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Diversifying into new businesses

Entertainment Network’s (ENIL) Q3FY22 FCT revenue has grown 23% YoY, yet is down 33% from pre-covid levels; and Solutions business is down 0.7% YoY (53% from pre-covid). Recovery therefore is happening more gradually than expected for radio companies in India. All the recovery so far is from strong volume growth while prices remain depressed. Non-FCT (solutions business) is facing issues from restriction on onground activities. Cost-saving efforts remain commendable, and are helping the company reach pre-covid levels much sooner than revenue. ENIL has launched a podcast digital app, Mirchi, in the international market with access to seven international FM radio stations and 11 India stations, in addition to audio stories. It has plans to include an external contributor section and many more features in the future. India launch of the app is planned for Mar’22. We have cut our FY22E / FY23E / FY24E EBITDA by 29% / 27% / 20% respectively. We have increased our target price to Rs223 (from Rs219) as we roll over valuation to FY24E (EV/EBITDA multiple of 5.5x remains unchanged). Maintain BUY

Digital app, Mirchi. ENIL launched a digital app (podcast), named Mirchi, in the international market where users can access seven non-Indian FM streams – San Francisco, New York, New Jersey, Bay Area Telugu, Bahrain, Qatar and Dubai. Users can also access 11 India stations including Mumbai, Delhi, Hyderabad, Kolkata, Chennai, Kochi, Chandigarh, Ahmedabad, Pune, Bengaluru and Patna. ENIL plans to add more stations in the coming days. The app will be available in India market likely from Mar’22. It would be free to start with, and the plan is to add more MAUs and commercials in course of time. This also includes audio stories and an option for external contributors

FCT staged strong growth on low base; non-FCT still subdued. Revenue rose 22.6% YoY to Rs1bn driven by 23.1% YoY growth in FCT (radio) business while the solutions business (non-FCT) dipped 0.7%. Radio business revenue recovery was driven entirely by volume growth, which improved at 22% vs pre-covid, while effective rates dropped 33% (down 5% YoY). Capacity utilisation for 35 legacy stations was 99% while that for other stations was 65%. Non-FCT was impacted by onground activity restriction, while ex-onground revenue continued to grow. International market revenue was Rs90mn, up 3x in past one year

Lower costs helping EBITDA. ENIL is rigorously working on cost reduction despite business recovery. Though revenue has increased 22% YoY, costs have grown only 3.4% to Rs670mn. In FY21, the company had cost-saving of Rs850mn and, in FY22 it has plans to retain Rs700mn of it. Company anticipates significant cost savings to continue. EBITDA grew 82% YoY to Rs380mn and ENIL achieved a net profit of Rs98mn in Q3FY22; and all its radio stations were profitable. Non-FCT EBITDA margin stood at 46.1% vs 14% (Q3FY21).

Other highlights. 1) ENIL has net cash balance of >Rs2bn, which it intends to utilise for growing the digital business with investment in infrastructure and content as well as an incubation programme. 2) Company said its earlier FY23 revenue guidance of Rs4bn, looks difficult to achieve.

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