Eros: An Indian blockbuster

03/05/2007

Interview with Kishore Lulla, chairman & CEO, Eros Plc

Reproduced by kind permission of MediaFinance

Having listed on AIM in June, Indian entertainment group Eros Plc has seen its share price double to the point where it is now the largest international media group listed on the exchange and its ebitda grow to a multiple of 66.5%. With Indian media investment becoming a priority among strategic and financial investors alike, Oliver Cann caught up with Kishore Lulla, Eros’ CEO, to ask him about the company’s recent growth spurt and get the inside track on how the company is likely to grow in the future.

Eros’ share price has doubled since September: why the overnight success?
KL: Eros was launched by my father in 1977 with the aim of acquiring Bollywood movies and exporting them internationally. In the Eighties, I took over the management of the firm with the view to implementing our international strategy. We began buying around 35-40 movies a year to the point where we now have around 1300 in our back catalogue, making it the largest library of Bollywood films in the business. But it took twenty-five years to get the business where it is today.

Has the strategy always focused on the Indian diaspora?
KL: In the last five years, we have seen a transition in our business both overseas, with countries like Thailand and Indonesia starting to consume Indian dubbed movies, and also in India, where you have a middle class of 300 million people, rising by 5 million every year, all of which enjoying watching movies. Both these reasons have helped us create a demand for our film catalogue, which in turn helps account for our high ebitda margin. With the Indian entertainment industry growing from US$6bn today to US$23bn in 2011 according to PwC, we see this market as growing and we want to be the first to consolidate the Indian entertainment industry.

Why did you choose London for the IPO?
KL: There was lots of debate about whether we listed in London or India but in the end we choose London because that is where our international peer group, companies that are involved in owning, exploiting and distributing content libraries, are domiciled. We came to market because we want to consolidate the industry in India and, so far, we’ve bee very successful at signing output deals and acquiring content. The blockbuster model is exactly the same in India as it is in the West: you have theatrical rights, home entertainment, direct to home, terrestrial and then new media, so our model is understandable to investors.

What is Eros’ priority over the next 12-18 months?
KL: We want to consolidate the content distribution marketplace. The Indian entertainment market is going to become a significant size and we want to capitalise on the fact that we were the first to begin trying to consolidate it. Not only this, but Indian films will continue to become more prominent in international markets to the point where there will be a crossover between Bollywood and Hollywood, which will bring a whole new audience to our films. Other than this we are constantly looking at a number of initiatives and are currently evaluating moves into animation, broadcasting and running our own cable channels.

Can you give us some more details of these plans?
KL: We’ve been approached by a number of different companies looking to take advantage of the fact that we know how the market works in India and already have a presence there. For example, we have a JV with Comcast, where we supply content to them, and we could work with them to consolidate the market in India with us as local partners. We know how to make content and distribute it and once you can do this, you can make alliances. We also have interests in TV. My family owns two channels, B4U Music and B4U Movies along with the Mittal family, which owns 24%. Eros has the option to buy these channels at cost plus 10% any time up until three years after our IPO.

What are you funding requirements these days?
KL: At the moment we are very happy. If we need funds we can go back to AIM. Our shareholders have been very supportive up until now but we have no immediate plans to do this. 99% of the production companies in India – which we are trying to consolidate – are one-man bands, with only five listed on the Mumbai stock exchange. We don’t want to use our currency to buy their assets as thois would mean we would take on their liabilities, so we pay for their libraries through SPVs. This way, all the benefit comes to Eros. The market is not yet mature enough for M&A, although this may change in the next year or so.

There is a lot of investment flowing into Indian media at the moment from the West. Are you worried this might create instability?
Our model is content and distribution across all media including music publishing and new media. We have a track record of twenty years. It’s a nuts and bolts business: our management has twenty years’ experience in the trade, they know the talent, the niche distribution channels and have the content library. There are a lot of new distribution companies coming and going but content creators know that by working with us they get the full platform for release: movie theatres, music publishing and new media. The Indian music scene is not like the US’ where only around 10% of the market comes from films. In India this figure is more like 70-80%. Again, we know the industry quite well and could look to consolidate it.

When will you start using M&A as a growth tool?
At the moment, there is no debt at the company – our library is not securitised – because we are fully aware that we want to save or war chest. We’re planning many deals but we want to do them right and we don’t want to get carried away. They have to have the right impact on our bottom line.