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Eros’ stock recommendation downgraded over UAE revenue uncertainity

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Update (Oct 27): Attached below is the official statement from Eros on the downgrade of its stock.

Update (Oct 26): In a statement to the BSE (pdf), Eros acknowledged the downgrade of its stock rating and said that downgrades and upgrades happen to stocks regularly and that this was not a cause for concern. However, the company did not address the core issue of why the stock was downgraded: uncertainty over its UAE business.

Earlier today: Eros’ stock rating has been downgraded by the Wall Street bank Wells Fargo, reports ET. According to the investment bank, Eros’ continued increase in revenues from the UAE is unexplained, which led the bank to decrease Eros shares on the NYSE.

Overall, the company’s stock fell 16.6% on the New York Stock Exchange after the rating, while on the BSE, its subsidiary Eros International’s stock fell by 3.8%. Eros apparently held a concall with the US based analysts on Friday last week to counter the allegations about its growing revenues in the UAE.

However, Wells Fargo was not convinced and released a report the same day that downgraded Eros stock to ‘market perform’. The agency said that “Management broke down the receivables in a very detailed manner, but quite frankly it was still difficult for the analysts on the call to fully grasp the collection cycle and movement of funds (particularly deals booked in the UAE).”

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We have asked Eros for a statement on the situation, and will update the report when we hear back.

30 million users: ErosNow, the digital video streaming platform of Eros International, announced that it has crossed 30 million registered users as of September 30. For the quarter ended June 30, the company had reported 26.5 million users. It’s worth noting that Eros does not disclose monthly active users and the revenues earned from the digital service.

Other developments:

– Earlier this month, Eros acquired the UK-based song sharing app PingTune that allows users to discover, share and listen to music. The platform also allows users to choose a specific section of the tune or video to send from sources like YouTube and SoundCloud. In addition, PingTune enables artists to create and own official profiles so that they can interact and deliver content directly to fans. Eros says that the acquisition will strengthen its digital platform and will be part of its Eros Digital subsidiary.

– Bharti Airtel and Eros Now entered into a partnership to offer the movie and video content from Eros Now and other partners on Airtel’s Wynk application.  Wynk users can access Bollywood movies from ErosNow, including new and old movies like Tanu Weds Manu Returns, Badlapur and NH 10 before they premiere on television.

– In June, Eros International Media’s video streaming platform Eros Now inked a content acquisition deal with Pakistan’s Hum TV. Under the deal, Eros Now would get Hum TV’s entire TV library including current TV shows. In addition, Indian subscribers get to view the content 48 hours prior to its telecast on any other platform.

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Official statement below (Oct 27):

Eros International Plc (NYSE: EROS) (“Eros”), a leading global company in the Indian film entertainment industry, today issued the following statement regarding the recent stock price volatility:

“Given the recent price volatility in our stock, we would like to confirm that nothing has materially changed to the strong business fundamentals of the Company communicated previously. We have significantly grown the business over the last decade and continue to be market leaders in the Indian film industry with a dominant market share of the global Indian box office. We distribute our films in over 50 different countries dubbed and subtitled in over 25 different languages. Our library of over 3,000 films continues to be a unique competitive advantage which we monetize in conjunction with our new release slate of 65-70 films comprising of Hindi and regional languages each year, across theatrical, television and digital and ancillary distribution platforms worldwide, which constitute our diversified revenue streams.

In addition, our game-changing OTT platform ErosNow, is progressing very well and we expect to launch a host of new product features, pricing plans and originals in the forthcoming quarters to build on that momentum. Our base of 30 million registered users that we announced as of September 30, 2015 are a combination of web, WAP and APP customers which we acquired organically as well as with synergies from our Techzone acquisition. In the next phase, our goal is to continue to try to increase our user base and also systematically convert a portion of them to premium paying subscribers over time within India and internationally.

The positive growth and momentum in our Q1 results continued into Q2 with a further string of hits under our belt. We will be announcing what we expect to be strong second quarter results in the first half of November (specific date to follow), which will allow us to demonstrate growth in revenues, profitability and cash flow from operations. As previously announced, we expect that the Company will be free cash flow positive by the end of fiscal 2016. Our balance sheet continues to remain strong with a net debt to EBITDA ratio of under 1.58 as of March 31, 2015.

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We would like to thank all our long term shareholders who have supported us over the last several years as well as through these last few days, and also new shareholders who have come in as investors with this opportunity. We remain focused on achieving our business goals and objectives to take advantage and build on our leadership position within the rapidly growing Indian media and entertainment sector and remain committed to creating and enhancing long-term shareholder value.”

Also read: Our two part interview with Eros chief operating officer Karan Bedi here and here.

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