Dolat Capital is bullish on Entertainment Network has recommended buy rating on the stock with a target price of Rs 810 in its research report dated November 02, 2017.
Dolat Capital's research report on Entertainment Network
Revenue during the quarter declined 3% YoY to ` 1,257mn (DCMe: ` 1,322mn) on back of decline in advertisement spend by all advertisers post implementation of GST till August 2017. EBITDA margin improved 474bps YoY to 22.6% (DCMe: 20.8%) on back of lower marketing cost and better profitability in non-radio business. PAT during the quarter declined 24.3% to ` 61mn (DCMe: ` 96mn) on back of higher tax rate (55%). Current tax includes ` 27.81mn pertaining to earlier years, excluding the same PAT grew 10.3% YoY to ` 89mn below our estimate. Non-radio revenue declined 12.7% YoY and its the contribution fell to 27% (vs 30% in Q2FY17), while Radio business improved 1% YoY supported by new stations. Excluding new stations, Radio business too declined 7.5% YoY as inventory fell 16% YoY and pricing grew 8.5%YoY Utilisation in the top 8 stations declined 1400bps YoY to 101% and in balance 24 stations it declined 1100bps to 80%. Lower ad. spends in Govt. vertical, weakness in the real estate segment due to RERA and uncertainty on GST impacted ad. spends which led to lower utilisation rates coupled with management’s strategy to pull back inventory to attract a premium price vs industry/peers. Post RERA registration, real estate business volume increased 60% in volume for Mumbai but still some cities like Jaipur (80% volume decline) are yet to be recovered. ENIL has a pricing advantage in in all new stations which currently have an Ad. cap of 10 mins; excluding two new stations (Kozhikode and Jammu) launched during the quarter capacity utilization for all the new stations has breached 26%. New stations are operating at an EBITDA loss (` 18mn in Q2FY18) which the company expects to break-even in by Q4FY18. ENIL has decided to cut down inventory to 14 mins in off-season and 18 mins during festive season which continues to impact near term revenue growth rate.
ENIL is trading at premium valuations of 21.7x/16.3x based on FY19/FY20 EV/EBITDA which is a 50%/35% premium versus MBL. We pare our FY19/FY20 EBITDA estimates by 15%/13% factoring a weak H2FY18 as mgmt. continues to focus on lower inventory and premium pricing; management also indicated of a relatively weaker festive season which may impact growth. We expect EBITDA margin to be subdued in the near term given its weak performance in H1FY18 and as company’s new strategy (inventory cut) continues to exert pressure on the former. We downgrade ENIL to REDUCE with a revised Sep’18 TP of ` 810.
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