Entertainment Network India - Utilisation improves, Phase 3 could materialise by Q4 - BRICS

ENIL's revenue grew 10% yoy to Rs771mn, driven by volume growth amidst a marginal decline in realisdation. EBITDA margin contracted by 33bps yoy to 24.5%, due to provision of Rs13.5mn towards brand capital, as against net credit of Rs.14.7mn in Q2FY12. Management's commentary regarding outlook for advertising in the festive season was positive. We broadly maintain our estimates, while raising target price to Rs285 (from Rs260 earlier), as we roll over to FY14 estimates. Maintain Buy.

Revenue growth broadly in-line: ENIL revenue grew 10% yoy to Rs771mn, driven by an increase of 17.3% yoy in utilisation rate (to 76%) and decline of 1.6% yoy in realisation. Management is witnessing higher advertisement spending in the current festive season and accordingly, the company continues to offer segmented solutions through Mirchi Innovations to maintain or increase the share of wallet. The contribution of Mirchi Innovations in Q2FY13 stood at27%, as against15% in Q1FY13. EBITDA margin contracted by 33bps yoy to 24.5%, due to provision towards brand capital, and also declined 470bps sequentially, on account of higher proportion of non-radio revenue, resulting in a rise of 83% yoy in marketing expenditure.

Phase 3 auction could take place in Q4FY13: Management has indicated that the EGoM is likely to meet on November 15, 2012 to decide the modalities for the Phase 3 auction. EGoM will decide on the auction process and channel separation, as recommended by TRAI. The auction process is likely to take place in Q4FY13. ENIL is well placed to secure a sufficient number of slots, with cash of Rs2.69bn on its balance sheet.

Valuation: Stock trades at P/E of 18.3x FY13 and 14.8x FY14. We have broadly maintained our estimates (Exhibit 2), but raised our target price to Rs285 (from Rs260) by assigning a P/E multiple 18x (unchanged) FY14 earnings to the stock. Maintain Buy rating on ENIL, based on traction in advertising revenue in the festive season, continued improvement in advertisement inventory utilisation and strong cash balance for the upcoming Phase 3 auction.

Source : Equity Bulls

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