See high ad revenue growth in Q4 due to elections: ENIL

Prashant Panday, ED & CEO of Entertainment Network India (ENIL) expects the radio advertisement revenue growth to be positive in the second quarter as well because the retail sector is still doing well and is driven a lot by promotions and sales.

He believes Q4 will be stronger as the company will gain from election advertising “We believe the year will be stronger than we had initially thought due to elections as radio has proved to be a solid medium for the political parties,” he says in an interview to CNBC-TV18.

According to Panday, radio industry is a high operating leverage industry, so any boost in revenue transfers will boost margin. He expects the company’s FY14 margins to be somewhere in the mid-30s.

The company’s consolidated margins were at 35.3 percent against 30 percent year-on-year. Its net profit was up 48 percent at Rs 20 crore versus Rs 13.5 crore YoY.

Below is the verbatim transcript of Prashant Panday's interview on CNBc-TV18

Q: It has been a good quarter for the entire media space, is it sustainable?

A: Very difficult to answer, structurally, the retail component of the radio industry, as distinct from the corporate business has been growing over the quarters and this quarter close to half our revenues have come from the retail sector and the retail sector tends to be more firm. Therefore, it is going to remain a strong balance of the year for radio but I do not think it can last at this pace.

Q: You had 24 percent growth in the radio advertisement revenues. What kind of growth can you sustain? Is 20-25 percent growth sustainable or do you think it will dip in the quarters to come?

A: I will wait for one more quarter to see what happens. The signs are positive in the second quarter as well because the retail sector is still doing well and is driven a lot by promotions and sales around July 4 and now during festive season and on Independence Day, that spat of promotion continues. If that is going to be the way it is for the rest of the year, then radio will do well.

Also, we are hoping that in Q4 we will get gains from election advertising and radio has proven to be a solid medium for political parties. So, we believe the year will be stronger than we had initially thought.

_PAGEBREAK_

Q: The realisations have dipped a bit due to an unfavourable product mix. So, on blended basis the average realisations for the network have fallen due to higher share of smaller stations. Where does it currently stand at and what is the prognosis for the rest of year?

A: On an average, pricing fell by 2.7 or 2.8 percent, which is not a big deal. The pricing did not rise and it is a question of time before the pricing starts to rise. Even as we speak the inventory in the entire radio industry is full and we are running 12-13 minutes of inventory at this point in time. It will be towards the end of the Q2 that prices will start to firm up and we are still about 25-30 percent lower than the peak we had hit in December 2008.

We haven’t been able to recover. In the Q1 general entertainment channels (GECs) have done a good job of recovering pricing. They have taken a price increase between 15 percent and 20 percent so have Hindi movie channels and Hindi news channels and others. So, it is a question of time before the pricing in the entire media sector lifts now.

Q: What about your margin performance? This time you have done 35 percent and for FY14, what could be a reasonable run rate to work with?

A: We ended last year at 31 percent for the full year and the Q1 was below that. So, if that is any indication then 35 percent in the Q1 shows that the year ending margin should be somewhere in the mid-30s.

Radio industry is a high operating leverage industry, so any boost in revenue transfers will boost margin. However, whether it will sustain or not we need to wait and watch for another quarter at least.

Q: What about market share for ENIL. Where does it stand?

A: There is a lot of status quo in the radio market because all of us have been around for such a long time, so we have about 33-35 percent share of the private frequency modulation (FM) market and that hasn’t budged. It may have gone up a bit because we have grown marginally higher than the industry.

Q: Are you working with any targets on your topline for FY14, any kind of guidance?

A: We are not giving guidance but the early double digits or high single digit is what would be a good number to estimate in an economy of this type where consumer sentiment is so down. Radio should do a couple of points above that, maybe 10-12 percent for the year.

Q: You have launched two new online English radio channels. What are you expecting with respect to financials from these?

A: Nothing at this point in time. The objective of the online business is to test the waters, to test our ability to develop the products, to do the marketing, to reach out to new audiences globally and to test the programming in marketing teams. There is no revenue estimation at this point in time.