Entertainment Network India - Price recovery, Phase III offer buoyancy - ElaraCapital

Healthy volume growth; steady margin

ENIL reported a decent set of numbers with 12% topline growth, and a healthy 33.3% EBITDA margin, though 190bps down yoy but 330bps above expectation. After factoring the brand capital benefit received in previous quarter, EBITDA grew 10.5%. Overall utilization levels grew to robust 93% vis-à-vis 78% YoY. Growth has been completely volume led with 19% volume growth, offset by 7% drop in average pricing due to higher contribution from smaller stations.

Clarity emerging on phase III - likely before year end

Management indicated that the EGOM has cleared Phase III policy and received respective cabinet approval. Currently, it is finalizing the auctioneer, and auction should happen in about four months. The government has target to roll out phase III auction before end of 2013. With accumulated cash of INR3.20bn and sole PAT profitable radio company, ENIL has the opportunity to double the revenue base, as phase becomes effective. We reiterate our stance that over the long term, we see significant growth potential in ENIL.

Ad prices firming as industry reaches full capacity

ENIL is operating at peak capacity. Management has taken selective price increase and hinted at healthy price increase from Q2FY14E. We expect revenue growth of 11%/10% for FY14/15E respectively, and flattish EBITDA margin led by higher contribution from lower margin activation business to be offset by ad price hikes. PAT should grow at 25% and 20% due to leverage from below EBITDA cost.

Phase III announcement to be key stock price trigger

We have rolled over our estimates to FY14E on a DCF basis with 14% WACC and 4.5% terminal growth, giving us a target price of INR300. The stock has not moved since last two fiscal, while bottomline has jumped about 60%. This has made the stock attractively priced at merely EV/EBITDA of 6.4x vs 10x average trading band two years prior. We feel the key trigger for the stock would be Phase III announcement.

Source : Equity Bulls

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