Buy Eros International; target of Rs 238: GEPL Capital

GEPL Capital is bullish on Eros International and has recommended buy rating on the stock with a target of Rs 238 in its February 15, 2013 research report.
 
“Eros International Media Ltd (Eros) reported 10 percent Y-o-Y dip in consolidated Net Sales for Q3FY13 at Rs3,693 mn. This being a seasonally strong quarter for film releases, there was 61 percent Q-o-Q jump in consolidated sales. Eros released 21 films in Q3FY13 against 19 films in Q2FY13. EBITDA came in lower by 10 percent Y-o-Y at Rs906 mn despite 11.5 percent Y-o-Y reduction in production cost due to 19 percent Y-o-Y increase in employee costs and 46 percent Y-o-Y increase in Other Expenses. Company attributed increase in Other Expenses to high professional fees paid for new media initiatives and unrealized forex losses. EBITDA margin was maintained at 25 percent during the quarter, same as in Q3FY12 and a 611 bps improvement versus the previous quarter. Reduction in interest cost and lower tax expenses was offset by higher Minority Interest causing PAT to de-grow by 6 percent Y-o-Y to Rs652 mn. However, PAT margin improved by 74 bps to 18 percent in Q3FY13 vs 17 percent in Q3FY12.”
 
“Eros and Endemol India (Endemol) have entered into an alliance to produce three feature films and co-produce original content programming for Television. An amount of Rs1bn has been earmarked for producing the three films. The deal with Endemol would allow Eros to access Intellectual Property belonging to the former. Endemol has a great track record of versatile content across various genres on television such as Bigg Boss, Fear Factor and so on. Hence, we believe that the deal is a step in the right direction to penetrate into the fast expanding Rs500bn television industry. During the quarter Q3FY13, Eros released 21 films in all; 18 in Hindi and 3 in Non-Hindi (Regional). Some of the films worth mention are English Vinglish, Son of Sardaar, Thupakki, Maatraan and Khiladi768. These films are also among the best performing films released in India during the quarter.”
 
“At CMP of Rs192, Eros is trading at 8.81x its FY14E EPS of Rs21.77. We expect Eros to have a stable FY13; however FY14 is expected to be high growth year as revenues from the HBO deal begin to trickle in. The enthusiastic response to Offer For Sale by promoter (4.4x over-subscription) shows considerable investor interest in the company’s growth story. The company paid its maiden dividend of Rs1.50 per share during the quarter. We value the stock at its long term P/E multiple of 11x to arrive at the target price of Rs238 with a BUY rating and potential upside of 24 percent,” says GEPL Capital research report.

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