Dolat Capital is bullish on Entertainment Network has recommended buy rating on the stock with a target price of Rs 840 in its research report dated February 06, 2017.
Dolat Capital's research report on Entertainment Network
Revenue during the quarter declined 1.5% YoY to ` 1,484mn (DCMe: ` 1,514mn) on back of some issues with one single client and early festive season (Diwali). Excluding the same, revenue would have grown by 4.6% YoY. EBITDA margin declined 131bps YoY to 24% (DCMe: 25.2%) on back of higher marketing cost and better profitability in non-radio business. PAT during the quarter declined 19.9% to ` 132mn (DCMe: ` 160mn) on back of lower margins and higher tax rate (35%). Non-radio revenue (Contri. 28%) improved 16% YoY while Radio business declined 9% YoY as inventory fell 13.4% YoY and pricing grew 8.6%YoY. Non-radio business is expected to deliver healthy margins on back of new products being added in the segment. Decline in radio revenue during the quarter was primarily led by lower ad. spend by Govt. vertical; which declined 39% YoY. The management expects Govt. vertical to come back on track in Q4FY18 and has witnessed good traction so far. Mgmt. has guided for healthy double-digit revenue growth in FY19; post a tepid performance in 9MFY18 where radio revenues have declined 5% YoY. Post the sharp decline in inventory over the last three quarters, Mgmt. expects inventory led growth in H1FY19 and pricing led growth in H2FY19. New stations reported positive EBITDA of ` 11.2mn as compared to EBITDA Loss of ` 214.3mn in Q3FY17. We maintain our positive stance on the radio segment within the entire media universe. We prefer ENIL and MBL as we expect better revenue growth led by higher ad. spend in Govt. segment in FY19, on back of higher advertising for State and General elections. We believe addition of the three new stations post Q4FY18 (post the lock in) from TV Today may dilute our EBITDA estimates further going ahead; however, if ENIL opts for a price hike strategy in line with mkt. average, they may be able to gain market share vs MBL in FY19 which may trigger revenue upgrades.
We pare our FY19/FY20 EBITDA estimates by 7%, factoring lower revenue growth (FY18) due to consistent decline in inventory. ENIL has corrected by 15% in the past three months; valuations appear inexpensive at 19.2x/14.2x based on FY19/FY20 EV/EBITDA, we upgrade ENIL to BUY and rollover to Mar’19 target price of ` 840 based on 18x one yr. fwd EV/EBITDA.
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