Entertainment Network (India)
Three high growth businesses under its belt
The company’s growth story is set to explode once its FM radio, out-of-home advertising and event management businesses achieve critical mass over the next one year
| Buy | Entertainment Network (India) |
| BSE Code | 532700 |
| NSE Code | ENIL |
| Bloomberg | ENIL@IN |
| Reuter | ENIL.BO |
| 52-week High/Low | Rs 700/250 |
| Current Price | Rs 642 (as on 26/12/2007) |
Entertainment Network (India) (ENIL) has three high growth businesses under its fold: FM radio, out-of-home advertising and event management.
Radio business set to reap the rewards
Aided by corporate backing of the Times Group, ENIL has carved out strong brand equity for Radio Mirchi. With Radio Mirchi’s brand equity and footprint in key markets, ENIL is the best prospect in the FM radio space. Out of overall Indian advertising spends as a as a % of GDP of 0.34%, Radio accounts for only 2.6% of the total ad spend in India as against 8.5% globally and 11% in the US.
Possibility of high penetration, low ad avoidance, high listener loyalty (niche positioning) and local reach make radio the most cost-effective advertising medium globally. Besides, radio also finds favour among advertisers on account of its 'multiplier effect'.
Entertainment Network (India) until recently focused on 4 Metros and a few other cities.
With more liberal licensing regime and success seen in metros, the company started invading Tier 2 and Tier 3 cities. From 7 cities in 2006, the company has presence in 27 cities as of Sep’07, with 5 more stations to be launched by Dec’07. The company adopts a very unique city centric model, which covers the main city (business place or capital city) within a particular state. This leads to generation of business on a scalable basis. This city centric model is very useful for ENIL since nearly 70% of its ad clients are national advertisers having presence across India.
Normally it takes around 12-18 months time frame to break even a radio station and one time cost of around Rs 1.5 crore. Since 15 new stations were added in the H1 FY’08, the one time cost and other variable cost without corresponding revenues lead the margins to suffer. Nevertheless, the company has received very encouraging response in new cities and is ahead of its internal forecast for breakeven for new radio stations.
In existing stations, the company was seeing some pressure in margins because of the competition particularly in the metro stations where many new radio stations are available now. Because there were many new entrants, the company was not able to increase the ad rates. Even then Radio Mirchi has largest listenership and has outperformed the other existing and new players.
Initially the company held back increase in rate hike, but after having established a strong foothold in listenership even in a new competitive environment and with new entrants also stabilizing their pricing, the company has gradually increased the rates, the full benefits of it will start reflecting from the second half of the current year.
The company had hiked the advertisement rates by 15% in the month of Sep’07 across all the radio stations. The company has market share of about 65% for new radio stations and has increased its market share in existing radio stations by 1% to 50% on q.o.q basis.
The ramp up of the new stations along with debottlenecking of growth in existing stations, is happening very fast which gives a strong visibility of earnings growth for ENIL going forward.
During H1 FY’08, the company reported radio revenues of Rs 94 crore, up by 25% on y.o.y basis. Normally for any radio business, the revenues are divided into 60:40 basis on H2:H1 period as second half is the busy season. Moreover with increase in ad rates, early break even of newly launched stations, the H2 FY’08 will be much better both in revenues and in margin compared to first half. Also all the stations will be fully operational in FY’09 and hence we expect the company to post substantial growth in volume (advertisements seconds sold) along with good rate hkes, leading to strong growth which will continue in FY’10 also.
Out of Home Advertising business has a tremendous potential to grow
Out of Home (OOH) market in India is estimated to be around Rs 6-7 billion and accounts for approximately 6% of total ad spends. OOH business is a typically capital intensive business, where major portion of the cost is in the form of license fees for advertising rights in a particular location. ENIL has acquired marketing rights for attractive properties like Delhi and Mumbai airports, metro rails, bus queue shelters, etc. The roll out of sites is complete at Delhi Airport whereas Mumbai Airport roll out will be complete within few months.
In OOH, the company has extended its contract for 1400 bus shelters in Mumbai post December 2008. The company also has access to 200 display sites at Delhi-Noida flyway, 839 sites at 13 Delhi metro stations, 67 billboards in Kolkata and 8 hoardings in Pune. It has also won the rights for Kolkata Metro trains. At the 2 Airports the company would have 300 display options and 2 LED screens at Mumbai Airport and 233 display options at Delhi Airport. Since the business is in its inception, the initial loss is very natural for the company. For H1 FY’08, the company reported revenue of Rs 48 crore and loss of Rs 17.9 crore at EBITA levels.
The company has already tied up with international players for out of home business and appointed a separate head for the focussed growth of this business. The company is firming up the plans to make some strategic decisions for this segment. It expects to ramp up the capacity utilization for this division and is very optimistic about its prospects going forward.
Event Management business is moving up the value chain
Times Innovative Media (TIM), transferred the event management business which operates under the brand name 360Degrees to a new company, Alternate Brand Solutions Limited (ABS), which is a wholly owned subsidiary of ENIL. The company has finalized a 3-year roll out plan for event management business.
This business so far focused on live events, where last year it conducted 744 events, which include right from conducting promo of products to big events like Femina Miss India. The company is moving up the value chain and is going for acquiring Intellectual property rights (IPR). Some of the IPRs, which the company has, are Mr India, Femina Miss India, Miss Teen etc. Typically, more than 65% of revenue in event management business is generated in H2. So although the company reported revenue of Rs 17.6 crore and loss of Rs3.6 crore at EBITA level for H1 FY’08, it will report profits in later period of this year and will remain on high growth track.
