See better results in Q3; stress on margins to remain: ENIL

Entertainment Network India Ltd (ENIL), which operates FM radio stations under the Radio Mirchi brand, reported a 26.5 percent rise in September quarter net profit of Rs 10.5 crore for the quarter ended September.

Its net profit in the corresponding period a year ago stood at Rs 8.32 crore.  During the quarter, its total income from operations rose 10 percent to Rs 77 crore from Rs 70 crore a year ago. Executive director and chief executive officer Prashant Panday is pleased with the performance of the company. In an interview to CNBC-TV18, he said highlighted that the radio industry has performed well and its radio station Mirchi has seen 11.5 percent growth. Given the lift in client sentiment, ad revenues are likely to pick up in the third quarter. "Diwali has gone off quite well and November is looking strong. So, Q3 is certainly looking more buoyant than Q2 was," he added. However, the pressure on company's margins would prevail going ahead. Below is the transcript of his interview with CNBC-TV18. Q: Can you take us through what the performance may look like going ahead? hat the pressure pockets were this quarter? A: Not at all. There are lots of seasonalities in the media industry. Hence the only way to look at media results is on a year-on-year (YoY) basis. I am very happy that the company has reported 11.5 percent growth in revenues. This in a very tough Q2 should be considered as a strong performance. Most newspaper companies have reported very mute performances, television is in a bad shape and the outdoor industries are in the negative as well. But, radio has done very well as an industry. In that, Mirchi has done very well as a company at 11.5 percent growth. We have also reported a 14 percent in PAT on a year-on-year basis and the overall the results are pretty good. Q: Give us more perspective with regards to the advertising revenues this time around. What were utilization rates with regards to advertising? What were the overall rates which you are working with clients this quarter? A: Traditionally, Q2 tends to be the weakest quarter of the year for media companies. So, there is inventory available to sell if you can. As a result of which we have seen a strong volume growth. We had strategies in place to deploy more inventories in the market. Our volume has seen about 18 percent growth in the inventory utilization. So, that has been one of the ways by which we have grown our revenues. The good thing is that we have managed to make sure that the price does not come down. The pricing has been flat over a year ago. That is largely because we have developed a new business model. In this model we provide solutions to clients rather than just trying to sell them advertising time. While core advertising time may remain under pricing pressure. When one sells innovation one is able to hold the price and that is what we have seen. Q: You have done about 11.5 percent YoY growth in your ad revenues this quarter. Do you see the environment conducive as we go ahead? Or do you think this lackluster environment that we have seen for the past many months will continue? A: Sometime back, we were very worried about the Diwali season. Specially because Diwali was so delayed and what impact that would have. But, Diwali has gone off quite well and November is looking strong. So, Q3 is certainly looking more buoyant than Q2 was. I guess the sentiment is lifting. We are talking to clients and most clients are telling us that they are looking at spending more on advertising. So, Q3 certainly should be better. I cannot say about Q4 at this point in time though, but generally the sentiment is lifting. _PAGEBREAK_ Q: What would your margin guidance then be for the remaining part of the fiscal? Any sort of consolidation in terms of expenditure that we can expect? A: There will be some pressure on margins, primarily because clients are demanding a lot more.  To fulfill those requirements, one will either have to drop pricing, which we do not like to do or invest on behalf of the clients so that one can protect pricing and share of the wallet that the client gives. So, certainly margins will be a little bit under pressure. It might be a couple of points off from the highs that we saw last year. But, as soon as the sentiment improves, margin should be back. There is nothing structurally wrong with the margin. Q: As and when phase III comes on board, how do you see the dynamics of the industry change, specifically with respect to companies like your own? A: Phase III should be a game changer. Finally after like six years, there will be some creation of new stations in the market. In the last six years many new television channels and new newspaper additions have come, but radio is stagnated. There has been nothing added to inventory since 2006. So, phase III should be a game changer. Q: How would you substantiate that with guidance on your topline? What kind of a sustainable run-rate do you see on your topline? Where do you think you will close FY13 at? A: I cannot give you specific guidance about the near-term. Once phase III comes in the next three-four years, the radio industry should see a 25 percent CAGR on a YoY basis for the next four-five years. That certainly should be the case. Q: When is phase II expected in terms of auctions? A: It is an uncertain question, but what I am told is that there is one more EGoM sitting. There was a meeting yesterday and radio could not be discussed. I am told that the EGoM next Thursday is going to discuss radio. Hopefully, after that we should see the rollout happening. So, if everything goes as per plan then maybe by January or February or thereabouts, the bidding process hopefully will start. Q: Would you deploy a full amount of cash from Rs 270 crore in phase III? Or would you be a little conservative in terms of bidding? A: The only business we do is radio. Therefore, all the money that we have created is meant for radio expansion. Now how much of that we deploy in phase III, how much we hold on for license renewals and for acquisitions, all that remains to be seen. But yes, all of that money is available for phase III and similar expansion opportunities.