May repeat FY15 PAT growth next year too: ENIL

Below is the transcript of Prashant Panday's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.

Anuj: You have seen decent performance, net profit growth of 20 percent, revenue growth of about 9 percent and EBITDA performance is up close to 10 percent. What kind of trajectory would you enjoy over the next financial year?

A: Let me clarify these numbers. These are reported numbers but if you want to understand how the business has performed then you must look at the underlying factors. We had a very large event that we do call ‘The Mirchi Top 20’ which had been advanced into the third quarter, so the bases are not comparable.

On a comparable basis, our revenue has risen by about 13-13.5 percent and not 8.8 percent as we have reported. Likewise, our EBITDA reported at 9.7 percent actually bears the effect of various new costs this time, for instance the corporate social responsibility (CSR) contribution comes in. We have put it before the EBITDA line also there are lot of expenses that have been incurred with relation to phase three policy and the preparation work over there as well as the acquisition that we are attempting to do of the Oye FM business, but on like to like basis the EBITDA has risen by about 21-22 percent.

You were talking about trajectory. I think the current business is going to remain as strong as it is today with phase III coming in and with new stations coming and upfront investments and capex and the time it takes to launch and stabilise new licences. I think the next couple of years there will be pressure at an overall level on the EBITDA and profit after tax (PAT) numbers but as I mentioned, not on current business. That will be little bit of a slowdown on account of the new businesses as they crank up.

Ekta: Want your sense in terms of what happened with the Oye FM acquisition that you were attempting because it ran into some trouble waters with the Information and Broadcasting (I&B) ministry and where does it stand at this point?

A: It is tragic. On one hand we hear that the government is making very sincere efforts at making easy to do business and still we realise that a very small transaction of this nature has run into some kind of logistical issues, if I may say, with the ministry of Information and Broadcasting. First and foremost they didn’t even respond to our application and then under pressure from the Delhi High Court the ministry finally responded by rejecting the application that we had made for acquiring the Oye FM business. The grounds that they have offered, in our opinion are flimsy, so we will certainly be challenging those grounds. So that’s why I am saying that a very simple merger in a small industry, which should have just gone through without any hassles, has ended up becoming a point where you will be going to the courts and it will drag on for many months etc. It is just unfortunate.

Anuj: You said that you will be taking remedy steps. What would that include?

A: The first measure is going to be that we will continue with our litigation. We have a writ coming up in the Delhi High Court very soon and the details have been worked out and we will press the point that we have every single right to acquire second frequency. The policy allows it. There is no reason for the government to deny and there is no restriction on Oye FM to sell itself. So there is no reason for them to deny the permission to us.

Ekta: There is no overlap with phase three or what phase three could bring out?

A: There are three stations in which Oye FM and Radio Mirchi both have stations; Delhi, Mumbai and Kolkata. So the government’s point is that you are not allowed under phase two and our point is that from April 1 we are under phase three. So it’s a small thing. It is a point of difference and it’s unfortunate. I have personally noticed that the ministers are very keen on making it easy, they support us all along but the bureaucracy does tend to take very narrow approach at these things. We complain at some time that there is too much discretion in hands of the government officials but now is the case where there is absolutely zero discretion and they just follow the rules to the t.

Ekta: What about phase III? Would it change you bidding criteria if in case this acquisition does go through from a company perspective?

A: Yes it does because there is a 15 percent overall limit that we can hold so that puts a number at about 52 stations or thereabouts. So if we were given the permission to acquire these seven stations then that would be part of that 52 limit and if we are finally denied the right to buy those seven stations by the courts for instance then we would be able to go all the way upto 52 on our own. If you look at that 15 percent cap -- it is such a bizarre thing. We would have gone up to 75-80 stations but now we are curtailed at 52 and who gains in this? The government will suffer because there will be less intense bidding in the other towns and I don’t think anybody helps in this process.

Anuj: You had spoken about Bull Run in radio business. For this financial year, you did report net profit growth of 26 percent in terms of compounded annual growth rate (CAGR), do you think more than 20 percent is possible over the next three-four years?

A: Like I mentioned, the business as it stands, 32 station business will continue to remain very robust because the migration policy the government announced which basically extends the current licenses by 15 more years is a good policy and that will ensure that the profitability and the robustness of the current business will remain in tact and in fact become better as we go forward. So yes, I expect the PAT growth to remain at similar levels.

Anuj: Do you have any measurable metrics for market share in your genre, in your business and if yes, what kind of market share do you enjoy?

A: There are a few radio stations, which are listed. There are many more, which are not listed but for whom information is available on a delayed basis from various sources. So yes, there is a way to estimate the revenue market share.

Anuj: In terms of overall market share not in terms of revenues -- the share of the radio itself.

A: There are reports, which come out about how big the other segments are and therefore you are able to estimate how big the radio is. Today the radio is between 5.5 percent and 6 percent of the overall advertising pie.

Anuj: Within that Radio Mirchi would be how much?

A: Radio Mirchi has 33 percent share. Approximately third of the industry is Radio Mirchi.

Ekta: I am not sure if I caught your advertising growth this quarter and what would your outlook be for FY16?

A: The advertising growth in this quarter has been reported at 8.8 percent but if you take it on like-to-like basis, it is about 13 percent. Going forward, on the same station basis the growth will be in the region of 10-12 percent that is typically what the sector has been delivering because the conditions remain soft.

Ekta: What is your corpus of funds that you are looking to maybe spend on phase III and where is the process right now?

A: The migration is one important place where a significant portion of our money will go. We expect that to be in the region of about Rs 275-325 crore. That is one big component.

The other thing is that the bidding that takes place for phase III and depending on how intense the bidding is that number could be anywhere between Rs 200 crore and Rs 300 crore. That is the second big chunk.

Then there is the associated capex which comes in for the news stations and that could be anywhere between Rs 50 crore and Rs 100 crore. So we are talking about Rs 600-700 crore going away in this batch and with the migration happening and then there is a second batch of auctions which the government plans to conduct in about a year’s time where again the balance about maybe Rs 100-150 crore could go then.