Buy Entertainment Network; target of Rs 696: HDFC Securities

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HDFC Securities’ research report on Entertainment Network

ENIL’s revenue at Rs 1.75bn grew by 10.3% YoY. Radio (FCT) business revenue was at Rs 1bn (flat YoY) and non-FCT at Rs 0.75bn (+27%). For FY19, radio revenue stood at ~Rs 4.1bn (+13% YoY) and non-FCT at ~Rs 2.1bn (1/3rd of the business). Majority of the growth in Radio is contributed by newly launched Phase III, batch I stations in FY18. In our view, growth in established 35 stations is ~3-4%. ENIL’s core radio business has continued to struggle over last two years. We believe this is owing to mgmt persistence for higher pricing during tough macro-environment; a strategy ill-timed in our view. Non-FCT (solutions) business continues to grow well but has lower margin (~13% in FY19). Mgmt targets to improve margin to 30% in medium term with stable fixed costs, economies of scale and target of ~20% revenue growth. EBITDA grew by 14.3% % YoY to Rs 431mn. This was primarily led by reversal in employee costs due to failure to meet internal
targets. As usual, mgmt guides for ~15% revenue growth and ~20-25% in EBITDA. Revenue growth to be led by ~8- 10% growth in Radio and 20% in non-FCT. We believe this is doable, but are conservative in our estimates.

Outlook

Entertainment Network (ENIL) 4QFY19 was in-line but weak with flat advertising revenue in core radio business (MBL 7.8%). Maintain faith. BUY with TP of Rs 696 (+37%) @ 25x FY21E P/FCFE.

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