up for the March '17
Latha: Let us look at FY17 what is the kind of revenue growth we can expect?
A: Anywhere between 15 and 20 percent minimum growth.
Latha: You restructured terms and conditions with your US arm with respect to production costs. Now how does that help your margins? What can we expect in terms of margins in FY17?
A: If you look at the margins, the margins are going to improve from the current margins we had in March '16. The catalogue revenues are going to rise also and 48 percent revenue share arrangement between the Indian company and the Eros International PLC should have healthy profits for the Indian company.
Sonia: The Street had some concerns with regards to a subscription revenues and receivables from UAE because that market has slowed down quite a bit. What steps have you taken in order to mitigate that?
A: The audit committee appointed Skadden, one of the largest law firms in New York to conduct, a assist audit committee internal review on all the allegations which were made whether it was the large receivables and the Eros Now uses and then you must have seen statement by Eros PLC in March 21st that all those concerns have been addressed and the audit review and the full internal review was completed, in fact there was not a single statement to be reinstated that means whatever we have stated before is totally correct and we are going with very high standards of reporting on the New York stock exchange. Also, if you look at the March '16 results it has been already addressed whereby the receivables are down to 90 days of days sales outstanding (DSO) and then we had a free cash flow of Rs 300 crore in the Eros India arm.
Latha: Receivables have reduced; also your operations have reduced. What is your sustainable level in terms of at which you can maintain your receivables?
A: It will be anywhere between 90 and 120 days DSO days and if you have to look at Eros business you have to look at annual business not in the half yearly business and not quarterly. Annually, we will keep on growing and annually our catalogue revenues will grow and also the syndication revenues will grow.
Sonia: Can you give us some numbers? What do you mean when you say revenues and profits will be higher? Can you quantify it for us?
A: Normally I don’t project on the numbers in the growth. There are five or six analysts which have already projected the growth numbers for the next one to two years. I think the company should be in line with the analyst expectations going forward.
Latha: You had some time back indicated that you would like Indian shareholders to be part of the US growth story. How can that happen, how does Eros PLC now contribute to the Indian business?
A: If you look at the structure of Eros Now, let us assume that number one 48 percent is a huge cost already which is Eros India is going to make on whatever the cost of acquisition they are recovering 48 percent from Eros PLC. So, there is bit of profit there and also Eros India is going to own 15-20 percent of the Eros Now business. So, Eros Now business grows worldwide naturally, if the Eros India owns that that will be the upside of the business also not only from India but also the international growth and the international library the parents owns. You will definitely own money out of that.
Sonia: What kind of benefits can the Indian arm see?
A: Indian arm as I said we are receiving 48 percent; Indian arm will have 15-20 percent ownership of the Eros Now and all those are captured into the Eros Now, the company which owns the rights. When that is captured in that company naturally the company's upside will come to Eros India.
Latha: Any plans of selling off or selling even a part stake in Eros any value unlocking?
A: No at the moment.
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