Buy Eros International; target of Rs 285: IDBI Capital

Eros International Media’s (EROS: IN) Q4FY16 EBIT was in-line with our forecast. However, EPS of Rs 3.5, -37.5% YoY, beat our forecast due to lower tax rate. EROS has substantially brought down its receivables to Rs 4,282mn vs. Rs 6,358mn in 3Q and its guidance of Rs 5,250mn. EROS has confirmed that receivables for Eros International Plc (EROS: US) have also declined. EROS has also confirmed that realignment of catalogue sales is progressing as planned and it is confident of containing receivables days at current levels. EROS has healthy movie slate for FY17 across Hindi and regional movies. We expect it to be strengthened further during the year. Importantly, EROS has been able to pre-sell satellite rights for most of its key movies. EROS: US would now pay EROS 40% of the production cost of a movie and a 20% mark-up on the same (vs. 30% of cost and 30% mark-up earlier) and will now also get India digital rights in addition to overseas rights as earlier. EROS will also take 10-15% stake in EROS: US’s global digital business which it has confirmed would be at a nominal value.

We factor higher revenue from catalogue sales, new content sharing agreement with EROS:US, lower interest cost and increase our FY17/18E EPS by 8%/4%. Our new TP to Rs285 (vs. Rs274 earlier) is based on 9x FY18E (median 1-yr forward PER of 7.8x in the last 3 yrs). We maintain BUY as we believe that the best period for content monetization for EROS is yet to come.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.