CMP: Rs. 397.30; Buy at
current levels.
Short Term Target: Rs. 420.00; Medium to Long term Target: Rs. 445; STOP LOSS – Rs. 365.51; Market Cap: Rs. 1,893.94 Cr; 52 Week
High/Low: Rs. 420.00 / Rs. 191.15
Total Shares: 4,76,70,415 shares;
Promoters : 3,39,18,400 shares – 71.15 %; Total Public holding : 1,37,52,015 shares
– 28.85 %; Book Value: Rs. 105.37; Face
Value: Rs. 10.00; EPS: Rs. 18.43; Dividend: 10.00 % ; P/E: 21.55 times; Ind. P/E: 35.46;
EV/EBITDA: 13.58.
Total Debt: ZERO; Enterprise Value: Rs. 1,882.82 Cr.
ENTERTAINMENT NETWORK (INDIA) LIMITED: The Company
was incorporated in 1999 and is based in Mumbai, India. Entertainment Network
(India) Limited is a subsidiary of Times Infotainment Media Limited which is a
part of media giant Bennett Coleman & Co. Entertainment Network (India)
Limited operates FM radio broadcasting stations under the Radio Mirchi brand
name in India. Its Radio Broadcasting segment engages in airtime sales
activities. The company’s Events segment engages in activities relating to managing
events, and creating and marketing media properties. It operates a network of
32 radio stations in 14 states. ENIL came with
an IPO in January 2006 with 1,20,00,000 equity shares of face value of Rs. 10
each offered at Rs. 162 per share, the shares got listed on exchanges on 15
February 2006 at Rs. 242.00. The funds raised from the IPO was utilised to
participate in the bidding for FM channels in new cities and finance the
migration fee to shift to the new licensing regime. ENIL is locally compared
with BAG Films and Media, Network 18 Media, TV18 Broadcast Ltd, Reliance
Broadcast Network Ltd, Zee Media Corporation, Dish TV India limited, ZEE
Entertainment, TV Today network, New Delhi Tele Vision, Hinduja Ventures,
Broadcast Initiatives Ltd and Globally compared with AMC Networks Inc. of USA,
A.H. Belo Corp of USA, Cablevision Systems Co of USA, Clear Channel Outdoor
from New York, Comcast Corp of USA, Directv of New York, Dish network Corp of
USA, Discovery Communication of USA, Bloombury Publishing Plc of London,
British Sky Broadcasting Gro of London, Daily Mail & General Trust of
London, Borussia Dortmund Gmbh & CO of Germany, Kabel Deutschland Holding
AG of Germany, Sky Deutschland AG of Germany, Societe D’edition De Canal Plus
S.A of France, Lagardere Active broadcast from Monaco, Modern Times Group MTG
AB from Stockholm-Sweden, NextRadio TV SA from France, NRJ Group from Paris, Cairo
Communication Spa of Egypt, Telenet Group Holding Nv from Belgium, Wolters
Kluwer Nv from Netherlands, Times media Group Ltd from Johannesburg, Caxton And
Ctp publishers AN from Johannesburg, Naspers Ltd from South Africa.
Investment Rationale:
Entertainment
Network India Ltd is part of the media giant Bennett, Coleman & Co Ltd
group which has been publishing "The Times of India", "Economic
Times" and regional variants since 1838. ENIL operates in 32 circles in
India under the brand "Radio Mirchi" with "Mirchi sun ne wale
always khush" (Mirchi audience is always happy) as its tag line. The
"Tikhi Mirchi" (spicy/hot chilli) attracts about 4.1 Cr listeners
with its contemporary music offering. Indian Radio industry has grown from Rs. 600 Cr in 2006 to Rs. 1540 Cr in 2014, from 64 community radio stations in 2009 to 163 community radio stations in 2014 and have 245 FM channels in 85 cities since 2005, and proposed to have 839 channels in 294 cities. The KPMG FICCI Media & Entertainment 2013
report suggests that there can be a growth of 16.6 % CAGR in radio ad-spend
over 2012 - 2017. Radio is devoid of subscription revenues and depends upon ad-spends.
If radio advertising were to rise to half the global standards of 0.9 x GDP, then
ENIL and the industry will then have potential to grow about 4 times. TRAI regulations
restrict TV Ad times to 10 minutes of external ads. Some channels have already
implemented this with a resultant sharp rise in ad rates given lower inventory.
Hence, low budget advertisers have shifted to cheaper mediums on TV, print and
even radio. Radio is a key beneficiary if this is fully implemented. Election
advertising in the 4 recent state elections through Radio boosted revenues and
should contribute more to the revenues in view of the upcoming Central
elections in MAY 2014. As per the views of the management, the radio industry,
continued to lead print and TV in terms of the growth, Radio has shown a growth
of 12 % to 13 % in this quarter. ENIL had built in higher estimates for the
company on the bases of Political advertising, but this did not contribute
significantly to revenues. The company argued that the sharp monitoring of
electoral spends during the elections has contained the flows to the media
companies. It has also been seen that the radio industry is benefiting from the
price hikes being taken by television broadcasters and the confusion is being
created by the 12 minute TRAI ad cap for TV broadcasters coupled with the lack
of clarity on independent rating agencies. The management has guided at
stepping up investments in the coming quarters in a bid to strengthen its
employee base and also enhance its brand image to prepare for the post Phase
III auction scenario. This, however, could pressurise the company’s margins.
