Expect over 10% revenue growth in FY13: ENIL

Entertainment Network India (ENIL) has declared its fourth quarter results. Prashant Panday, executive director and chief executive officer of ENIL says, the fourth quarter numbers have been fairly decent.

He targets more than 10% revenue growth in FY13. “As long as the market remains as it is, revenue growth will really come on the back of innovations,” he adds.

Below is the edited transcript of his interview with CNBC-TV18's Sonia Shenoy and Ekta Batra. Also watch the accompanying video.

Q: How exactly did advertising revenues do for the radio business this time around? What was your capacity utilisation?

A: Nothing different for radio business than other sectors. Core media, core FCT (free commercial time) is definitely under pressure. But companies which have managed to broad base their product portfolio and do new things, have done much better. In our case, the share of core radio has now come down to about 75%. That is the reason why we have been able to announce fairly decent results in this quarter.

Q: You mentioned several times that the ad revenues slow down will continue for a couple of quarters. Do you see it go down to single digits? What exactly is the trajectory you are hoping to see?

A: That is what the industry estimate is. Last year, if you look at calendar year 2011, I think the growth was probably somewhere around 7.5-8%. The estimate for next year is about the same, maybe a 1-2% more than that.

If you can do innovations, if you can provide solutions to clients then the market is much bigger and definitely a double digit growth possibility exists.

Q: What are these innovations? Will they involve a lot of cost? Will they put pressure on your margins?

A: Yes, typically what happens is that when you do innovations on behalf of your clients, then you are also putting in investments of your own in generating response to the client. So, client gets a good deal. But you are able to also get a larger share of the client’s wallet. So, it’s a win-win in that sense, but the margins are under pressure in a situation like this.

Q: You have not done too badly in your margins. You have managed to maintain it with that 35% range, but sequentially there is quite a dip versus that 41% you did last quarter. What can you do in terms of margins for FY13?

A: As long as the market remains as it is, revenue growth will really come on the back of innovations. Innovations cost money. So, to that extent, you have to choose, do you want to go with a stronger revenue growth and a larger market share and then sacrifice a little of margins in the temporary phase, or do you just want to protect your margins and let go of the revenue growth opportunities.

Given the fact that we estimate this to be maybe a six month or a year longer than it will continue, we focused on revenue growth. We have decided to compromise margins a bit. But I think in the long run we can sustain early 30’s kind of margins. And then when the market improves, we can take it up to about mid-30’s or slightly higher than mid-30’s levels.

Q: On revenue growth, you have done about 7-8% in this year that went by. What kind of growth do you envisage for FY13?

A: Since we had moved into larger than just radio kind of business and we have done 25% of other businesses and innovative products, I think we can do more than 10%. But companies that depend on pure FCT or pure media sales will hit double-digits.

Q: Where are you seeing the maximum pressure? Last quarter, it was telecom which cut back on spending and you had more low yielding clients, which sufficed. What was the trend this quarter?

A: Almost all consumer segments are cutting back on advertising spends or if they are not cutting back on advertising spends then they are demanding a lot more for the money that they are putting on the table. So, basically whatever goes into the heading of national clients or corporate clients will demand a lot more and give you a lot less. But the retail business continues to do well. I think in our scheme of things almost 45% of our business comes from retail. So that segment remains strong. I think over the years we expect that to go to 60-65%. When that happens, the radio industry will be cushioned from these kinds of shock that we have been seeing for the last three years.

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Q: What is your view on phase III? Are you highly optimistic?

A: Phase III is what we all are waiting for. It has been there on the anvil for the last six-eight quarters, but there is light at the end of the tunnel. We are not expecting that the auctions will happen by the end of this year, maybe October-November.

But the better news is that TRAI has recommended that the number of channel should be doubled. Here is the beauty about it all, it all happens with no pain to the government. They don’t have to take spectrum from the defence or anything else. They just halved the spectrum that we have. So, therefore, in that sense, we contribute the spectrum and the government can offer double number of channels.

So, everyone makes more money, the listeners get more variety and broadcasters get more channel to operate, so it’s a ‘win-win’. TRAI has already made the recommendation. We are hoping the Ministry of Information & Broadcasting (MIB) will now accept the recommendations.

Q: What is the amount of spectrum that we are talking about?

A: The conventional FM spectrum goes from 87.5 megahertz to about 108 megahertz. So, if you keep and 800 kilowatt separation between two channels then you are able to accommodate only few channels. But if that spectrum gap is halved then you can have double the number of channels.

In a city like Mumbai or Delhi, you would have about 20-25 channels and then you could have lot more programming variety. You could have English music, maybe in Mumbai Marathi and in Delhi Punjabi, there is so much more.

The biggest complaint people have today is the same kind of music that we are all playing. But there is a reason for that. All of that can change. The government in the process can actually make Rs 3,000-4,000 crore in license fees. That matters in a year like this when the fiscal deficit is so high. So, one is hoping that the MIB will accept the recommendations.

Q: You were telling us about cost of innovations, purely for the next quarter because it’s going to be pressure on your margins, what kind of ballpark costs are you looking at?

A: Next two quarters are traditionally weaker quarters in the media business. So, they will anyway be a revenue pressure at a level that will happen. And if the focus is going to remain on innovations and the costs are going to rise, then margins will be lower in the first two quarters of this year than what they were last year.