Entertainment Network Ltd - Still in the woods - ICICI Securities

Entertainment Network India's (ENIL) Q2FY21 print shows it is not out of the woods yet. Revenue growth is unlikely even in H2FY21. Its efforts to transit to solutions business has also been hit hard due to concentration of revenues in metros, which are more impacted by Covid. Within solutions, the bright spots are: 1) media solutions and digital, which are seeing revenue growth; and 2) rising gross margins. ENIL has kept sharp check on costs with savings of Rs800mn expected in FY21 with some of it to flow structurally. Key overhang is the ongoing hearing on royalty payment to music labels - and a favourable outcome is key for ENIL's long-term profitability. We have cut our FY21E/FY22E EBITDA by 61%/5% respectively on weak outlook. Accordingly, we cut our target price to Rs164 (from Rs175). Maintain BUY.

- Revenues dipped 58% YoY to Rs484mn. FCT revenues declined 57.1% YoY due to significant impact of Covid in metros, while improvement is visible from stations in less Covid-impacted cities (e.g. Gujarat, Rajasthan, etc). Revenue decline was due to 30% decline in realisation on bonus offered to advertisers, which is fast reversing. Volume drop was relatively high in eight legacy stations (51%) while 27 other stations saw dip of only 11%. ENIL guided for recovery in Q3FY21 with revenue decline at below 30% YoY.

EBITDA loss stood at Rs63mn, restricted due to cost saving of Rs390mn in H1FY21. Company expects to save Rs800mn in FY21, some of which may flow structurally. Licence fee outgo has been sticky as agreement requires company to make floor payment to government, and rent cost (which declined only 4% YoY). Company has guided for at least EBITDA breakeven in FY21.

- Solutions business was hit hard sans digital. Solutions (non-FCT) revenues declined 62.5% YoY, of which IP business revenues were down 58% YoY. This was hurt due to revenue concentration in the metros, and low on-ground activities. The bright spots were: 1) within solutions business, revenues grew for media solutions (+31% YoY) and digital (+67%); 2) expansion in gross margin to 52.7% from 45.6% in Q2FY20; and 3) EBITDA margin jump to 37.5% (vs 24.7% in Q2FY20). Solutions business EBITDA stood at Rs86mn. Overall EBITDA was hurt due to low FCT gross margin at 60% (vs 80%).

- Washout quarter for radio. ENIL's FCT revenues dipped 57.1% YoY, which was weaker than the 51.9% revenue drop for Music Broadcast and 42% for DB Corp. This was due to ENIL's higher exposure to metros vs peers. Revenues from legacy migrated stations dropped by 58.1% while batch-1 and batch-2 revenues fell 61% and 48% respectively. Overall capacity utilisation was at 32% with eight legacy stations at 43% and 27 other stations at 54%.

- Royalty rate renewal a key overhang. Copyright board fixed royalty payment at 2% of net ad revenues of private radio broadcasters till 30th Sep'20. IPRS is hearing the matter and is expected to give final order in 30 days. Music label industry has demanded increase in royalty payment to 10% of net ad revenues while radio industry has requested for cut on cannibalisation from OTT players.

Shares of ENTERTAINMENT NETWORK (INDIA) LTD. was last trading in BSE at Rs.143.6 as compared to the previous close of Rs. 142.2. The total number of shares traded during the day was 990 in over 93 trades.

The stock hit an intraday high of Rs. 146.55 and intraday low of 143.6. The net turnover during the day was Rs. 143814.

Source : Equity Bulls

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