The company is already close to peak its utilisation levels and future growth
would accrue from price hikes. New capacity would be added only post the phase
III auction. The capacity problem is poised to get sorted out with emerging
clarity on Phase III auctions, which, as per the management, are expected
within next four months. Moreover, the management also talks about the Phase II
licenses expiring in April next year. Both auctions put together are likely to
reduce the cash balance available with the company. Also, the radio industry,
in general, would benefit from being a cheaper advertisement alternative in the
backdrop of a general economic slowdown.
Outlook and Valuation:
ENIL operates in the radio broadcasting segment, out-of-home
media segment and experiential marketing segment. The company has a strong
backing of the promoter group the Times group. ENIL operates under the brand
RADIO MIRCHI which is the No.1 radio brand in private FM space. ENIL has the
network across 14 states with 32 stations and has more than 4.1 Cr listeners
across all its stations. ENIL’s experiential marketing operations are under its
subsidiary Alternate Brand Solutions (India) Ltd and operate under the brand
360. ENIL manages its own event brands like Spell Bee, Gadget Awards, Design
Warz and Teen Diva. Radio industry draws major portion of its revenue from
advertisement industry. It is seen that there is positive correlation between
the economic growth rate and advertisement growth rate. As India is the second
fastest growing economy in the world, the ad spend is also bound to increase.
Radio is a cost effective medium to the advertiser and which works as a
complementary medium towards Television and print media. Radio has low cost of
content and its prime time differs totally from television and so has its own
dedicated audience. ENIL has proven its ability to operate in different market
and has established Radio Mirchi as a strong brand in the industry to reckon
with. ENIL has a very capable and highly qualified sales and marketing team and
it invests in high quality technology sourced mainly from USA & Canada. ENIL
reported 13 % growth in revenues. Growth in advertising continued to be led by
higher inventory utilization of 89 % on a blended basis in the quarter, but the
company was also able to improve its yields, which contributed about 4 % to the
growth. Cost were well contained in the quarter with modest de-growth in marketing
spends. ENIL reported robust 27 % growth in EBITDA. Recently, the Bharatiya Janata Party (BJP) has launched three radio ads mainly in the North Indian markets. These ads uses the tagline "Chalo halat badle, Chalo Saarkar badle, Abki baar Modi Saarkar", are plain narratives on women safety, unemployment and inflation. The party has not launched these ads in Madhya Pradesh and Gujarat. It intends to launch separate compaigns for the states. As, ENIL holds good market share, it is expected that ENIL will attract more of political ads for the forth coming general election. The company expects that
political advertising shall contribute more in the coming quarters, as a lot of
advertising shall happen well before elections. The company expects the radio
industry to benefit to the extent of around Rs. 50 Cr on account of political
advertising. Political advertising shall also generate a higher yield for the
network as a whole, thus having a positive impact on pricing. It is likely that
these benefits shall come in 1QFY15. The company reported a cash balance of Rs. 395 Cr. As such, ENIL
is among the few radio companies that have a strong balance sheet going into
the auction process. The company maintained that it is unlikely that the
auctions shall draw unrealistic valuations for the frequencies, since the 'winner's
curse' is now well recognized in the FM radio industry. For
ENIL, there was a blended capacity utilisation of 89 % this quarter while
utilisation has already peaked in its top eight stations. Hence, growth will be
mostly price led. This has been factored in as 14.6 % and 13.5 % revenue growth
for FY14E and FY15E, respectively. At
the current market price of Rs. 397.30, the stock is trading at a PE of 22.19 x
FY14E and 21.71 x FY15E respectively. The company can post Earnings per share
(EPS) of Rs. 17.90 in FY14E and Rs. 18.30 in FY15E. One can buy ENIL with a
target price of Rs. 445.00 for Medium to Long term investment and for the SHORT
TERM PLAYERS it should be Rs. 420.00
| KEY FINANCIALS | FY12 | FY13 | FY14E | FY15E |
|---|
| SALES (₹ Crs) | 311.00 | 339.60 | 383.90 | 435.10 |
| NET PROFIT (₹ Cr) | 56.10 | 68.30 | 85.20 | 87.00 |
| EPS (₹) | 11.80 | 14.30 | 17.90 | 18.30 |
| PE (x) | 29.80 | 24.50 | 19.60 | 19.20 |
| P/BV (x) | 4.20 | 3.60 | 3.10 | 2.80 |
| EV/EBITDA (x) | 16.00 | 14.40 | 11.10 | 9.50 |
| ROE (%) | 12.80 | 13.60 | 14.60 | 13.10 |
| ROCE (%) | 15.30 | 14.50 | 16.40 | 15.60 |
I would buy ENTERTAINMENT NETWORK INDIA LTD for Medium to Long term for target of Rs. 445 and for the shorter term the target would br Rs. 420.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 365.51 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
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