Following the stock downgrade by Wells Fargo over some of its UAE revenues, Eros International has issued a clarification on the Bombay Stock Exchange to explain its position and has hired U.S. law firm Skadden, Arps, Slate, Meagher & Flom LLP to conduct an independent internal review.
Eros’ stock has taken a beating on both the Bombay Stock Exchange and the New York Stock Exchange over the past two weeks and hit a year-low following a report by the Times of India which said that attorneys in the US had started investigating the company which could leave it open to class action lawsuits. The report had added that Eros was being investigated by law firms Steinmeyer Law, Rosen Law Firm and Bronstein, Gewirtz and Grossman for violating certain sections of the Securities Exchange Act of 1934.
Eros’s stock on the BSE was up 7.87% at the time of publication following the clarification.
Countering the report, Eros said:
“In the past two weeks, there has been a vicious campaign to damage the credibility of Eros International by spreading false rumors and misinformation regarding its business with an objective to create panic amongst the investor community.”
“We are confident in our business fundamentals and we will be announcing our Q2 FY2016 results in the first half of November. Our credibility and reputation are of paramount importance. Our Audit Committee has engaged the U.S. law firm Skadden, Arps, Slate, Meagher & Flom LLP to conduct an independent internal review and also to advise us on related matters.”
Clarification on ErosNow
Eros in its clarification sought to clear the air on the number of users on its digital platform Eros Now. Earlier in October, Eros had said that crossed 30 million registered users as of September 30. The 30 million registered users reported by ErosNow as of 30th September 2015 are a combination of web, WAP and APP users, the company said.
“Due to the leverage it got from its acquisition of Techzone, a mobile value added services provider in India, a large part of ErosNow users are currently mobile users. The majority of the equity research analysts that cover the Company have not factored any meaningful revenues for ErosNow before FY2017, so the swing from a billion dollar valuation to zero valuation for that business within a span of few days is puzzling indeed,” it added.
Readers will note that Eros’ digital and ancillary business revenues have been falling over the last three quarters. Digital revenues stood at $21.3 million at the end of Q3 FY15, $18.7 million at the end of Q4 FY15 and $6.3 million at end of Q1 FY16.
“Eros is confident in being able to build a long term successful business model around ErosNow with a few million paying subscribers worldwide over a 3-5 year horizon that will contribute significantly to revenue and EBITDA in the long run,” Eros said.
On increase in receivables
The company said its revenues increased 20.7% from $235 million in FY2014 to $284.2 million in FY2015. “On its own, this increase in revenues accounts for approximately $50 million of the overall increase in receivables. Additionally, in FY2015 the company disclosed that it had renegotiated and given extended payment terms to customers, amounting to $31.2 million receivables,” it said.
On UAE revenues
“The Company’s UAE subsidiary owns all the international rights to its library. As demand for Indian film content increases in geographies outside of India, the Company has increased its revenues in these new markets and done so in a profitable and consistent manner,” Eros said.
Eros also added that the NYSE listed company, Eros International Plc, consolidates its subsidiary financials, it cancels out all inter-company transactions between the group companies and only reports the third party revenues, costs and profitability and that analyzing subsidiary financials which in isolation can be extremely misleading. “Eros believes that the Company has always maintained detailed and transparent disclosures. Indeed, through its Indian Group filings and US filings there is a large amount of disclosure information available much of which is being misinterpreted and misrepresented,” it added.
Download: Eros’ clarification