Shemaroo says economic slowdown impacted business from YouTube

Update on the Indian Equity Market:

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Excerpts from an interview with Mr Hiren Gada, CEO and CFO of Shemaroo Entertainment aired on CNBCTV18 on 12^th February 2020:

• Mr Gada said that in the next 3-4 years the company is aiming for an equal split across its digital and traditional business. This year the Company is hoping to be about one-third and two-third between digital and traditional.
• This year the core customer base on the traditional side which is the broadcasters, faced tremendous slowdown on the ad side as well as on the new tariff orders. The content investment has been low-key and that has affected the entire ecosystem according to Mr Gada.
• The expenses on account of new initiatives have dragged the EBITDA margins down in FY20. They are looking at the margins in the line of approximately 25% from a regular operating business.
• Mr Gada revealed that digital operations contribute 50% of Shemaroo’s revenues, but the overall economic slowdown in the country also impacted the company’s YouTube revenues.
• He added that the slowdown has had an effect on the Company’s capital-raising plans.
• The Company had envisaged the new investment capex for which they were looking to raise money but looking at the current market conditions and given where the current stock price is, the Company will relook at the whole investment project and plan differently in terms of how they are taking that going forward.

Consensus Estimate: (Source: market screener website)

• The closing price of Shemaroo was ₹ 97/- as on 13-February-20. It traded at 3.3x/ 3.0x the consensus EPS estimate of ₹ 34.5/38.3 for FY20E/ FY21E respectively.
• Consensus target price is ₹ 280/- which implies a PE multiple of 7.3x on FY21E EPS of ₹ 38.3/-