| Summary of Contents STOCK UPDATE Eros International Media
Recommendation: Buy
Price target: Rs267
Current market price: Rs224 Emphasis on monetisation of content We recently attended the select analyst meet hosted by Eros International Media Ltd (EIML) to discuss the company's joint venture with HBO Asia. The highlights of the meeting are as follows. Key terms of the venture -
HBO Asia and Eros International plc, the promoter of EIML, would be launching two new premium advertising free movie channels in India: HBO DEFINED and HBO HITS. -
The funding and the expenses of the venture would be borne by HBO Asia. -
EIML's contribution to the joint venture would be to provide exclusive satellite rights for one month of 10-12 new releases of the year and give a library of about 100 movies (currently EIML has movie library of more than 1,100 movies). The new releases would be telecast first on one of the two channels with a one-month exclusivity after which the same would be shown on any other television channel (that may have acquired the satellite rights of the films). The impact of the venture on EIML
Positives -
The company does not have to invest any capital in the joint venture and will provide the content only for which it will be getting a fixed income irrespective of the joint venture's profit. -
The deal would lead to further monetisation of content library. -
The company would get the rights to the original HBO content that it can use in the future to produce television series in India. The company does not have any immediate plans for the same. -
It is the company's discretion which new releases it wants to showcase on the two channels. Negatives -
The select new releases that would be showcased first on the premium channels would lead to lower satellite right price offered by the general entertainment channels. -
Competition could also launch similar premium channels which could lead to a fall in viewership. Valuation: As we have highlighted in our earlier notes, EIML is a beneficiary of the digitisation era. The proposed joint venture with HBO Asia to launch premium movie channels is a step in that direction. Further, it will help EIML to monetise its content library further and lower the dependence on the box-office revenues to some extent, though any meaningful benefit will accrue only over the longer term. We are positive on this joint venture and the company's intent to diversify its revenue generating platforms. However, we do not see any meaningful financial benefits accruing to the company in the medium term. Thus, we will wait for further developments in this joint venture to incorporate the financial impact of the same on our estimates. We maintain our Buy rating on the stock with a price target of Rs267.
VIEWPOINT
Sunteck Realty New kid on the block Key points -
Luxury real estate developer with a focus on Mumbai: Sunteck Realty Ltd (SRL) is a leading Mumbai-focused real estate company with more than a decade of experience and a presence in the premium and super-luxury segments. The company has over 36 million square feet of city centric developments at the consolidated level, which includes 26 projects and four rented assets. Of these developments, more than 80% of the projects are into premium luxury residential segment and remaining in the commercial segment. The company has strong execution skills through its in-house project management team and tie-ups with domestic and international contractors. -
Strong project portfolio with asset-light business model: The company has done a series of smart land acquisitions at a low cost and developed many ultra-premium residential projects largely across Mumbai. Currently, the company has a total of 21 projects in Mumbai with a total saleable area of 25.7 million square feet of which SRL's share is 14.62 million square feet. Other than Mumbai, the company has around 10.42 million square feet of saleable area of which SRL has an economic interest on around 3.25 million square feet. Some of its key projects like Signia Pearls, Signia Isles, Signature Island and Sunteck City are all located in Mumbai. Further, in order to expand the scale of business with a low leverage, the company has adopted an asset-light business model. The company's business strategy is characterised by the smart use of the joint venture/joint development agreement model to acquire land, which resulted in low acquisition costs, thereby generating high internal rate of return projects. -
Financial performance to improve from H2FY2013: During Q2FY2013, the company managed to sell a total area of 100,340 square feet at an average realisation of Rs23,427 per square feet. The strong sales volume is largely supported by projects in Bandra Kurla Complex (BKC). Further, in terms of cash inflow, the company has collected an advance of Rs135 crore as compared with just Rs43 crore in Q1FY2013. Going ahead, from H2FY2013, we believe the robust growth in the earnings and cash flow will be on account of revenue booking from its BKC projects and launch of new projects. In H2FY2013, the company is targeting to launch four new projects namely Poonam in Andheri, Signia in Navi Mumbai and project in Kalina and Mulund. -
Strong cash flow visibility with lower D/E ratio: SRL has already sold a major portion of its launched projects, which provides cumulative gross sales of around Rs2,417.9 crore as against cumulative customer advances of around Rs1,100.2 crore at the end of H1FY2013. This would provide a strong cash flow visibility in the near term and would also take care of timely execution of the projects and new acquisitions. In addition to this, the company also has a regular cash flow coming from its four leased properties. Further, with the asset-light business model, the company managed to maintain a low debt level. The consolidated debt of the company stood at Rs488 crore, which represents a comfortable debt/equity (D/E) ratio of 0.7x. -
Limited track record with only one completed commercial project to showcase: Though the company has a good project portfolio with a low acquisition cost, timely execution of the projects is one of the key challenges to the company as the company has completed only one commercial project so far. Further, the supply in Mumbai's real estate market has increased significantly both in the commercial and residential space, which could affect the pricing scenario adversely and could also affect the operational and financial performance of the company. -
Outlook: With the launch of new projects by the end of FY2013, improved traction in BKC projects and a diversified project portfolio across Mumbai, strong sales are expected going forward. Further, we believe SRL is well positioned in the Mumbai region with a strong project portfolio and a strong balance sheet (D/E of just 0.7x FY2012). At the current market price (CMP), the stock is trading at price/earnings (P/E) of 8.8x discounting its FY2013E earnings per share (EPS; based on the Bloomberg's consensus estimates). The stock is not under our active coverage. Hence, we do not have any rating on the company.
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