CUT PASTE FROM BUSINESS STANDARD 15/09/2014
Incorporated in 1962, Shemaroo Entertainment is into acquisition, value addition to content and the content distribution business. Bollywood (and some regional) movies and music, along with small presence in devotional music, is the key content it distributes.
It has a little more than 2,900 titles — Bhaag Milkha Bhaag, Queen, Dedh Ishqiya, Black and Zanjeer, amongst others. It distributes this content via four main categories, namely, television (satellite, terrestrial/Doordarshan, cable TV), new media (mobile, internet, direct-to-home, Youtube), home entertainment (Blu Ray, VCDs, DVDs) and other media (in-flight, overseas).
Shemaroo has perpetual rights on 759 titles and limited ownership (three to five years) on the remaining 2,159. It can distribute titles with perpetual rights worldwide and across all mediums. These can be restricted by any one or a combination of either distribution platforms, period of or geography, among others. TV channels form a little over 50 per cent of revenue and the company provides content to them on a license basis. Shemaroo is the official channel partner for Youtube and operates 32 channels for the latter. It gets a pie of the advertising revenues for its channels/content on Youtube.
Shemaroo is coming out with an Initial Public Offer, to raise up to Rs 120 crore at a price band of Rs 155-170 a share. The proceeds will be used to mostly source content.
A strong brand name, experienced management and vast content library are some of the key strengths. It has presence in all mediums/platforms of consuming the content, making it less vulnerable to technology changes. And, enjoys a strong, long-standing relationship with content producers such as RK Films and Mukta Arts, among many others.
An intensifying competitive scenario remains a key risk. While there are already large production houses such as Yash Raj Films, UTV, Eros and Reliance (ADAG) among those that are Shemaroo''s peers in the movie distribution category, these are largely focused on the theatrical distribution (new movies) segment, where Shemaroo does not operate. Their presence in content distribution is negligible, currently.
Though the company says they offer value-additive services such as customised movie bouquets and technology-related improvement to content, the key risk for Shemaroo is that production houses can directly deal with TV channels and other distribution media platforms. T-Series, Moser Baer, Hungama Digital and the like are key peers. “Threats from piracy and other online content distributors such as Netflix, which could potentially open up business in India, taking away market share which Shemaroo so heavily relies upon, are key risks,” says Akshay Dalmia, analyst at IIFL.
The company management, though, is undeterred by Netflix''s potential India entry, with the latter being one of its key clients. On the financial side, revenue growth has been healthy but margins have been under pressure in the past two years, leading to lower profit growth.
Shemaroo''s growth strategy is to continuously keep strengthening its content library and increase monetisation of content across all platforms. While it does not plan to enter any new business segments in the foreseeable future, the key to success is its ability to scale up the high-potential new media platform.
After considering the 10 per cent discount for retail investors, the price band is Rs 139.5-153 a share. At this band and assuming 20 per cent growth rate in profit, the offer is priced at 16.5-17.7 times the FY15 estimated earnings, based on fully-diluted equity. This is higher than its listed peer, Eros International, which trades at 9.4 times the FY15 price to earnings ratio, and is much bigger and higher up the value chain than Shemaroo.
Zerodha (Trading & Demat Account)
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