Eros International: Is It Time To Buy After A 25% Crash In Share Price?

Investment

oi-Sunil

By Sunil Fernandes

Published: Wednesday, October 28, 2015, 9:10 [IST]

The share price of Bollywood film distributor, Eros International Media has had a vertical crash from levels of Rs 450 on Oct 20 to Rs 365 on Oct 27.

The share price of the parent company Eros International Plc, listed on the NYSE, has crashed 45% in the last few days. The crash had to do with a twitter user, marketfarce, who questioned the company's revenues from the UAE.

This led to Wells Fargo lowering the target price on the stock and thereafter it was a crash in the stock price first of the parent company on the NYSE and then of Eros Interntational Media in India.

However, the company has clarified in a statement saying: "With reference to letters received from BSE & NSE with regards to article appearing in "The Economic Times" dated October 25, 2015 captioned "Eros International under Wells Fargo's scanner, stock downgraded", We believe that the recent movement in share price volatility at our NYSE listed parent level and today at Indian stock exchanges are based on speculative media reports.

"Analysts downgrade or upgrade stocks regularly and that as such is not a cause for concern. Note that Wells Fargo did not revise down their earnings estimate for the quarter or the year and the price target is $22, well above the price the stock was trading on the date it was published. Another analyst from Macquarie, Tim Nollen, published a very positive report and maintained outperform rating with a $25 price target, on the same day as the Wells Fargo report on Friday 23rd October."

The press release further added: "We would like to reassure our shareholders that there has been no material change to the previously announced strong fundamentals of the company. We continue to be market leaders in the Indian film industry with a dominant market share of the global Indian box office. Our library of over 2,000 films continues to be a unique competitive advantage which we monetize in conjunction with our new release slate of 65-70 films comprising of Hindi and regional languages each year, across theatrical, television and digital and ancillary distribution platforms which constitute our diversified revenue streams."

What will make Eros Tick?

Eros has got a large library of more than 2000 films. It is now exploring opportunities in China and has entered into partnership with three Chinese firms. The biggest game changer for the company is Eros Now, the company's digital platform, which has 26.5 million registered users.

Pricing is expected to be at arms length, which would benefit Eros International Media for providing content to Eros Now. You can now watch movies online through Eros Now. And with a library that is packed with blockbuster films, Eros Now and hence Eros International are expected to click.

Pay TV, satellite rights and preview over premium TV (HBO Defined, HBO Hits) is all likely to boost revenues and profitability in the coming years.

This quarterly results of the company is likely to be very good, given the solid performance of Bajrangi Bhaijan and a pipeline of movies including Bajirao Mastani.

Coming to fundamentals, the company is likely to report an EPS of Rs 21 for FY 2015-16. At the current market price of Rs 366, the stock trades around 17 times one year forward earnings. One can buy the stock around the Rs 350 levels for a decent gains in one year from now.

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