Non-FCT business drives growth
* Radio business was flat while non-FCT (solutions) business reported 42% YoY growth in 1QFY20.
* Batch 1 stations reported revenues of Rs191mn with EBITDA margin of 13.1%. Batch 2 stations reported revenues of Rs41mn with EBITDA margin of 11.6%.
* Non-FCT business contributed ~28% to the revenue with GM of 39%.
We cut our PAT estimates by 17%/7% for FY20/FY21 respectively due to weak advertising environment and Ind-AS transition (PAT impact of Rs16mn in 1QY20). While traditional radio business is under pressure, increasing share of fast growing non-FCT (~42% YoY growth in 1QFY20) business will enable ENIL to register double digit top-line growth over the next 2 years. While we have always been apprehensive of non-FCT’s margin dilutive/volatile nature sequential performance over the last few quarters is noteworthy. Additionally, low capex and minimal working capital needs give us comfort as risk of capital misallocation is minimal if the venture fails to deliver in the long term. We believe non-FCT in this environment acts as a perfect hedge. However, given the decline in advertising volumes (pressure in the top 12-15 markets is higher) and bleak outlook we cut our target EV/EBITDA multiple to 9.5x (15.5x earlier; not directly comparable as EBITDA estimates have increased due to lease rental capitalization) and arrive at per share value of Rs464 per share. Our DCF enabled per share value stands at Rs502 per share. We arrive at blended TP (50% weight to each methodology) of Rs483 (Rs645 earlier) per share and downgrade the stock to a HOLD (Accumulate earlier).
Radio business was flat, non-FCT drives growth: ENIL’s topline increased 8.2% YoY to Rs1,316mn (PLe of Rs1,335mn) due to 42% YoY growth in the non-FCT business. Radio business reported flattish growth. Inventory utilization of 35 phase 2, 17 batch 1 and 21 batch 2 stations was at ~80%, ~33% and ~16% respectively in 1QFY20.
Ind-AS adjusted EBITDA margin declines: EBITDA increased 16.5% YoY to Rs330mn. However, Ind-AS adjusted EBITDA declined 13.8%YoY to Rs244mn (PLe of Rs318mn) amid strong growth in non-FCT business which has lower margin trajectory. Ind-AS adjusted EBITDA margin declined 470bps YoY to 18.6%.
1) Legacy/batch 1 stations reported pricing growth of 0.7%/5% respectively.
2) Radio/Non-FCT business reported EBITDA margin (IndAS adjusted) of 19%/~18.5-19% respectively.
3) As per latest IRS data, weekly/monthly listenership of Mirchi is 32mn/45mn respectively.
4) Car listenership in radio is ~28%
5) 35 legacy stations reported EBITDA margin of ~32%
6) Cash distribution policy will be revisited if the TV Today acquisition does not culminate in 3-6 months.
7) Maintenance capex will be in the region of Rs100mn
8) OCF for FY20 should be upwards of Rs1bn.
9) Right to use asset & lease liability capitalization amid Ind AS transition is Rs2bn/2.3bn respectively.
10) Digital business is expected to achieve topline of Rs750mn in next few years.
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