Eros Says Temporary Cash-Flow Issue Led To Default, Dues Paid
Eros International Media Ltd. said CARE Ratings’ downgrade to default was because of a temporary cash-flow mismatch and the moviemaker has paid its obligations.
“We will take it up with CARE now so that we can get our ratings reinstated in the coming weeks,” Kishore Lulla, chairman of its parent Eros International Plc, told BloombergQuint in an interview. “Eros International has honoured its due payments.”
CARE Ratings downgraded the Indian arm’s long- and short-term bank facilities to default rating on June 6 after the company failed to repay debt on time. These payments, according to a note by research firm Macquarie, were close to $2 million.
The stock fell over 20 percent on Thursday, plunging from its life-time high. It has continued to hit the lower circuit limit over the last three trading sessions, falling nearly 39 percent since the downgrade.
The New York-listed parent today announced a share repurchase programme of up to $20 million, citing undervaluation in the public markets. Lulla said the parent company is buying shares to support the Indian arm. “We have bought shares for Eros India if you see in the last filing, up to 2 percent of the company.”
Eros International had cash and cash equivalents worth Rs 141 crore at the time of default, according to its disclosures. Then why didn’t the company make the required payment on time? Lulla said the money was tied up with the subsidiaries.
“The cash has been sitting on the subsidiaries and if you bring in that cash from the subsidiaries, there are dividend taxes involved and that's the reason we didn't have those,” he said. “As for the cash flow from operations, the company saw some slowdown but things are now picking up.”
Lulla reassured that the company’s financial health was intact and that it had enough receivables and a strong cash flow ahead to pay any dues. “If you look at the company, we have reduced our debt in the last one year of Rs 100 crore and no debt maturity is in this year except some term loan instalments of about Rs 50 crore,” he said. “We can easily sustain from the cash flow of the company.”
The Indian arm is expected to bring down its receivables’ cycle to 200-220 days this year from 250-360 days, Lulla said, adding that the company also expects to monetise content advances—films and digital content being made—worth around Rs 1,600 crore in the next 18 months.
The group’s content platform Eros Now had 18.8 million paid subscribers and 154.7 million registered users as of March 2019, the company said in its exchange filing on Monday. This represents a 138 percent increase in paid subscribers over the past 12 months and an 18 percent increase over the prior quarter, it said.
For the next three years, the group’s capex plan is about $750 million and the cash flow plan is about $900 million, Lulla said. “Two year ago, the Ebitda of the company was $54 million. Now it has nearly doubled,” he said. “We are in that great situation whereby we can cut back on capex and decide depending on cash flow and growth of the company. Plus, we don't have that much leverage.”
On Allegations Of Irregular Transactions
Short-seller Hindenburg Research in a June 7 note alleged Eros of “highly irregular” transactions with firms in which founders or their relatives held stakes. Lulla denied these allegations, saying that the company has been making the appropriate disclosures.
"We had a class action lawsuit in 2016-17 in New York with these allegations...We won the case in the appeal case also with prejudice where the judge was annoyed saying why are you bringing in these fictitious cases against Eros," he told BloombergQuint.