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Radio weakness continues…

Entertainment Network India (ENIL) reported a weak set of Q4FY21 numbers. Revenues came in at | 99 crore (down 33.7% YoY) with core radio revenue de-growth of 27.4% YoY. The solutions business witnessed 42% decline YoY due to absence of on-ground activities. However, EBITDA improved 4.5% YoY to | 24.0 crore led by cost reduction across employee and marketing expenses, which fell 25% and 56% YoY, respectively. ENIL reported a loss of | 66 crore due to provision of impairment of | 97.5 crore for second/third frequency stations. Adjusted PAT was at | 0.7 crore.

Ad pricing recovery holds key

The radio business continued to report revenue de-growth in Q4FY21 due to pressure on realisation front. We note that ENIL's core radio revenue decline of 27.4% during Q4FY21 was much steep compared to MBL. The company indicated that pricing has started improving gradually as price increase for the quarter was 5% YoY, albeit significantly lower than its peak. We expect pricing recovery to be gradual in nature. Accordingly, we revise our estimates and expect radio revenues CAGR of 45% YoY in FY21-23E on a depressed base of FY21 to | 402 crore, with pricing recovery likely in FY23.

Lots of moving parts in solutions business

Solutions business decline of 41.9% YoY for the quarter could be attributed to loss of on ground activities due to Covid related restrictions. Solutions business margins, however, grew 1480 bps YoY to 45.6% as the revenue mix is skewed towards high margin digital business and improvement in TV properties margin from 15% to 32%. The company is planning to invest in a tech platform and some start-up businesses that are adjacent to its current business of radio and solutions (clarity on the same would emerge in subsequent quarters). Going ahead, we bake in 42% CAGR in solution business in FY21-23E to | 189 crore. ENIL managed to reduce overall operating costs by | 90 crore for FY21 and expects to retain ~| 70 crore of cost savings. We expect margins at 26.8% in FY23E.

Valuation & Outlook

The radio sector remains the worst hit media segment due to Covid. While ad pricing is likely to remain under pressure in the near term, gross margin growth of solutions business is a relief for ENIL in challenging times. The focus on digital, going ahead, will keep margins healthy. We would monitor the traction and wait for more details on solutions/digital tech foray, before changing our stance. The company has cash & cash equivalent of ~| 233 crore, which assures liquidity. However, ENIL’s payout to shareholders is lower compared to its peer. We maintain our HOLD rating on the stock with a revised target price of | 180 (implying average of ~20x FY23 P/E and ~5.5x FY23E EV/EBITDA, earlier TP | 185).

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