When it comes to selecting an investment proposition between Inox Leisure and Eros International, the decision is not as straightforward as the financial figures may seem to indicate. Both companies belong to the broader Media & Entertainment sector. However, Inox is primarily an Exhibitor model whereas Eros has a Production & Distribution model. Generally, in the Indian film industry, exhibitors enjoy substantial revenus sharing in films and at the same time they bear low risks as compared to Distributors. So from a long term risk prospective, Inox would be preferable in terms of risk-bearing.
However, fundamentally, Eros is far ahead of Inox. If we consider the las 5 financial years, the operating margins are constantly on the decline. More importantly, the Net Profit Margins (NPM) of Inox has drastically declined to merely 2 % in the last 2 years as compared to NPM of more than 10 % in the previous 3 years. This reduction in NPM is on account of the increase in debt which has consistently gone up from Rs 43 Crores to Rs 208 Crores as on March 31st, 2012.
Conclusively, Eros is a better investment proposition than Inox, at least for the next 12 months.
Considering the projected earnings for F.Y. 13, Shree Ashtavinayak is definitely cheaper when compared with Eros International Ltd.
However, there always exists a trade-off between risk and reward. While Eros has, on an average, 5 odd films in the pipeline during a financial year, Ashtavinayak has merely 2 films for the current financial year (excluding Dabangg 2 for which there is no absolute clarity about the association of this company).
Also, while promoters of Eros have a controlling stake of 77.80 % in the company (as per June 2012 SHP pattern), the promoters of Ashtavinayak have a poultry 1.66 % stake. Not to mention that speculation and manipulation of market price leans more towards Ashtavinayak. Besides there are pending litigation cases against the company. Not to forget the pending redemption of FCCBs in December, 2012.
Considering the above factors, even though Ashtavinayak and Eros belong to the same business sector, in this rare case, comparing the market price based on P/E Multiples would not be appropriate at all.