Expansion to lead to 20% radio biz growth by FY18: ENIL

The benefits of ENIL's expansion into four more cities (Guwahati, Kochi, Bangalore and Hyderabad) are unlikely to bear fruit before fiscal year 2018, says the company's MD and CEO Prashant Panday.In an interview with CNBC-TV18, he said the company's topline and EBITDA grew 16 and 10 percent respectively in the fourth quarter.This rise is sustainable, because the demand for radio ads has risen, he said. "The government sector is the heaviest advertiser on radio, it mainly uses the medium to raise awareness of its programs and initiatives."ENIL owns the popular Radio Mirchi brand.Below is the transcript of Prashant Panday’s interview with Nigel D’souza and Latha Venkatesh on CNBC-TV18.Nigel: Let us get to your numbers then. Let us get in a few details then. Could you help us out with what exactly was your ad growth rate, also what was your volume growth rate for the last quarter? Could you also give us some forward looking statements as well?A: It was a great quarter and more importantly, if you look at the full year’s performance, because that is much more reliable, because it has been a great year for all radio companies, if you have noticed the results. And it was no different for ENIL. We grew at 16 percent topline growth and our earnings before interest, taxes, depreciation and amortisation (EBITDA) growth was about 10 percent. But the underlying EBITDA growth which is taking out all the one-offs that happened, was 17 percent. So, it has been a very good quarter and one of the reasons why the media companies are doing very well is that the government spending is really up. And I think the government is making a special effort to communicate its programmes and its success and all those things and that is really helping in pushing up media revenue growth. And then of course, other sectors, FMCG has been doing well on radio, e-commerce did well for all, but the last quarter and that was just a minor correction because of the new foreign domestic investment (FDI) rules and all of those things. But durables are doing well, auto is doing very well. So, yes.Nigel: All those points are taken, but I just wanted a couple of particular numbers. What exactly was the ad rate growth, I did not get that number and also, what was the volume growth?A: The bulk of the growth, almost 60 percent for the year has come from a price increase. A relatively smaller percentage has come from volume increase. In the fourth quarter of course, which is a busy quarter, even more has come from a price increase. I would say three quarters has come from a price increase. Latha: Can you give us an idea of what the increase has been and whether you can sustain them?A: The price increase for the year has been of the order of about 9-10 percent, 8.8 or 9 percent if I remember right. And is it sustainable? It is sustainable because all radio stations are running on full volume, so there is no scope to grow on volumes. And the demand that we are seeing in the radio industry is very strong and therefore, the two factors combined, tells you that the price increase will sustain.Latha: You spoke about the government being the bulk advertiser. I the government were not advertising, I am using you as a proxy for the economy, since we began this chat, during the break with discussions on the economy itself. If you were to use your ad rates and ad demand as a proxy for the economy, how does it look?A: The government is a very key sector, there is no doubt about it and I think it has become one of the top three sectors on the radio side of the business. But remember, there are other sectors also, and the beauty about radio is that it is very diversified portfolio of clients. So e-commerce was a big driver for the last couple of years and in this quarter also, we are seeing a revival of e-commerce. So, e-commerce is not going anywhere. Telecom is expected to do very well in the four quarters coming up. Durables will continue to do well. They are already doing well and auto. These are all sectors which will continue to do well. So, while it is good that the government is spending so much, it is not that we are dependent on anyone sector.Latha: So, then your expansion should be going on smoothly. You have at Guwahati, Kochi, Bengaluru and Hyderabad, right?A: Yes.Latha: Are they breaking even?A: Let me tell you about Bengaluru and Hyderabad. These are our second frequencies. So, we have already had the first frequency over there for the last decade or so. This is the first set of stations where we have a second frequency and it is an interesting thing we are doing there. In both the cities, we have launched a Hindi product and you would be surprised how much enthusiasm there is in the market. We have been totally surprised. We expected that in Hyderabad, but in Bengaluru, it is amazing, the kind of response we have got. Have they broken even? No, because this is the investment phase and they will take 6-8 quarters to breakeven. As a bouquet, all the phase-III stations will take 6-8 quarters to breakeven and we do not want to breakeven earlier than that, because as I told you, bulk of the money goes in marketing.Nigel: What about launch expenditure? How much is it to launch it from one particular city?A : There is a Capex involved and for us the Capex is low, because we are setting off in most of these cities from existing premises. So, the Capex could be of the order of Rs 2-3 crore. But if it was a Greenfield project and if you were launching in a city Bengaluru or Hyderabad, with your first frequency, that number would be about Rs 5-6 crore. So, the range for new Capex is between Rs 2-6 crore, depending on how big or small the city is. In cities like Guwahati for instance or Chandigarh which is just coming up, it may be in the region of just Rs 3-4 crore. So, it is not very Capex heavy.Latha: And you said Rs 6-8 quarters is when these new stations will breakeven. So, what would you think of in terms of revenue growth for FY17? But more importantly, FY18 where you would be firing on all of them?A: FY17 is going to be largely base business, which is the old station which we had and then a few months of all the new stations that we launch. Base business should continue to grow at 12-14 percent. There is nothing which tells us that, if anything it should only pick up by a percentage or two more if the economy also does better. And then add the new stations in. So, FY17 will see part of that effect, but FY18, the question that you asked and onwards, we should see in radio business growth of 20 percent.Nigel: You were talking about your margins and you are sounding quite confident on that as well. Just looking at your marketing expenditure for the last year, it was up by more than 30 percent. So, going ahead, how confident are you of holding onto these margins? Also give us some guidance. Can we see another year when we see marketing expenditure balloon up by 30 percent.A: Yes, I have been saying this for the last couple of years. Marketing is a strategic investment that we make. We do not look at it as an expense that has to be accounted for a few quarters or whatever. It is building the brand and building the business over a long period of time. Given phase-III expansion and the fact that we are launching our second frequency network, the marketing expense will stay heavy for the next couple of years at least. But thereafter, it should taper off and that is when the margins should again expand back to the higher numbers.Latha: By then you will have second frequencies in more cities, I would assume.A: Precisely. We will probably be the only radio network which has the equivalent of a second television general entertainment channel (GEC). So, all GECs have a main channel and then they have a second GEC. Maybe in the radio space, we will be the ones doing that.