Asset monetization phase to drive growth
* Weak market conditions: Revenue increased 9.5% YoY to INR758m. Growth could have been better if not for the impact of GST, demonetization and RERA. EBITDA plunged 16% YoY (+9% QoQ) to INR242m (in-line) as the base quarter had a favorable impact of INR37m due to provision reversal. Adjusted for the same, EBITDA declined 3% YoY due to higher opex in new stations. Adj. margin shrunk 390bp YoY. Adj. PAT increased 10% YoY, benefiting from finance income.
* Old stations garner healthy margins: The 28 legacy stations grew ~5% YoY, attributed to a yield improvement with ~70% utilization, while the new stations contributed additional INR48m of revenues led by volume growth. EBITDA for the legacy stations stood at INR256m (~36% margin), while the new stations reported EBITDA loss of INR13m.
* Yield improvement, new station break-even to support earnings: The company is gaining market share, as other players are focusing on consciously reducing inventories. This is evident from the legacy stations’ pricing-led growth without any impact on inventories. New stations remain on track to turn profitable by FY19E. Our estimates are largely intact: 15%/20% of revenue/EBITDA CAGR over FY17-20E.
* Maintain TP of INR469: RADIOCIT is valued at 14.4x EV/EBITDA on FY19E, at ~25% discount to ENIL, despite its improved market share and profitability. Improving earnings and RoIC from 13% now to 26% in FY20 should reduce the valuation discount to ENIL. We maintain Buy, assigning 18x EV/EBITDA on FY19E, and arrive at a target price of INR469.
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