Buy Entertainment Network: Ventura

Ventura`s research report on Entertainment Network India

"ENIL reported ad revenue growth of 9.3 percent YoY to Rs 101.9 crore in Q4FY13 as against Rs 93.3 crore in Q4FY12, outperforming the overall industry growth. The rise in the revenue was primarily driven by increase in volumes in smaller stations, which was backed by growing ad spends by retail business and corporates in order to spread their brand awareness. The net profit of the company has shown robust growth of 30.8 percent YoY to Rs.25.7 crore in Q4FY13 as against Rs.19.6 crore in Q4FY12, led by lower production expenses (on account of re-negotiation of terms with TSeries) and write off in tax expenses of ~2.9 crore (related to earlier assessment years).” "The EBITDA margins, during the quarter, declined by 170 bps YoY to 36.9 percent as against 38.6 percent in Q4FY12 on account of considerable rise in the employee cost by 67.0 percent YoY to Rs 20.8 crore in Q4FY13 (v/s Rs 12.5 crore in Q4FY12) led by periodical incentives offered to employees. Moreover, ENIL has announced price hikes on selective basis in few markets, which is expected to be effective by Q2FY14. This will help the company to a large extent in overcoming the saturation in inventory level. ENIL’s inventory utilization for the quarter stood at 103 percent in top 8 stations and 86 percent (+26.5 percent YoY; 68 percent in Q4FY12) in other 24 stations, making the blended utilization of 93 percent (+22.4 percent YoY; 76 percent in Q4FY12). During the quarter, ENIL has re-negotiated the terms of royalty agreement with T-series, under which the payment of royalty would be on revenue sharing basis. This will bring the royalty cost of ENIL at par with other music providers, leading to lower royalty expenses in FY14 onwards. During the quarter, ENIL has launched Mirchi Marathi Award for the first time, which resulted in improving Radio Mirchi’s TRP to 2.1 as against 1.4 earlier.” “ENIL continues to remain market leader with ~35 percent of market share in private radio industry and a robust volume growth of ~22.4 percent in Q4FY13. We maintain a positive outlook on the company with the sustainable volume augmentation primarily led by upcoming elections and increasing ad spends by corporate sector as well as retail clients. Besides, Govt. campaigns are also expected to be considerable contributor towards volume growth across 32 stations. Moreover, with the approval of union cabinet, the long waited Phase III auction is expected to roll out in Q4FY14. Consequently, the radio industry is expected to grow at a CAGR of ~17 percent to ~1,500-1,600 crore by FY14. ENIL, being the market leader, is expected to be biggest beneficiaries of Phase III. Its war chest of ~ Rs 321 crore of cash will stand it in good stead when the auctioning process kicks off. At the CMP of Rs 245, ENIL is trading at 13.9x and 11.9x its estimated earnings for FY14E and FY15E and we reiterate a BUY with the price target of Rs. 325 representing a potential upside of ~31 percent,” says Ventura research report.   Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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