Arihant Capital recommended accumulate rating on Shemaroo with a target price of Rs 421 in its research report dated May 16, 2019.
Arihant Capital 's research report on Shemaroo
Shemaroo (SHEM) reported mixed set of operational performance in Q4FY19 led by stronger product mix (higher digital mix). Net sales grew by 11.7% YoY and 8% QoQ to Rs 132 Cr which was largely led by strong revenue growth from digital media (34% of sales) which grew by 29.1% YoY. The traditional media (66% of sales) grew at a slower pace of 4.5% YoY. EBITDA was up by 11.6% YoY and was impacted by higher staff costs (+48% YoY). EBITDA margins stood at 31% (flat YoY). PAT grew by 11.7% to Rs 20.6 Cr. PAT margins stood at 15.6% (flat YoY). For FY19, net sales grew by 16% YoY to Rs 568 Cr mainly led by strong digital revenue growth of digital media revenue (+54% YoY) while the traditional media grew at a modest pace of 11% YoY to Rs 396 Cr. The revenue mix is has seen a steady shift from traditional to digital media which now forms 30% of revenue. EBITDA stood at Rs 158 Cr (+11% YoY). EBITDA margins declined by 128 bps to 27.8% and was impacted by higher staff costs (+39% YoY) and other expenses (+31% YoY). PAT stood at Rs 82.7 Cr (+16.1% YoY) on account of lower depreciation (+9% YoY) and finance costs (-17% YoY). We believe, the increasing digital mix augurs well for Shemaroo, however, the industry remains competitive on account of new entrants and new content addition on a sustained level to keep viewers engaged appears to be a challenge for the industry.
We believe over the medium term, SHEM will continue to focus towards the digital revenue mix through OTT platform and youtube however, the industry remains competitive and content addition on a sustained level remains a key monitorable. At CMP of Rs 358 stock trades at 9.3x FY20E. We recommend an ACCUMULATE rating on the stock and value it at 11x FY20E for a target price of Rs 421 with upside of 18%.
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