Prabhudas Lilladher recommended Hold rating on Entertainment Network (India) with a target price of Rs 157 in its research report dated August 10, 2020.
Prabhudas Lilladher's research report on Entertainment Network (India)
ENIL’s performance was better than our expectations (EBITDA loss of Rs260mn versus our estimate of Rs644mn) on the back of better cost control. While targeted savings of Rs1bn in FY21E is noteworthy, we believe fixed cost absorption will continue to remain a challenge in a weak demand environment (inventory utilization for 35 legacy/17 batch 1/21batch 2 stations is expected to be 45%/15%/10% in FY21E). Further, recovery in non-FCT business will be back ended as events, activations & concerts would remain suspended until COVID-19 risk subsides. While concerns on growth and margins have aggravated post-COVID we draw comfort from strong BS (zero debt), high cash (Rs2.4bn; ~39% of market cap is in cash), and improvement in the profitability profile of non-FCT business which was labelled as margin dilutive (GM has improved from 19% in FY17 to 36% in FY20). Higher focus on digital solutions within the non-FCT business, when on-ground activity is virtually absent will not only aid growth but also profits.
We thus maintain our HOLD rating on the stock with a TP of Rs157. Our TP is based on 50% weight to EV/EBITDA methodology with per share value of Rs65 (target multiple of 4x; no change) and 50% weight to DCF approach (Rs92 per share).
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