Eros International Offering Is Pure Bollywood

Nov. 7.13 | About: Eros International (EROS)

Eros International PLC (NYSE:EROS), a leading firm in the Indian film industry that co-produces, acquires and distributes Indian films worldwide, plans to raise $200.0 million in its upcoming public offering. The shares already trade in London.

The Secaucus, New Jersey-based firm will offer 12.5 million shares at an expected price range of $15-$17 per share. If the IPO hits the midpoint of that range at $16 per share, EROS will command a market value of $818 million. (See F-1)

EROS filed on March 30, 2012.
Lead Underwriters: BofA Merrill Lynch, Deutsche Bank Securities, UBS Investment Bank
Underwriters: Credit Suisse Securities LLC, EM Securities LLC, Jefferies LLC

EROS is engaged in the acquisition, co-production, and distribution of Indian language films to global audiences; the firm has aggregated rights to over 2000 films, along with some 700 films for which it holds only digital rights. The firm has distributed a portfolio of 230 new films over the past three fiscal years, including 26 in the six months ended September 30.

The firm achieves multiple revenue streams through new film distribution via theatrical, television and digital channels, along with library monetization. The firm's primary market for Hindi-language films is in India itself, where the firm released two of the ten top grossing Hindi language films in 2012; the firm also targets consumers in over fifty other countries internationally.

EROS offers the following figures in its F-1 balance sheet for the six months ending September 30, 2013:

Revenue: $84,987,000
Net Income: $11,642,000
Total Assets: $802,895,000
Total Liabilities: $318,182,000
Stockholders' Equity: $440,659,000

EROS's total revenues increased from $206.5 million in fiscal 2012 to $215.3 million in fiscal 2013. EBITDA decreased from $56.2 million for fiscal 2012 to $48.8 million for fiscal 2013. The firm's net income decreased from $43.6 million for fiscal 2012 to $33.7 million for fiscal 2013.

EROS must compete with other entertainment firms, many of which have been attracted to India by its growing film industry. Major international players including Sony Pictures (NYSE:SNE), Viacom (NASDAQ:VIAB), The Walt Disney Company (NYSE:DIS) and Warner Bros. (NYSE:TWX) have turned increased attention towards India, and as the budgets of the Hindi and Tamil films that EROS trades in continue to increase, the firm may find it difficult to keep up with its better-funded competitors.

Group Chief Executive Officer and Managing Director Jyoti Deshpande has been with EROS since 2001, with a brief hiatus in 2011 and 2012. Ms. Deshpande has over 2 years of experience in Indian entertainment and media, and holds a degree in Commerce and Economics and an MBA from Mumbai University. Chairman Kishore Lulla has over 30 years' experience in media and film, and served as CEO during Ms. Deshpande's brief absence. He is a member of the British Academy of Film and Television Arts and is a board member for the School of Film at UCLA.

We are cautiously optimistic on this company and would recommend that aggressive investors consider participating in this offering. We expect the offering will come at a discount pegged to the existing shares trading in London.

The firm has seen consistently increasing revenues over its history, but its income has dropped significantly in the past three years; moreover, EROS is significantly affected by the expansion of film piracy. We also are concerned about the amount of the firm's cash and contracts that are subject to the wild fluctuations of the Indian rupee. However, the firm seems to be achieving significant successes with its films and television, with box office hits in India and a new contract with HBO Asia.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.