Published on 18/03/2017 11:55:46 AM | Source: Motilal Oswal Securities Ltd
Update On Entertainment Network India Ltd - Motilal Oswal
Ad volumes from new stations to support growth
Potential of 300-400bp margin expansion in next 3-4 years
¢ Three-pronged strategy of price increase in existing stations, expansion in new Phase- III stations, and growth in non-FCT business should support growth.
¢ EBITDA breakeven of new stations in FY18E, improving margin in non-FCT business, and potential price increase in existing stations should improve profitability.
¢ Post the commencement of all the stations acquired from Phase-III, ENIL’s portfolio would expand from 32 radio channels to 76.
Three-pronged growth strategy
Price increase in existing stations: In the existing 32 stations, the management expects 6-8% revenue growth, led by pricing. Current utilization is about 100%, with peak advertisement of about 18minutes/hour. To improve listenership, ENIL plans to lower volumes, the impact of which would be offset by price increase. Expansion in new stations: The new 17 stations in the first batch of Phase-III and 21 stations in the second batch of Phase-III would support volume-led growth. Growth in non-FCT business: The non-FCT (free commercial time) business – on-theground activation business, concerts and events – contributes about 25% of ENIL’s revenue. This business should grow at 10-12%. EBITDA margin should improve from the current single-digit levels; EBITDA margin of the activation business is over 20%.
Healthy profit outlook
With the three-pronged strategy, the management expects revenue growth of 15%. Additionally, EBITDA margin would improve, as the first batch of Phase-III stations start turning profitable from FY18, coupled with higher EBITDA margin in the non- FCT business. From the current 32%, EBITDA margin could scale up to 35-36%. For the incremental 21 second batch stations, investments are largely concluded.
Other key takeaways
* In the FCT business, EBITDA margin for the top-12 channels is about 46%, which could reach ~55% in the next three years. The 25% EBITDA margin for the other channels could also improve, with higher volume driving operating leverage.
* In the new stations, ENIL targets advertisement of less than 10minutes/hour, allowing it to garner better pricing than the 1st frequencies in few regions.
* Maintenance capex post the commencement of all channels would be a meager INR50m-100m per year.
* A recent AC Nielsen report highlights that from 2006, the time spent on radio has declined from 14 hours/week to 11 hours/week, which could be attributed to multiple digital engagement mediums. However, reach has increased, and this has led to higher revenue.
* Rollout of the second batch of 21 new stations would happen in 3Q-4Q of FY18 and the financial impact would be seen in FY19.
* Pre Phase-III, ENIL’s total stations were 32. It has added 17 stations in the first batch of Phase-III auctions, of which 10 are in existing cities while seven are in new cities. In the second batch of Phase-III auctions, it has acquired 21 channels. It has also acquired four stations from TV Today. Thus, ENIL now has 74 stations. Additionally, ENIL intends to acquire three more stations of TV Today by March 2018 after expiry of the lock-in period. ENIL would be closing the channel in Goa; thus, its overall portfolio of channels would expand to 76.
* Post the demonetization effect in the initial three months, advertisers are coming back and ENIL is witnessing positive signs.
* ENIL has four brands:
1. Mirchi is the flagship brand across ENIL’s 32 existing stations
2. Mirchi Love is ENIL’s new brand, targeted at 26-30 year-olds. It is largely in new channels.
3. Mirchi 95 is the second frequency of Bangalore and Hyderabad. It offers content similar to the primary frequency, but in different language. It caters to both regional and Hindi/English (Hinglish) listeners.
4. Ishq FM is the rebranded version of TV Today channel, Oye FM.
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