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Buy Entertainment Network India Ltd For Target Rs.214

Beating on solutions business

Entertainment Network’s (ENIL) Q4FY21 print shows painful recovery for radio, but solutions business, via digital solutions, is emerging as a bright spot. The company is now guiding for majority revenue, over 55%, coming from solutions business in the next few years, and digital alone contributing 25% (from 11.5%). It has taken impairment on additional frequencies amounting to Rs0.9bn.

ENIL sees higher capital allocation into solutions business, both organic and inorganic opportunities to drive faster growth. It also plans not to restrict presence at producing content, but own subscribers, which is an ambitious transition. We cut our FY22E / FY23E EBITDA by 22% and 5%, respectively. We maintain our BUY rating on the stock with unchanged target price of Rs214.

* Solutions business more promising than radio. Overall revenues declined 34% YoY to Rs1bn on 42% dip in solutions business (non-FCT), but rose 77% QoQ; radio (FCT) revenue dipped 27% YoY and 2.9% QoQ. Solutions business growth was restricted due to low on-ground activation on account of Covid-related disruption, but it has bounced back in multi-media and digital businesses. Digital business continues to grow, and now contributes 11.5% to revenues, and the company believes it can increase to 25% of revenues in the next two years on a larger base as good traction is visible on these services. FCT revenue dip was predominantly on contraction in pricing while volumes have recovered. Segments with healthy volume growth include FMCG, auto, BFSI and hospitals, while e-commerce, media & entertainment and government continue to decline. Government contribution to revenue has fallen to 6% from 16% in FY19. ENIL has taken impairment on additional frequencies of Rs0.9bn.

* Lower costs helping EBITDA. ENIL is rigorously working on reducing costs, which dipped 41% despite sticky regulatory and transmission costs. It sees total cost saving of Rs0.9bn in FY21 and may retain Rs0.7bn of this saving in FY22. ENIL also sees savings from lower royalty payment and lower provisioning for performance royalty payment. It has seen much higher adoption of technology and expects fewer people to attain the revenues of historical levels. Further, margins in solutions business have shown a sharp turnaround partially due to lower on-ground activation business, which has much lower margins.

* Solutions business will contribute majorly to revenue in future. ENIL is looking to invest significantly in solutions business, both organic and inorganic to capture higher value for the company rather than being just a content producer. It wishes to own customers who could be monetised in various ways. It plans to increase capital allocation in digital business and sees solutions contributing ~55% to revenue with digital alone contributing 25% to revenue and remaining solutions adding 30%. ENIL is also looking to invest in startups for innovative solutions, which it does not intend to pursue.

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