ENTERTAINMENT NETWORK INDIA LTD : ADD SOME SPICE TO YOUR PORTFOLIO !!!

Scrip Code: 532700 / ENIL

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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BERGER PAINTS INDIA LTD : SLOWLY BUT PERFORMING STEADILY !!!

Scrip Code: 509480 / BERGEPAINT

CMP:  Rs. 212.00; Buy at current levels.

Short Term Target: Rs. 222.60; Medium to Long Term Target: Rs. 233; STOP LOSS – Rs. 195.04; Market Cap: Rs. 7,341.34 Cr; 52 Week High/Low: Rs. 256.40 / Rs. 185.00.

Total Shares: 34,64,81,317 shares; Promoters : 25,97,17,461 shares –74.96 %; Total Public holding : 8,67,63,856 shares – 25.04 %; Book Value: Rs. 28.41; Face Value: Rs. 2.00; EPS: Rs. 6.56; Divd: 90.00 %; P/E: 32.24 times; Ind. P/E: 34.78; EV/EBITDA: 17.17.

Total Debt: 303.02 Cr; Enterprise Value: Rs. 7,668.45 Cr.

BERGER PAINTS INDIA LTD: The Company was founded in 1760 but started its business in Kolkata, India in the year 1923. Berger Paints India Limited was established by Lewis Berger – who laid the foundations of the brand Berger way back in 1760 in the UK, with modest beginnings in India in 1923, the company has undergone many change of hands – In the year 1947, it was acquired by British Paints (Holdings) UK, which renamed the company as British Paints (India). This UK Company was then acquired by Celanese Corporation, which later sold the Indian company to Berger, Jenson Nicholson Ltd in 1969. In 1983, the company was renamed as Berger Paints India and it started using the trade name of Berger. Presently, the majority stake is with the Delhi based Dhingra brothers. Berger Paints engages in the manufacture and sale of various decorative and industrial paints in India and internationally. The company’s products include interior emulsions, designer finishes, distempers, exterior emulsion, primer, texture finishes, enamels, cement mix, crack fill paste. The company also offers general industrial and automotive coatings, such as pre-treatment chemicals, water base primers, polyester topcoats, polyester-metallic/pearl basecoats, thermosetting acrylic basecoats, thermosetting acrylic clear coats, alkyd-amino topcoats, poly-urethane paints, quick drying paints, polyester surfacers, epoxy surfacers, alkyd amino HLPS, and heat resisting paints and powder and protective coatings. It serves home owners, professionals, and industrial users through a network of dealers. It has a wide variety of product portfolio including interior and exterior wall coatings as well as metal and wood paints. It has strong and well established brands like Berger Silk, Berger Rangoli, Berger Illusions, Berger Weather Coat, Jadoo Enamel, etc. It also provides color consultancy services. Berger Paints has six subsidiaries and two JVs located across geographies including Cyprus, Russia, Poland and Nepal. Berger Paints subsidiary includes Beepee Coatings Private Limited, Berger Jenson & Nicholson (Nepal) Pvt Ltd, Berger Paints (Cyprus) Ltd, and Berger Paints Overseas ltd. The company is compared with Asian Paints Ltd, Kansai Nerolac Paints Limited, Akzo Nobel India Limited, Jenson and Nicholson India Ltd, Clariant Chemicals Ltd, Shalimar Paints ltd, Jyoti Resins and Adhesive Ltd and globally comapared with PPG Industries of USA, Advanced Emissions Solutions of USA, Sersol Bhd of Malaysia, Mercury industries Berhad of Malaysia, Sersol Bhd form Malaysia, Industrial Asphalts (Ceylon) Ltd from Sri Lanka, Petroasian Energy Holdings Ltd of Hong Kong, Landing Internatioanl Development ltd of Hong Kong, Toyo Drilube Company ltd of Japan, Atomix Co., Ltd of Japan, Ubis (Asia) public Co., Ltd of Thailand, Eason Paint Public Company Ltd of Thailand, Dimet (Siam) Public Comapny Ltd of Thailand, Isamu Paint Co Ltd of Japan, Tatung Fine Chemicals Co Ltd of Taiwan, Basil Read Holding ltd of South Africa, Raubex Group Ltd of South Africa, Delta Holding SA from Morocco, Dai Nippon Toryo Company Ltd, of Japan, Noroo Holdings Company Limited, Fujikura Kasei Co Ltd of Japan.

