1. Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
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Anand Rathi Research India Equities
India I Equities
Key financials (YE Mar) FY15 FY16 FY17 FY18e FY19e
Sales (` m) 4,332 4,921 5,495 5,433 6,340
Net profit (` m) 1,060 1,000 551 713 947
EPS (`) 22.2 20.9 11.5 14.9 19.9
Growth (%) 26.7 -5.7 -45.0 29.9 32.6
PE (x) 39.6 42.0 76.4 58.8 44.3
PBV (x) 6.2 5.5 4.9 4.6 4.1
RoE (%) 16.9 13.9 6.8 8.0 9.8
RoCE (%) 23.1 17.4 9.2 11.1 14.7
Dividend yield (%) 0.1 0.1 0.1 0.1 0.1
Net debt / equity (x) -0.8 0.0 -0.0 -0.1 -0.2
Source: Company, Anand Rathi Research
+9122 6626 6531
+9122 6626 6511
Target Price: `780
Share Price: `880
Key data ENIL IN / ENIL.BO
52-week high / low `1,008 / `667
Sensex / Nifty 32238 / 10014
3-m average volume $0.3m
Market cap `42bn / $658.9m
Shares outstanding 48m
Shareholding pattern (%) Jun'17 Mar'17 Dec'16
Promoters 71.2 71.2 71.2
- of which, Pledged - - -
Free float 28.9 28.9 28.9
- Foreign institutions 15.7 16.5 16.5
- Domestic institutions 4.3 3.6 2.4
- Public 8.9 8.8 9.9
4 August 2017
Recovery deferred to FY19, but rich valuations persist; Sell
Its strategy of raising prices (up 11.4% y/y) added to macro headwinds
(weak government spending, RERA, GST and de-monetisation) and
led to a weak Q1 for ENIL (revenue down 10% y/y to `987m, an 11%
EBITDA margin vs. 25.5% a year prior). Yet, employee costs (32% of
revenue in Q1 FY18, vs. 23% a year prior) are semi-variable and can be
used as a margin lever. Management expects a strong H2 (Q2 has been
weak so far) due to festival sales, but hopes for double-digit growth
only in FY18 EBITDA. The weak H1 results lead to us cutting the
FY18e and FY19e EPS a steep 13% and 19% respectively, with a new
target of `780 (18x FY19e EV/EBITDA), down from `850 earlier.
Price hikes in Q1 did not go well. ENIL’s Q1 performance was subdued as
its core radio business (73% of revenue) slid 15% y/y, partly offset by its non-
radio business (27% of revenue) growing 17% y/y. Core radio weakness
(utilisation down from 92% in Q1 FY17 to 62%) suffered the impact of the
factors mentioned above but, most importantly, the market did not absorb
price hikes, and competition was quick to capture market share from the
leader. New stations brought ~11% to revenue (`106m in Q1) but still suffer
losses (`43.5m in Q1).
Festival season critical to demonstrate recovery. Recovery has not been
seen so far (Jul was soft, Aug uncertain) but ENIL is holding to its pricing in
hopes of a Q3 recovery. Also, it is relying on two launches (Kozhikode and
Jammu) in Aug and a steep H2 recovery due to pent-up demand in the last
few months. If the market is weak, ENIL will revisit its pricing strategy in Q3.
Rich valuations lead us to re-visit our rating – to a Sell. To reflect the weak
H1, we cut our estimates by 19%. The valuation at which the stock now trades
(21.8x FY19e EV:EBITDA) we find rich, preferring to await a better entry. Our
recommendation also reflects expectations of a slow recovery in the core
sectors that advertise on radio. Risk: Market-share loss to competition.
Relative price performance
Estimates revision (%) FY18e FY19e
Sales (16.1) (17.2)
EBITDA (19.1) ( 16.8)
PAT (13.2) (18.6)
Change in Estimates Target Reco
4. 4 August 2017 Entertainment Network – Recovery deferred to FY19, but rich valuations persist; Sell
Anand Rathi Research 4
Conference Call Takeaways
In Q1 FY18, the top-eight advertising categories collectively declined
20% by volume for the radio industry. The major drop in volumes was
seen in government advertising (38% for industry, company-70%), real
estate (industry-21%, company-41%) and media & entertainment
(company-44%). ENIL has a 25% market share by revenue in
Consumption-wise, the top-eight markets bring 60% to the advertising
pie; the rest of the market, 40%. The company expects to reverse this
in the next 2-3 years.
