Eros says solid backing by Temasek to counter short sellers

Eros International Plc said backing by its two largest investors Capital Group Cos and Temasek Holdings Pte will help the Bollywood film producer counter short sellers who have pummeled its New York traded stock.

The shares tumbled 79 per cent from its August 19 record of $37.60 through Tuesday, making it the worst performer on the Bloomberg World Entertainment Index, after anonymous Twitter users and a blogger called Alpha Exposure cast doubt on the company's financials, the number of subscribers at its Eros Now digital service and its revenue derived from the United Arab Emirates. US-based short seller Glaucus Research Group's Director Soren Aandahl on November 5 said the company's shares are worth $0.

"We have rock solid shareholders, such as Capital and Temasek, who are standing by us like pillars and giving us good advice," Eros Chief Executive Officer Jyoti Deshpande said in an interview in her office in Mumbai on Wednesday. "They said just put your head down and get to work."

Shares at the company's Indian unit jumped a second day after Eros reported profit that beat analysts estimate. The producer of "Bajrangi Bhaijaan," featuring Salman Khan in the lead role, is focusing on expanding its Eros Now service, said Chairman Kishore Lulla. The digital platform has 30 million registered users and the company will be "happy" if it can convert as many as 10 per cent into paying subscribers, he said.

Anonymous blogger
"Eros's performance in the second quarter seems quite in contrast to the allegations and the company seems to have managed to convince the people on most of the parameters," said Jigar Shah, an analyst at Mumbai-based Kim Eng Securities Pvt Kim Eng recommends buying shares of Eros' Indian unit.

Eros International Media advanced five per cent to Rs 224.15 in Mumbai on Thursday. The company's US-based parent reported revenue of $98.8 million compared with an estimate of $91.4 million. In New York, its shares jumped 9.1 per cent on Wednesday, the biggest gain in more than two weeks.

An anonymous Twitter user called Market Farce in October challenged the company's Eros Now customer data. On October 30 alone, the shares dropped 13 per cent -the day Citron Research, the short-selling firm that's accused drugmaker Valeant Pharmaceuticals International Inc of fraudulent practices, said on Twitter that it was "beaten to the punch" on Eros. The company said a "bulk" of Eros Now's 30 million users are based in India. Lulla declined to disclose details of subscribers but said he was "surprised" by the latest number of paying users. App Annie, which measures the usage of mobile applications, reports that Eros Now has about 10 million users, according to Lulla. He said the discrepancy arises because App Annie doesn't account for users accessing the Eros Now website though computers and mobile devices.

Stake sale
"We are expecting significant contribution to revenue from Eros Now in financial year 2018," CEO Deshpande said.

Eros was in advanced talks in July to sell a 10 per cent stake in Eros Now to Singapore-based Fullerton Fund Management Co that would value the unit at $800 million, people with knowledge of the matter said then. Lulla declined to comment on the stake sale.

"The stake sale in Eros Now will be a very positive news for the company as it will boost the cash flow and bring in external investor credibility," Kim Eng's Shah said.

While the allegations have prompted some investors to sell their stakes, they haven't stopped others such as Tiger Global Management LLC from investing in Eros. Tiger owned $32.6 million of Eros' shares, according to a filing with the US Securities and Exchange Commission on November 16.