Investment Rationale:

Berger Paints India Limited is the second largest paint company in the country with a consistent track record of being one of the fastest growing paint companies, quarter on quarter, for the past few years. This FMCG company has one of the largest networks consisting of 16,500 plus distribution channel members served through 135 stock points & 10 production units. It has 4 distinct business verticals namely Decorative coatings, Protective coating, Automotive coatings, Industrial and Powder coatings with about 10,000 + products. It has business ventures or technology transfer tie ups with various renowned paint companies in the world like Nippon Bee of Japan and Becker Acroma spa of Italy. Berger Paints India Ltd’s product has attained instant recognition worldwide and continues to meet quality requirements that are demanded today in domestic markets. To meet the surging demand of its brands, the company is undertaking huge expansion projects across various locations in India. The company is confident that this new plant is strategically located and is well connected to Bangalore, Hyderabad, Chennai, Kochi and Mumbai and this will be able to fully meet the increasing demand for water based coatings in commercially important regions of India. Berger paints has inaugurated its largest water based paint manufacturing unit in Hindupur, Anantapur district, AP. The factory has an initial capacity of 80,000 tonnes per annum. It is in its final phase, the factory will have a capacity of 3,20,000 tonnes per annum. Additionally there will be a plant for the manufacturing of 1,00,000 KL of emulsion, a key material, for which a provision is already made. Berger India Group is opening a plastic packaging factory on the other side of the road. Also another Berger factory is coming up in the Gollapuram industrial area near to Hindupur, for manufacturing of 40,000 tonnes of paint. Total investment in the Hindupur area by the Berger India Group will be close to Rs. 550.00 Cr. On financial side, Berger Paints India registered good Q3FY14 consolidated sales showing a growth of 11.74 % to Rs. 1,024.80 Cr. The growth in revenue was on the back of healthy performance by the subsidiaries. Berger's PAT was at Rs. 82.30 Cr declined by 0.36 % YoY and by 0.20 %s at Rs. 194.10 Cr for the 9MFY14. Berger domestic revenue grew by 7.4 % to Rs. 882.80 Cr YoY. The lower revenue growth was on the back of sluggish demand in industrial paints; especially project based protective coatings segment and relatively higher base in the decorative paints. In decorative business, growth was from economic and premium end products. Demand for Berger products in Tier II & III remained healthy, which has resulted in company sustaining its market share in decorative business of about 19 %. EBIDTA margin were at Rs. 131.50 Cr and for the 9MFY14 were at Rs. 325.40 Cr. The EBIDTA margin were lower due to high employee cost and other expenditure. Employee cost increased by 23.08 % to Rs. 57.80 Cr YoY and other expenditure increased by 13.63 % to Rs. 217.40 Cr YoY on the back of commencement of commercial production of Hindupur plant. The increase in the finished products prices did not contributed much to the EBIDTA margin as the increase in the prices was offset by rise in the input prices. Berger’s combined subsidiaries registered sales growth of 50 % in Q3FY14 to Rs. 147 Cr on the back of strong growth in Nepal and India JV operations (Berger Becker Coating-BNB Chemicals). Major contributor Bolix (Poland) witnessed increased in sales due to season and currency gains. Combined subsidiaries EBIDTA margin expanded by 0.31 % to Rs. 25.2 Cr while its PAT margin declined marginally by 0.34 % to Rs. 16.6 Cr. Berger has taken price hike of 2.2 % in the decorative segment in February 2014 and the company feels that it has gained market share marginally in decorative segment during 9MFY14.

