Eros International Media Limited (EROS) is tapping the capital markets with its IPO for Rs 350 crs in a price band of Rs 158-175. The issue has opened on Friday the 17th of September and closes on Tuesday the 21st of September. The company has made an allocation of 36 lakh shares to anchor investors at a price of Rs 165. At the end of the first day, the company has received subscription for 79% of the issue size.
| Price Band | Rs 158 – Rs 175 |
| Issue size in Rs | Rs 350 crs |
| Offer size in shares | 2,21,51,899 Equity shares at Rs 158 and 2,00,00,000 Equity shares at Rs 175 |
| QIB’s | 1,32,91,139 Equity Shares at Rs 158 and 1,20,00,000 Equity Shares at Rs 175 |
| Non Institutional Investors | 22,15,190 Equity Shares at Rs 158 and 20,00,000 Equity Shares at Rs 175 |
| Retail Investors | 66,45,570 Equity Shares at Rs 158 and 60,00,000 Equity Shares at Rs175 |
| Marketcap post issue | Rs 1478.23 crs to 1599.62 crs |
| Book Running Lead Manager | Enam Securities Private Limited |
| Kotak Mahindra Capital Company Limited | |
| Morgan Stanley India Company Private Limited | |
| RBS Equities (India) Limited | |
| Isssue Opening Date | Friday 17th September |
| Isssue Closing date | Tuesday 21st September |
| Anchor Investors | 36,00,000 shares alloted at a price of Rs 165 per share |
| IPO Grade | 4/5 by CARE Limited indicating above average fundamentals |
| Bidding Lot | 40 shares |
Business
EROS is a part of the Eros group which is a global player within the Indian media and entertainment sector. The group has been in the business for close to three decades. The group has an extensive film library and is in the business of sourcing Indian and other film content and exploiting it worldwide through its offices in India, UK, USA, UAE, Singapore, Australia, the Isle of Man and Fiji across formats such as theatres, home entertainment, television and digital new Media. Eros Plc, the holding company of the Eros group is a Promoter of EROS and is listed on the Alternative Investment Market of the London Stock Exchange.
EROS exclusively sources all Indian film content for the Eros group and exploits such content across formats within India, Nepal and Bhutan. EROS has various rights to over 1,000 films which include Hindi, Tamil and other regional language films. Some of the big films include names like Mughal-e-Azam, Om Shanti Om, Lage Raho Munnabhai and Love Aaj Kal. This is a key competitive advantage and an integral part of the company’s business model. Eros also owns rights to certain English language films for home entertainment distribution within India.
The sourcing of content is primarily through two routes namely acquisitions from third parties and through co-productions. In the case of acquisitions films are acquired from third party producers at various stages of a film’s production for an agreed contractual value and the second way is co-production of films which happen from inception of a film with certain producers for a pre-agreed fixed budget. Till date EROS has released just one own production Hindi film namely “Aa Dekhen Zara” and therefore this avenue has not been discussed.
There is a Relationship Agreement between EROS and Eros International Group with respect to distribution of Indian film content for the entire world excluding India, Nepal and Bhutan which has been licensed to the Eros Group with effect from 1st October 2009. The broad terms stipulate that any movie acquired by EROS would entitle them to receive a minimum guarantee fee of 30% and a mark-up of 30% of all expenses.
Objects of the issue
The objects of the issue are as follows: –
| Acquiring and co-producing Indian films including primarily Hindi language films as well as certain Tamil and other regional language films | Rs 280 crs |
| General corporate purposes | XX |
Financials
EROS has reported total revenue of Rs 479.61 crs for the year ended March 2009 and Rs 547.51 crs for the year ended March 2010. In the first three months of the current year 2010-11 had revenue of Rs 118.22 crs. The net profit after tax for the respective periods is Rs 47.93 crs, Rs 51.64 crs and Rs 13.82 crs respectively. On the pre-IPO capital of Rs 71.4 crs or 7.14 cr shares the EPS is Rs 6.71 for March 2009, Rs 7.23 for March 2010 and on an annualised basis for the three months ended June 2010 Rs 7.74.
Competition
The company has compared itself with UTV Software Communications Limited which is in a similar business and has some other verticals as well. The competitor is into broadcasting and runs TV channels and is also into production or creation of games. The only business vertical of EROS is comparable with the movies business of UTV but not the whole company. In any case India is a country which has number of languages and cinema is produced in all these languages providing plenty of opportunity to exploit the same.
There are many small production houses, distribution companies and even integrated companies but the sheer size and consolidation available with EROS is missing in competitors.
Valuations
EROS is being offered at a fully diluted basis in a price band of Rs 158-175 on an earnings multiple of between 28.63 and 30.98 times based on March 2010 earnings and at a lower multiple of between 26.73 to 28.93 times based on the first three months earnings of the current year on an annualised basis.
Conclusion
EROS is in the entertainment industry which is doing well for itself. The risks involved with the box office success have been reduced and taken care of with distribution of rights, sale of music, and other avenues like advertising and branding of products etc. The simultaneous distribution of the film in larger screens helps in ensuring better returns to the business. EROS is entering different language films like Marathi and Bengali and looking at other languages as well. The company is well poised to ensure decent returns to investors on listing and in the long run
Apply for listing gains and also long term profits.
SEBI disclaimer: – I intend to subscribe to the above issue.
