Entertainment Network Ltd - Keeping faith in solutions business - ICICI Securities

Entertainment Network's (ENIL) Q3FY21 print shows painful recovery for radio and solutions businesses though digital solutions emerges as a bright spot. FCT has been majorly impacted in top eight cities where volumes continued to decline while the other markets saw volume recovery during the quarter. Yield was down by a sharp 28% YoY, and its revival may take more time. ENIL remains committed to derive higher revenues from the solutions business, and defocus on on-ground activation while driving growth in platform solutions. This should help improve profitability. Lower royalty payments added to the already aggressive cost-saving programme. We cut our FY21E EBITDA by 61%, but increase the same for FY22E by 13%. We raise the target price to Rs214 (from Rs164) on valuation rollover to FY23E. Maintain BUY.

- Painful recovery; significant underperformance vs other mediums. Overall revenues declined 42% YoY on 55% dip in solutions business and 36% fall in FCT revenues. Solutions business underperformance was due to low on-ground activation due to Covid-related disruption in a seasonally strong quarter, particularly in eight largest markets. Solutions business revenues rose 21% YoY excluding on-ground activation and TV Today commission. Digital business continues to grow, and now contributes 11.5% of revenues, and the company believes it can increase to 20-25% of revenues in next two years on much large base as good traction is seen on these services. FCT revenue dip was predominantly on contraction in pricing while volumes grew 11.5% YoY, despite 18% volume decline in top eight markets. Yield declined 28% YoY (up 7% QoQ on seasonality, but should dip in Q4FY21), and this compared to 32-42% for peers. ENIL's FCT revenue decline was 22% in smaller cities (same as for DB Corp which majorly operates in small cities). Higher exposure to large cities and solutions business has made recovery optically painful for ENIL.

- Lower costs helping EBITDA. ENIL is rigorously working on reducing costs, which dipped 29% (excluding event-related costs) despite sticky regulatory and transmission costs which were down only 3-7%. It sees total cost saving of Rs0.8bn in FY21, and may retain 50% of this saving even in future years. Also, the company does not intend to pursue on-ground activation business to historical levels; the business involves higher costs and offers lower margins, hence its reduced share in the mix should help keep costs under control. ENIL also sees savings from lower royalty payment (Rs110mn in TTM) and lower provisioning for performance royalty payment.

- Solutions business profitability improves. Despite weak revenue performance, ENIL has seen improvement in margins for its solutions business sub-divisions: media solutions margin improved to 56% from 38%, that of IP solutions to 39% from 35%, and digital business to 31% from 25%. It sees traction in digital solutions with client-base touching 149 vs 109 in Q3FY20, and it expects it to reach 500 in the near term and 1,000 in the medium term. Company also expects the mix in solutions business to improve as it would cautiously bundle lower on-ground activation, and focus on selling solutions based on digital, radio and other platforms.

Shares of ENTERTAINMENT NETWORK (INDIA) LTD. was last trading in BSE at Rs.165.5 as compared to the previous close of Rs. 170.95. The total number of shares traded during the day was 908 in over 127 trades.

The stock hit an intraday high of Rs. 171 and intraday low of 165.5. The net turnover during the day was Rs. 152932.

Source : Equity Bulls

Keywords