Stock Pick From The Movies & Entertainment Sector

Here Is Why

• De-risked business model.
• Highly focused on the fast growing digital media. 
• Roll-out of 4G broadband will drive revenue growth.

SHEMAROO ENTERTAINMENT: A GOOD SHOW

This time we are focusing on a company which is engaged in the distribution of content for satellite channels, physical formats and emerging digital technologies like the mobile phone, internet, broadband, IPTV and DTH, among others. With its partnership with major telecom operators and other digital media platforms, it is at the forefront of the digital age. The company has also tied up with many content providers across the country and is one of the largest independent content aggregators with over 2,900 title rights which it distributes across various existing and emerging media platforms.

Shemaroo Entertainment has a diversified distribution platform which includes both traditional and emerging media in which the former’s contribution was 88.5 per cent while the latter contributed 11.5 per cent to the total revenue in FY15. It has now been focusing on the fast growing digital media where it has seen 52 per cent growth in FY15. Another very important thing is that as the digital media business has been growing its operating margin leverage is substantially higher because a lot of costs are either fixed or related to content and organisation. Going forward, the company expects growth in digital media at roughly 40-45 per cent for the next two years.

The company de-risks its business model by having a large number of titles so that the revenues are not dependent on the success of any one individual title. Also, given the size of its content library the company is able to package diverse content and improve the overall returns. It monetizes its content library by exploiting it over various existing and emerging distribution platforms. This reduces its dependence on any single customer or platform. Within platforms, the company optimises monetization throughout the lifecycle of this content.

Shemaroo Entertainment has reported outstanding performance for FY15 after getting listed in September 2014. It has grown by 50.7 per cent at its bottomline of Rs 40.92 crore in FY15 as compared to Rs 27.16 crore in FY14. The total income from operation in FY15 grew by 22.8 per cent at Rs 323.45 crore as against of Rs 263.34 crore in FY14. Its EBITDA increased by 34.7 per cent to Rs 84.5 crore as against Rs 62.7 crore in FY14 with an improvement in EBITDA by 240 bps to 26 per cent in FY15.

On the valuation front, the company is trading at a PE ratio of 12.4x with EPS of Rs 17.35 of FY15. In FY16 the company is looking forward to explore newer avenues where it can leverage its huge content collection. Also, the roll-out of 4G broadband will drive its revenue growth. We recommend taking an exposure in the stock with expectation of 40-45 per cent upside in the next one year.