ENIL - Ad growth under pressure - Centrum

ENIL posted Q1FY13 results marginally below expectations on the back of 9% YoY growth on ad revenues with 2.3% YoY decline in pricing. Operating profit grew by 9.1% on the back of stable margins in a challenging environment while PAT was up by 34% due to high other income as the company has Rs2.4bn of cash. We believe the company is well poised to benefit from the radio Phase-III auctions and hence maintain our BUY rating on the stock.

Q1FY13 marginally below expectations: The company posted 9% drop YoY in topline to Rs698mn (4.4% below our expectations). Operating profit was at Rs201mn (up 9.1% YoY) on the back of flat margins while PAT was up by 34.4%YoY to Rs130mn due to higher than expected other income.

Ad growth under pressure: Company posted 9% growth YoY in advertising revenue on the back of volumes growth. Utilisation for legacy 10 stations was at 86% while for the remaining station it was at 62%. Blended rate was 68%. The company posted 2.8%YoY drop in pricing due to the economic slowdown. Sectors such as FMCG and Government are high volume clients but low on pricing which impacted price growth. Sectors like BFSI, telecom, durables remained weak during the quarter while Media and Auto continued to show strong growth. The management maintained that clients needed 360 degree approach and hence activation and BTL activities gained prominence during the quarter. Activation contributed to 16% of the revenues for Q1FY13. The management maintained that the advertisement environment remained challenging for coming quarters.

Margins to remain stable: Even in a challenging economic environment the company was able to maintain its margins at 29.2% on the back of prudent cost controls across departments. Marketing cost was high on activation business while employee cost rose by mere 3.7% following reduction in headcount in the sales team. We believe the company would be able to maintain these margins.

Other highlights: The management believed that the Phase-III auction could happen in December 2012 as the pre-qualification will start from next month. The company is in the process of launching 4 internet radio stations where maintaining a lean cost structure is important for profitability.

Maintain BUY: The stock is currently trading at 18.8x and 15.7x FY13E and FY14E respectively. We continue to believe that ENIL is best placed to capture the upside from the radio industry and phase-III given its dominance and strong balance sheet. We maintain our estimates and reiterate BUY on the stock with the target price of Rs257 (18x FY14E).

Source : Equity Bulls

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