Bollywood – India’s $10 billion (£4.8 billion) film industry – is growing fast. Indian cinemas sold nearly four billion tickets last year. The number of multiplex screens is expected to double to more than 3,000 in the next two years. And it is not only cinema audiences that are growing strongly in India; the home entertainment sector is too. Revenues in this market have doubled in a year and the number of pay-TV households is expected to double by 2011. Meanwhile, demand for Bollywood productions around the rest of the globe has never been stronger.

One company riding this growth wave is Eros International, an integrated entertainment and media business that spans production and commissioning of films with worldwide distribution. If you have rented an Indian DVD in Britain, there is a good chance Eros had a hand in it. The business has been going for 30 years and is now playing a lead role in consolidating the fragmented market in India.

Last week it produced interim figures for the six months to the end of September. Reporting in US dollars, Eros said turnover had jumped 59 per cent (to $34.6 million) and profit by 76 per cent to $13.6 million pre-tax. Earnings were up from 7.4 cents a share to 11.5 and cash flow had risen by nearly 40 per cent to $15.4 million. If the progress is maintained in the second half of the year, Eros will produce earnings of around 55 cents – or about 26p a share. That would leave the shares, which have come back from a year’s high of close to 600p to 400p, selling for just over 15 times earnings. For such a growth stock, that is cheap.

Eros, with a market cap of more than £450 million, is by no means a small company. It has seen its share of the Indian film market rise from 32 per cent between 1998 and 2007 to 47 per cent in the first ten months of this year. In the six-month period, Eros released 11 films, eight of them globally. There is a lot happening in TV syndication, not only in India but also across South East Asia, and the company has struck new distribution deals in Europe, too. In the new media area, Eros concluded new deals with Sky Anytime, Joost, NME, Vudu, Mauritius Telecom and Singnet during the period.

One indicator of Eros’s potential is the fact that in September, at the height of the international credit crunch, it got Citigroup Global Markets to underwrite a $100 million, five-year acquisition financing facility. That looks a major vote of confidence. After the pullback in the shares, investors have another chance to climb aboard what is a global entertainment force in the making. We think Eros is one to pick up and lock away.

Eros International	AIM	£193.09m	167.50p	0.00p
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