Short-seller target Eros sees Bollywood streaming unit doubling
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Mumbai: Eros International Plc, the US-listed Bollywood filmmaker targeted by short sellers, expects paying customers for its Netflix-like streaming service to double in a year.
Partnerships with phone companies will help garner 5 million paying users for Eros Now by March 2018, chief executive Jyoti Deshpande said in an interview on Monday. Of the 58 million registered users as of December 30, 2 million were shelling out a fee, typically $5 a year.
Fulfilling the projection could be a bright spot for Mumbai-based Eros. Its shares have fallen 76% in New York since August 2015 as bears raised questions over its financials and how it records streaming subscribers. Eros has denied the claims.
“Eros Now now has the numbers to show” its potential, said Jigar Shah, the CEO and head of research at Maybank Kim Eng Securities India Pvt., who recommends buying the shares. “The environment is very conducive for any investor -- strategic or financial -- to pick up a stake as a video-streaming boom in India is only getting started.”
Eros has been negotiating with its banks to refinance a credit line that expires this year after the company last month scrapped a bond offering it was marketing to international investors. That bond deal, which was pulled after investors demanded a higher interest rate than the company was willing to pay, would have allowed it to repay the credit line.
The company won’t “tap the capital markets” for that purpose, Deshpande said. She declined to comment on a stake sale.
Selling a stake would help boost Eros’s valuation and enable it to spend more on making movies, Shah said. Eros was said to have sought an investor as far back as July 2015.
Three analysts have updated their views on Eros’s New York shares this year, reiterating their buy recommendations, according to data compiled by Bloomberg. Even so, bearish bets accounted for about 17% of freely tradeable shares as of 7 April, IHS Markit data show. That’s down from 29% in November 2015.
Eros Now would break even in terms of earnings before interest, taxes, debt and amortization for the year through March 2018 if it can meet the forecast, Deshpande said. It was able to double paying customers in less than a year when it posted numbers for December, saying it was three months ahead of target.
About 85% of Eros Now customers are in India, where the company says it records $5 in average revenue per user a year. The rest typically pay $35.
Partnerships with India’s largest carriers—that give the mobile-phone customers access to Eros Now content—accounted for “a vast majority” of Eros Now’s $15 million revenue in the financial year through March 2017, Deshpande said. Those pacts with the wireless companies last for five to nine years.
The carrier agreements will help Eros draw more customers, Macquarie Capital analysts Tim Nollen and Stephen Beckett wrote in a 22 February note. They said they “like the potential” for Eros Now’s growth.
Both Macquarie and Maybank expect Eros shares to double to $18 in a year in New York Stock Exchange trading. Bloomberg