Entertainment Network India - Radio outperformance to continue; maintain BUY - BRICS

We recently met ENIL's management. The following are the key highlights of the meeting:

Smaller stations growing at faster clip: ENIL is witnessing better traction in smaller cities (24 cities, other than top 8 cities) as 1) traditional consumer product companies are increasing ad spend in smaller cities 2) BFSI and Auto sectors, which traditionally targeted bigger cities, are looking to penetrate smaller cities for growth, and 3) education and real estate sectors, which have a higher contribution in smaller cities, continue to invest in advertising. We believe these factors will continue to drive a faster growth in smaller towns than larger cities, leading to higher utilization.

Phase 3 auctions by early FY14, with most political hurdles cleared: With EGoM clearing Phase 3 auction, most of the political hurdles have been cleared. The appointment of an auctioneer and migration process of current Phase 2 licenses to Phase 3 are the only two decisions that require political intervention. For the migration process, EGoM has asked TRAI to give its recommendations, which it will decide upon. Given ENIL's better traction in smaller towns and higher cash availability due to delay in auction, we expect it to now bid for more stations in Phase 3 than earlier anticipated.

Outlook: Stock trades at P/E of 17.4x FY13 and 13.4x FY14 earnings. We maintain Buy with a target price to Rs300, based on P/E of 18x FY14 earnings. Radio players have reported a more robust top-line growth compared to their print peers, due to increased advertising in smaller towns. We believe that election related ad spend will provide an opportunity for growth in CY13-14.

Source : Equity Bulls

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