Shemaroo Entertainment Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Media & Entertainment

Company

Shemaroo Entertainment Ltd

Reco Price
Rs. 251
Price Target (1.5 - 2 Years)
Rs. 500
Upside
99.20%

Date

September 04, 2015
Sensex
25201.9
CNX Nifty
7655.05

Exchange

Code

NSE
SHEMAROO
BSE
538685

Digital Business growth with Introduction of 4G services will boost future growth.

Reputed media content house:
Shemaroo Entertainment Ltd is a well established and reputed media content house in India. The current content library stands at around 3000 titles. The company distributes and monetizes this content across different media platforms. Hence Shemaroo as a brand has been an established name over the last 50 years in the field of entertainment, which has been used in various media related activities including books and magazines rental business, a video rental business, content aggregation, content distribution, home video distribution and content creation.

Strong growth in Digital revenues:
The Company has agreements with various internet video destinations like YouTube, Daily Motion, Yahoo India, Spuul etc and several services for the distribution of content on the internet to internet connected televisions, internet connected set top boxes and applications running on various devices. The company is an official channel partner of Google Inc’s YouTube and has around 32 channels like Shemaroo Movies, Shemaroo Ent and Filmi Gaane with both film and non-film content running on it. It is one of the prime beneficiaries of emerging trend of digitization and increasing internet penetration. The company has average monthly You Tube views of 60+ mn or around 1.5 to 2 millions hits per day, which ensures strong growth momentum in revenues. According to FICCI KPMG Media report 2014, digital advertising industry has grown at a CAGR of 44% over FY10-13 to Rs 3000 crores and expected to grow at a CAGR of 28% over FY13-18 to Rs 10200 crores.

Diversified Distribution Platforms:
The Company has comprehensive distribution capability backed by an in-house television syndication team, a New Media marketing team for mobile value added services (“MVAS”), internet, DTH and IPTV, and a nationwide home entertainment distribution network. This provides direct insight to the consumer preferences and consumption patterns across platforms helping than to cross-leverage these insights. This enhances company’s ability to monetize content across various distribution platforms. Shemaroo has tie-ups with telcos like Airtel , BSNL, Tata Teleservices, Reliance Communication, MTNL and Tata Docomo to distribute content like caller ringback tones, ringtones, wallpapers, imagery, videos, games, full songs, celebrity chats etc.

Strong International Presence:
Shemaroo Entertainment Ltd has extended its relationship with the Orchard an international distributor of digital content for distributing and marketing Shemaroo’s music catalogue on iTunes in the Middle East and North Africa (MENA) region. Earlier, it had also entered into a strategic alliance with The Orchard, to distribute its music content in Latin America, North America, Europe and Asia Pacific. The deal allows Orchard to exploit Shemaroo’s music catalogue on more than 100 international digital platforms like iTunes, Spotify, Rhapsody, e Music, Virgin FR, Amazon Digital Services Inc, Xbox Music, r Dio, Media Net, etc. The vast range of audio includes film, non-film across multiple genre like folk, pop, sufi, qawwalis, kid’s music and regional music.

Growth drivers:

Broadband Infrastructure:
Rollout of 4G would enhance the consumption of videos. National Optical fibre rollout announced by the government will help for improving connectivity in terms of data streaming.

Technology:
Growing availability of sub Rs 5,000 smart phones will help to increase affordable customer base. Also improving technology will help to compress, convert, store, play and forward videos, leading to consumption of content on more devices.

Digitization:
Broadcasters will increase investment in programming, due to reduction in carriage fees. Increase in content acquisition by broadcasters, will increase the value of the content thus demand for movies will increase with enhancing number of channels.

Great Buisness Model:
The company acquires forward content rights, with either complete ownership (perpetual rights) or limited ownership (aggregate rights), which are then sold on a forward rights basis for a period of five-to-seven years to broadcasters. In the life span of a movie release, majority revenues (90-95%) are generated through domestic and overseas theatricals and television release. The first cycle is typically 5-7 years, post which Shemaroo enters the fray. Subsequent movie cycles are typically of five year duration. Since the company enters the fray in subsequent cycles, the risk reduces significantly, due to higher visibility of performance vis-à-vis the first cycle of launch.