Outlook and Valuation:

Berger Paints India Ltd is amongst Top 30 in the world and India's one of the largest paint company with its premium brands viz., Breathe Easy, Silk and Weather coat Allguard which continued to perform well in all the markets. Berger paints India ltd has its global footprints across the continents. It is also amongst the top 6th paint company in Asia. Berger Paints India Limited has it’s headquarter in Kolkata, with 7 strategically located manufacturing units, and over 85 sales offices, the company also has an international presence in 4 countries. Berger is the lone supplier to nuclear power plants with its protective coatings in industries. And also supplies its products to professionals and Home owners. Company is expected to post a CAGR of 12 % in its top-line and 13 % in its bottom-line. Paint industry, as a whole, continued to do better, in spite of the adverse developments, and has shown growth at a higher rate than GDP. The growth is fuelled by higher income levels of people across urban and rural segments, historically, low consumption of paints offers a very high potential for the future, and with growing popularity of branded paints with better quality and longer durability and the desire of people to remodel and embellish existing dwelling units or thier homes makes paint indusrty more attractive for investments. The industry has given a fillip to this demand by expanding its distribution network penetrating newer and hitherto unexplored geographies, offering a wide degree of choice in terms of attributes and prices and educating consumers and applicators in regards to benefits of various brands and uses of paint. The industry estimates that there could be the Total revenues of around Rs. 26,000 Cr for Indian companies, and may touch around Rs. 50,000 crores by FY 2016. Over the last three years, paint prices have increased by about 30 % - to partially compensate for increase in raw material prices. However, there has been no significant increase in architectural paint prices since the third quarter of the fiscal year is under review and, on the contrary, there has been a marginal decrease. There has been some softening in prices of titanium dioxide and some other chemicals and crude prices. However, the overall raw material index for the period was higher than that of 2011-12. The ratio of decorative and industrial paints is 70:30 which is expected to continue in the future in view. The higher rate of growth in decorative paints augurs well for the industry. The year witnessed some weakening of enthusiasm in industrial paints market with marked fall in automotive sales, lower spending in infrastructure and general slowdown in the industry. Company believes that this weakening is not a permanent phenomenon and is ready to accept challenges of higher demand and better quality requirements in this segment, as and when they arise. The growth in the decorative paint is fuelled by rising paint consumption in Tier II&III towns and company strong focus to grow its premium portfolio in recent years. However sluggish demand in the industrial segment affects the overall revenue of decorative business. The Q4FY14 is expected to be better on the back of good monsoon and demand from tier II & III cities. It is expected that industry paint segment will revive on the back of improvement in macro environment. At the current market price of Rs. 212.00, the stock is trading at a PE of 31.26 x FY14E and 28.53 x FY15E respectively. The company can post Earnings per share (EPS) of Rs. 6.78 in FY14E and Rs. 7.43 in FY15E. One can buy BERGER PAINTS (INDIA) LTD with a target price of Rs. 233.00 for Medium to Long term investment and for the SHORT TERM PLAYERS it should be Rs. 222.60

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	2,662.10	3024.21	3,379.15	3,717.06
NET PROFIT (₹ Cr)	177.40	209.80	235.05	257.61
EPS (₹)	5.13	6.06	6.78	7.43
PE (x)	28.09	34.91	31.18	28.45
P/BV (x)	5.90	7.44	6.01	4.96
EV/EBITDA (x)	16.17	19.95	17.62	15.88
ROE (%)	21.00	21.31	19.27	17.44
ROCE (%)	34.09	32.11	28.44	26.05

I would buy BERGER PAINTS (INDIA) LTD for Medium to Long term for target of Rs. 233.00 and for the shorter term the target would br Rs. 222.60. 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 ₹ 195.05 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold BERGER PAINTS in my investment portfolio.

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