Shemaroo Entertainment

Focused on media content aggregation and distribution

A large diversified content library available for distribution through multiple platforms

CM RATING

46/100

Promoted by Raman Maroo and Atul Maru, Shemaroo Entertainment was founded as a book circulating library in Mumbai on 29 October 1962. Today the company is in the business of aggregation, production and co-production of cinematograph films and dramas and exploiting and distributing rights of films and dramas through various medium such as television licensing, DVD and VCD release; rights of content through new distribution avenues such as Internet protocol television, video on demand, and mobile platform. There are state of-the-art studio facilities, equipped with highly sophisticated studio hardware and software.

In 1979, India's first video rental business was set up. In 1987, there was foray into distribution of content through the home video segment in the video home system format. Over the years, changing content consumption patterns have been adapted by expanding into content aggregation and distribution for broadcasting on television platforms. Expansion is continuing into new media platforms.

The content library consists of more than 2,900 titles including new Hindi films such as Queen, Bhaag Milkha Bhaag, Dedh Ishqiya, The Dirty Picture, Kahaani, OMG: Oh My God!, Black, Ishqiya, Ajab Prem Ki Ghazab Kahani, Omkara, Dil Toh Baccha Hai, and Bheja Fry 2 among others. It also has Hindi classics such as Zanjeer, Beta, Dil, Disco Dancer, Mughal-e-Azam, Amar Akbar Anthony, Namak Halaal, Kaalia, and Madhumati It also has titles in various other regional languages like Marathi, Gujarati, Punjabi, Bengali among others as well as non-film content. The content library includes a mix of Hindi films, regional content, devotional content, and special interest content. The ongoing addition to content library helps to generate diversified revenues and reduce its reliance on the success of a single film.

Currently, the company distributes content over which it has either complete ownership rights or limited ownership rights. Titles over which it has complete ownership rights are referred to as perpetual rights, which allow it to distribute content worldwide for a perpetual period across all mediums. Titles over which it has limited ownership rights are referred to as aggregation rights. Aggregation rights are restricted by either period of usage, distribution platforms, medium and geography or combination thereof. Titles where it has perpetual rights or aggregation rights are known as content library". The company owns 759 perpetual tiles and 2159 limited ownership titles, taking the total number to 2,918.

The company distribute its content through various mediums such as satellite, terrestrial and cable television; new media platforms consisting of mobile, internet, direct to home and other applications; home entertainment; and other media.

The company's recent initiatives include tying up as an official channel partner for Google Inc.'s You Tube where it is managing 32 channels. It is also moving beyond providing just content to providing content management solutions to partners including Reliance Communications Re1 WAP store, and Airtel digital television for an interactive devotional service, iDarshan.

Consolidated net sales for FY 2014 increased by 23% to Rs 264.61 crore due to overall growth in demand for films. The OPM declined by 240 basis points (bps) to 24.3% due to overall increase in expenditure. One of the main reasons for the fall in the OPM was rise in direction operating expenses. The company's direction operating expenses increased 25% to Rs 20.28 crore primarily due to increase in content cost and to build a future content pipeline. The net profit increased by 16% to Rs 27.27 crore due to topline growth

The company is coming out with an initial public offering (IPO) amounting to Rs 120 crore at a price band of Rs 155 – 170 per share of face value Rs 10 each. A discount of 10% to the issue price is being offered to retail individual bidders. Out of Rs 120 crore which will be raised, Rs 106 crore will be used to fund working capital requirement and rest for general corporate purpose. The company's business is working capital intensive.

Strengths

• The company has vast, diverse and growing content library. The diverse content library is growing continuously with the addition of new releases as well as through catalogue acquisitions. Presently, the content library consists of more than 2,900 titles

• The company has width and depth of distribution platforms. It monetizes its content library by exploiting content over various existing and emerging distribution platforms. This reduces its dependence on any single customer or platform.

Weaknesses

• The company faces competition from large players in the films and television media segments. These include UTV, Yash Raj Films, Eros, and Reliance (ADAG), Moser Baer, Hungama Digital, and Super Cassettes Industries.

• Any escalation in the content acquisition cost as a result of competition could result in losing out on opportunities to acquire content or, could impact the profitability of the content so acquired, which would adversely affect the growth and profitability.

• The company's business is working capital intensive and the cash flow from operating activities is negative for the last two years.

• Certain other ventures promoted by the company's promoters are authorized to engage in a similar line of business.

• One of the promoters, Raman Maroo, has been declared willful defaulter due to being an independent director in Orbit Corporation.

Valuation

At the lower price band of Rs 155 per equity share of Rs 10 face value, the P/E works out to 15.7 times the EPS of Rs 9.9 (on post-IPO equity) for the year ended March 2014. At the upper band of Rs 170, P/E works out to 16.8 times the EPS of Rs 10.1 (on post-IPO equity) for FY 2014. The nearest comparable company is Eros International Media trading at P/E of 12 times consolidated EPS of FY 2014.

Shemaroo Entertainment : IPO Highlights
Sector	Entertainment
No. of shares on offer at Rs 155 per share(lakh)	77.41
No. of shares on offer at Rs 170 per share (lakh)	70.59
Price band (Rs)	155-170
Post-issue equity at Rs 155 per share(Rs crore)	27.59
Post issue equity at Rs 170 per share(Rs crore)	26.91
Post-issue promoter and promoter group stake at Rs 155 per share (%)	64.85%
Post-issue promoter and promoter group stake at Rs 170 per share (%)	66.49%
Issue open date	16th September 2014
Issue close date	18th September 2014
Listing	NSE & BSE
Rating	46/100

Shemaroo Entertainment: Consolidated Financials
Particulars	2014(12)	2013(12)	2012(12)	2011(12)	2010(12)
Net Sales	264.61	214.74	182.01	158.24	101.68
OPM (%)	24.3	26.7	25.6	21.6	17.2
OP	64.34	57.36	46.55	34.20	17.52
Other Income	1.34	1.35	5.11	1.18	1.96
PBDIT	65.69	58.71	51.65	35.38	19.49
Interest	19.23	18.31	19.26	15.30	16.46
PBDT	46.46	40.40	32.39	20.08	3.03
Depreciation and Amortization	2.96	2.98	2.95	2.71	2.69
PBT	43.49	37.42	29.44	17.37	0.34
Tax	16.34	12.87	7.77	3.70	0.02
Profit after tax before share from associate company	27.15	24.55	21.68	13.67	0.32
Share of profit/loss in associate company	0.12	-1.11	-0.74	-0.04	0.00
Net Profit	27.27	23.44	20.94	13.63	0.32
EPS (Rs)*	9.9	8.5	7.6	4.9	0.1
EPS (Rs)**	10.1	8.7	7.8	5.1	0.1
* on post-issue Equity of Rs 27.59 crore; Face value Rs 10 (issue price Rs 155) ** on post-issue Equity of Rs 26.91 crore; Face value Rs 10 (issue price Rs 170) Figures in Rs crore Source: Capitaline Database