Stock Data

CMP (Rs)
273.8
Face value (Rs)
10
52 Week Range (Rs)
321.50 - 145.00
Market cap (Rs Crores)
744.25
Price To Book Value (x)
2.26
P/E Ratio (x)
18.18
EV/EBIDTA (x)
9.75

One Year indexed Stock Performance

Shemaroo Entertainment LtdSensex
Shemaroo Entertainment Ltd
Performance (%)
1m
6m
12m
Absolute
-10.11
23.06
-
Sensex
-10.22
-12.75
-

Shareholders

(in %)
31-Mar
Promoter
65.82
FII
9.59
DII
6.85
Others
17.74
Total
100

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Industry

Digitization will bring in transparency in the system by eliminating under-reporting of subscribers. The Phase I of Digital Access System (DAS) in Delhi and Mumbai is nearing completion. The Phase II is underway, while the Phase III and IV are expected to be completed by December 2015 and 2016, respectively. Digitization is expected to drive efficiencies in the television broadcasting value chain: Subscriber reporting will move to MSOs who will have much greater control than the LSOs Carriage fee is expected to reduce by 15-20% Scope for increase in Average Revenue per User with customized channel and package offerings.

Increase in the number of channels and customized packages translate to higher revenue generating streams for Shemaroo.

Profile

Founded on 1962, Shemaroo Entertainment started as a book circulating library and emerged as an established integrated media content house in India with activities across content acquisition, value addition to content and content distribution. In 1979, the company set up India's first video rental business and thereafter forayed into distribution of content through the home video segment in the video home system (“VHS”) format in 1987.

The company distributes content through various mediums such as (i) television such as satellite, terrestrial and cable television; (ii) New Media platforms consisting of mobile, internet, direct to home (“DTH”) and other applications; (iii) home entertainment and (iv) other media. The company’s recent initiatives include tying up as an official channel partner for Google Inc.’s You Tube, where company operates 32 channels. The company also moving beyond providing just content, to providing content management solutions to partners including Reliance Communications Re1 WAP store and Airtel digital television in connection with an interactive devotional service, namely “iDarshan”. Broadcast syndication rights to television channels continues to be one of the major revenue activities contributing more than 50% of company’s revenue in each of last five years. Over the last five years, the company has distributed more than 1,000 films for broadcasting on television networks.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar-13
Mar-14
Mar-15
Mar-16E
Mar-17E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBIDTA
  • EBIDTA Margin (%)
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Tax
  • Provision for Tax
  • Tax Rate (%)
  • Profit After Tax
  • Adjusted EPS
  • 214.74
  • -
  • 157.38
  • 57.36
  • 26.71
  • 1.35
  • 58.71
  • 18.31
  • 40.40
  • 2.98
  • 37.42
  • 12.76
  • 34.10
  • 24.66
  • 11.86
  • 264.61
  • 23.22
  • 200.27
  • 64.34
  • 24.32
  • 1.34
  • 65.68
  • 19.23
  • 46.45
  • 2.69
  • 43.76
  • 16.34
  • 37.34
  • 27.42
  • 13.74
  • 323.45
  • 22.24
  • 236.54
  • 86.91
  • 26.87
  • 1.26
  • 88.17
  • 21.21
  • 66.96
  • 3.68
  • 63.28
  • 22.22
  • 35.11
  • 41.06
  • 15.06
  • 395.50
  • 22.28
  • 291.50
  • 104.00
  • 26.30
  • 1.25
  • 105.25
  • 23.44
  • 81.81
  • 4.80
  • 77.01
  • 27.01
  • 35.07
  • 50.00
  • 18.34
  • 490.50
  • 24.02
  • 360.50
  • 130.00
  • 26.50
  • 1.25
  • 131.25
  • 25.50
  • 105.75
  • 6.05
  • 99.70
  • 35.05
  • 35.16
  • 64.65
  • 23.71
Source: Stockaxis Research, Company Data

Valuation

The key focus of the company is the digital business, which is growing very fast and second key focus is the return to be generated on the capital deployed. Over the last few years the trend in the home entertainment industry has been migrating from physical to digital formats, which is how company is also positioning itself. Digital business has been showing very good future prospects for the company. Introduction of 4G should be game changer for the stock as this will completely change internet experience for the customers both in terms of surfing and streaming which will boost Digital business of the company a lot in future.

We assign valuation of 21.08x to FY 2017E indicating target price of Rs 500 for long term horizon.

 

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