Financials
For the quarter ended September’07, the company reported net sales of Rs 53.16 crore, up by 29%. The OPM was down by 700 basis points, which lead the OP down by 11% to Rs 8.18 crore. The new stations were responsible for nearly 800 basis points drop in margin as there were only expenses without any significant revenues from these new stations. The amortization and depreciation cost increased by 58%, as the company has to amortize the license fees within 10 years of launch from the date of operationalisation of radio stations. The company is under MAT and will continue to enjoy the privilege till 2009. The PAT stood at Rs 0.64 crore, down by 87%. On half yearly basis, the revenues and PAT stood at Rs 94 crore and Rs 1.05 crore respectively.
Valuation
Considering the nature of business, one has to take into consideration the long-term visibility in earnings and scalability going forward. One should also bear in mind that while radio business will be highly profitable and bring sharp growth as well, OOH and event management will fetch substantial valuation even if profits are low as internationally these businesses enjoy highest valuations compared to traditional media due to sustained higher growth potential. Faster infrastructure development and higher product launches and mall-culture will drive OOH and event management at a fast rate in India as well.
ENIL’s standalone results projected in the Financials table are only for FM radio business. Within one year, market will discount FY 2010 revenues and earnings for this company and based on that radio business itself will be worth Rs 500 per share (25 times FY10 EPS or 5 times FY10 revenues). OOH business will be as large as FM radio business in FY 10, though profitability will be lower. OOH business will however get at least the same valuation as FM radio business (Rs 500 per ENIL share which is 5 times expected OOH revenues of around Rs 500 crore in FY10) due to higher growth potential in line with international norms. The total comes to Rs 1000 per share without considering event management business, which will be relatively smaller but will be enough to spice up valuation further.
Besides revenue and earnings growth, other triggers for the scrip will be listing of BIG FM by Reliance ADAG and possible strategic placement for OOH and event management businesses, bringing out the hidden value in the open.
| | 0403(12) | 0503(12) | 0603 (12) | 0703 (12) | 0803(12P) | 0903(12P) | 1003(12P) |
| Sales | 55.6 | 74.94 | 117.41 | 167.2 | 235.00 | 352.50 | 475.88 |
| OPM(%) | # | # | 31.3 | 26.6 | 25.2 | 30.0 | 35.0 |
| OP | -24.5 | -13.54 | 36.79 | 44.43 | 59.92 | 105.75 | 166.56 |
| Other Income | 1.35 | 1.28 | 1.35 | 3.32 | 2.08 | 2.00 | 2.00 |
| PBDIT | -23.15 | -12.26 | 38.14 | 47.75 | 62.00 | 107.75 | 168.56 |
| Interest | 0.1 | 0.29 | 2.59 | 2.03 | 3.53 | 5.00 | 5.50 |
| PBDT | -23.25 | -12.55 | 35.55 | 45.72 | 58.47 | 102.75 | 163.06 |
| Depreciation | 6.05 | 5.34 | 12.33 | 17.94 | 28.00 | 30.00 | 30.00 |
| PBT before EO | -29.29 | -17.89 | 23.21 | 27.78 | 32.97 | 72.75 | 133.06 |
| EO | 0.03 | 0.03 | -9.81 | 0 | 0.00 | 0.00 | 0.00 |
| PBT after EO | -29.32 | -17.92 | 33.02 | 27.78 | 32.97 | 72.75 | 133.06 |
| Tax | 0.01 | 0.01 | 3.55 | 0 | 3.17 | 7.28 | 37.26 |
| PAT | -29.33 | -17.93 | 29.47 | 29.08 | 29.81 | 65.48 | 95.80 |
| EPS | - | - | 4.1 | 6.1 | 6.3 | 13.7 | 20.1 |
| Current equity of Rs 47.65 crore. | |||||||
| ENIL: Standalone Results |
| | 0709 (3) | 0609 (3) | Var. (%) | 0709 (6) | 0609 (6) | Var. (%) | 0703 (12) | 0603 (12) | Var (%) |
| Net Sales | 53.16 | 41.05 | 29 | 94.00 | 75.23 | 25 | 167.2 | 117.41 | 42 |
| OPM (%) | 15.4 | 22.4 | | 15.7 | 19.3 | | 26.6 | 31.3 | |
| OP | 8.18 | 9.21 | -11 | 14.8 | 14.51 | 2 | 44.43 | 36.79 | 21 |
| Other Income | 0.04 | 0.23 | -83 | 0.08 | 0.64 | -87 | 3.32 | 1.35 | 146 |
| PBIDT | 8.22 | 9.45 | -13 | 14.88 | 15.15 | -2 | 47.75 | 38.14 | 25 |
| Interest (net) | 0.89 | 0 | PL | 1.36 | -0.14 | PL | 2.03 | 2.59 | -22 |
| PBDT | 7.33 | 9.45 | -22 | 13.52 | 15.28 | -12 | 45.72 | 35.55 | 29 |
| Depreciation Amortization | 7.06 | 4.46 | 58 | 12.5 | 8.56 | 46 | 17.94 | 12.33 | 45 |
| PBT before EO | 0.27 | 4.99 | -95 | 1.02 | 6.72 | -85 | 27.78 | 23.21 | 20 |
| EO | 0 | 0 | | 0 | 0 | | 0 | -9.81 | |
| PBT after EO | 0.27 | 4.99 | -95 | 1.02 | 6.72 | -85 | 27.78 | 33.02 | -16 |
| Tax | -0.37 | 0.06 | LP | -0.03 | 0.48 | -105 | 0 | 3.55 | LP |
| PAT | 0.64 | 4.93 | -87 | 1.05 | 6.24 | -83 | 29.08 | 29.47 | -1 |
| EPS (Rs.) | # | # | | # | # | | 6.1 | 4.1 | |
| # EPS is not calculated due to seasonality of business | |||||||||
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