In Q1 FY18, its new stations reported `106m in revenue, though
suffering a `43.5m EBITDA loss. The company expects the new
stations to break even by end-FY18.
With volumes declining 30%, revenue from existing stations dropped
The realisation rate rose 11.4% y/y.
At its core 36 stations, costs, which rose by just ~1-2% in Q1 FY18,
have been curtailed; the company expects to hold them at this level.
The company launched its 2nd frequency band, at a 5-10% price
premium to the present frequency, though capacity utilisation is now
under ~20%. It expects utilisation at its new stations to climb to 60-
80% by end-FY18.
Blended capacity utilisation in Q1 FY18 came at 62.9% (86% for the
top-eight cities and 20% for the new stations).
The company is focusing on reducing advertising volumes during the
peak festival season by cutting down inventory (advertising time-slots)
by four minutes an hour (from 22 minutes an hour at present to
The blended realisation rate for Q1 FY18 was `10,700.
The company will incur ~`250m on capex in launching new stations in
Business should return to normal only from H2 FY18 as the festival
season sets in, since Q2 FY18 would still bear the brunt of the GST,
de-monetisation and RERA.
Notes from the last two quarters’ conference calls
From Q4 FY17
Q1 FY18 will be hit by the GST as advertisers are holding up
For the industry, the impact of the GST on revenue is expected to be
From Q3 FY17
Q4 is expected to bear the impact of de-monetization as well, but
somewhat alleviated. Overall, growth would be affected 5-7%.
5. 4 August 2017 Entertainment Network – Recovery deferred to FY19, but rich valuations persist; Sell
Anand Rathi Research 5
In the radio sector ENIL leads and in FY17 scaled up to 49 channels (in 39
cities). Before the Phase 3 (batch 1) auctions and prior to its recent
acquisition of TV Today’s FM channels, it operated 32 channels (in 32
cities). This scale-up is reflected in its lower EBITDA margin and, we
believe, that by FY19 the full benefit of the scaling-up of operations would
be evident, with margins reverting to over 30%.
We like the strategy of operating multiple frequencies in many cities. This
may increase the target market (audience and advertising market-share)
with the additional benefit of operating leverage by virtue of two stations in
a city. Its nationwide operations should help attract more advertisers.
Since the stock trades at 21.7x FY19e EV:EBITDA at the ruling price of
`880, we have revised our target to `780 from `850 earlier. We alter our
recommendation for it from a Hold to a Sell.
Fig 9 – Change in estimates
(` m) New Old % Change New Old % Change
Revenues 5,433 6,475 (16.1) 6,340 7,655 (17.2)
EBITDA 1,430 1,768 (19.1) 1,925 2,313 (16.8)
EBITDA margin % 26.3 27.3 -98 bps 30.4 30.2 15 bps
EBIT 815 1,066 (23.5) 1,292 1,596 (19.0)
EBIT margin % 15.0 16.5 -146 bps 20.4 20.8 -47 bps
PBT 1,008 1,164 (13.4) 1,349 1,661 (18.8)
Net Profit 713 821 (13.2) 947 1,163 (18.6)
Source: Anand Rathi Research
Fig 10 – EV/EBITDA (one-year-forward)
Source : Bloomberg, Anand Rathi Research
Any further loss of market share to competition.
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
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Important Disclosures on subject companies
Rating and Target Price History (as of 3 August 2017)
1 28-Jul-16 Buy 860 709
2 09-Nov-16 Buy 880 740
3 14-Feb-17 Hold 850 810
Anand Rathi Ratings Definitions
Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide (12 months)
Buy Hold Sell
Large Caps (>US$1bn) >15% 5-15% <5%
Mid/Small Caps (<US$1bn) >25% 5-25% <5%
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