Eros International’s IPO pricing appears steep
Moneylife Digital Team 16 September 2010

The company collects a percentage of the box office collections of its movies from multiplexes and single-screen theatres. However, there is no reliable and independent monitoring of such data

Movie distributor Eros International Media Ltd is set to enter the primary market to raise Rs350 crore through a 100% book building issue. Rating agency CARE has assigned 'IPO Grade 4' to the initial public offer (IPO) indicating 'Above Average Fundamentals'. The issue opens for subscription on 17th September and closes on 21st September. The price band has been set at Rs158-Rs175 per share. The issue has allocated 60% to Qualified Institutional Buyers (QIBs), including 5% to mutual funds. Retail investors will be allocated 30% while non-institutional bidders will be eligible for 10% of the issue. The company is issuing around 2.21 crore shares.

Eros sources Indian and global films and distributes them worldwide through its offices in India, the UK, USA, UAE, Singapore, Australia, the Isle of Man and Fiji across formats such as theatres, home entertainment, television and digital new media. It is a wholly-owned subsidiary of Eros International Plc. 

The company is promoted by Eros Worldwide FZ LLC (Eros Worldwide) and Eros Plc. Beech, the promoter of Eros Plc, holds 68.80% stake in Eros Worldwide.

Eros International has extensive rights to over 1,000 films in languages that include Hindi, Tamil and other regional language films. Eros Plc is engaged in producing, commissioning and distributing films in all formats globally. It will use the IPO money to acquire and co-produce films in various Indian languages. On the anvil are 11 movies at a cost of Rs280 crore.

Eros collects a percentage of the box office collections from multiplexes and
single-screen theatres. However, there is no reliable and independent monitoring of such data. There are also possibilities of misreporting or underreporting of box-office collections.

The company's EPS for the year ended 31 March 2010 was Rs11.52. EPS for the June quarter stands at Rs1.94. Based on the estimated FY11 EPS of Rs6.22, the PE works out to 25.40 at the lower end and 28 at the upper end of the price band. The stock is not cheap. UTV Software had an EPS of Rs5.1 in the first quarter of FY11 and its PE is 20.

According to the FICCI-KPMG Report 2010, the Indian film industry is projected to grow at a compounded annual growth rate (CAGR) of 8.9% between 2009 and 2014, to reach a total market size of Rs136.7 billion by 2014.
Domestic and overseas box office collections are each expected to grow at 8% CAGR between 2009 and 2013, primarily due to the increase in the number of multiplex screens, which have higher average ticket prices than smaller cinemas, and increased marketing and selling efforts internationally. The home video market is estimated to grow by 11.8% CAGR over the same period, with the physical sales market expected to outperform the rental market. Revenues for the Indian film industry are expected to continue to be dominated by box office revenues (domestic and overseas), accounting for approximately 81.1% of total revenues in 2014.

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