Hold Entertainment Network; target of Rs 850: ICICI Direct

ICICI Direct's research report on Entertainment Network

Revenues came in at Rs 125.7 crore (de-growth of 3% YoY), as GST led advertisement pullback impacted ad growth during the quarter. Ad volumes were down 16% YoY owing to management’s strategy of cutting back on inventory to improve yields (up 8.5% YoY) EBITDA came in at Rs 28.4 crore, higher than expectations of Rs 25.9 crore owing to lower than anticipated marketing expenses. Margins, consequently came in higher-than-expectations at 22.6% vs. our estimate of 20.3% Reported PAT, however, came in at Rs 6.1 crore, slightly lower than expectations of Rs 6.8 crore, impacted by higher tax rate (effective tax rate came at 55%, owing to deferred tax for earlier years of Rs 2.8 crore).

Outlook

We reiterate that ENIL, being a leader, remains a key beneficiary of the expanding reach of the radio. However, the management’s current policy of ad clampdown has not yielded any benefits as peers continue to outperform so far. We also note that while new channels and subdued ad environment have weighed on the performance so far, a gradual recovery would be seen from FY19E. We would rather wait for signs of such recovery. Therefore, we maintain our HOLD rating on the stock with a target price of Rs 850 based on DCF methodology.