Eros International sees profits below market expectations; defers releases

MUMBAI: Affected by the global economic meltdown as also the poor box office performance of its movies released in 2008, the AIM listed Eros International is expecting the full year turnover and profits to be below market expectations.

However, the company has said that its content library of over 1,900 films continues to perform broadly as anticipated. Speaking to, Eros International COO Jyoti Deshpande says, "The underlying business including our revenue generated from syndicating our catalogue worldwide across formats continues to be strong, in fact performed above expectations. Eros plc consolidates and reports in US dollars. So while the Indian business attributes more than 50 per cent of the turnover, when this is converted into US dollars the depreciation of the Indian rupee to the US Dollar over the last year has an impact. It’s a non-cash item only arising out of translation of currency for reporting purposes. In terms of cash generation from operations we are well on track and that is a key focus and we have a robust balance sheet and we still expect to end the year ahead of 2007-08 PBT (profit before tax) and turnover."

The company has said that its business model is the operation of a global content and distribution business with income and costs in mainly Indian Rupees, GBP, Euros and US Dollars. The volume and nature of the transactions mean that currency hedging is impractical. Consequently currency translation losses, which are non-cash items, remain an inherent risk of the business. Eros says that cash generation from operations has continued to be strong in the second half of the current financial year and the company’s balance sheet remains robust.

Notwithstanding the global economic conditions, Indian GDP continues to grow. Furthermore, Eros expects its own business to continue to grow and will seek to scale the business based on the opportunities and expected returns.

Eros release a bunch of movies in 2008 like Drona, U, Me Aur Hum, One, Two, Three, God Tussi Great Ho, Hijack and Yuvvraaj amongst others. However, none of them set cash registers ringing at the box office. When queried as to how this had impacted the company’s bottomline, Deshpande informs, "One year we had Om Shanti Om, Partner, Heyy Babyy, Namastey London, Cheeni Kum etc. This year we did not have any break out successes. We balance our business risk by a combination of pre-sales and getting minimum guarantees on a worldwide basis. We do have to share some of the upside in commissions but it also helps mitigate some of the risk if the films are not box office successes. But a large part of our income comes from working the catalogue in dubbed markets and through digital new media whether for TV or DVD syndication or through on demand services."

Going forward, the company’s focus will continue to be on maximising the cash generation from worldwide content and distribution operations. "Fortunately a large part of our film investments for our 2008-09 slate is already done. So we await the releases of these films while we leverage our library and look for selective investments for the future," she says.

Additionally, in light of the terrorist attacks in Mumbai earlier in this financial year and the general economic downturn, Eros has decided to defer the release of four films that were due to be released in March – April 2009. The release has been postponed to until after May 2009 in order to maximise the potential receipts from the film projects. Deshpande says, "January to March has not been a great year for the industry as a whole and none of the films have been a break out successes as such. We have a big slate like Aladin, Love Aaj Kal, Kambakth Ishq etc and also some Tamil releases. We didn’t see the benefit of trying to rush their releases in this financial year when the sentiment is not very buoyant. We have deferred the releases to the summer until after the IPL so that we can market them well and give them the release they deserve."

Moreover, with the current negotiations on between exhibitors and producers/distributors over revenue sharing terms of movies, the fate of most movies scheduled for release in the near future hangs in the air.