Buy Entertainment Network India - Elara Capital

• Rating : Buy
• Target Price : INR253
• Upside : 25%
• CMP : INR202 (as on 12 July 2010)

OOH! ENIL eases its burden

ENIL sells loss-making OOH biz to parent at INR21 per share

ENIL has sold its entire 83.5% stake in Times Innovative Media (TIM) to Bennett, Coleman & Company Ltd (BCCL), its parent company. ENIL will receive INR1015mn from this deal, out of which INR450mn will be in cash and the remaining will be in the form of transfer of a loan. With 47.7mn equity shares, this values the business at INR21 per share. TIM held the OOH business which contributed nearly 35% to overall revenues with a top line of INR1561mn and a negative EBITDA of INR81mn as of FY10.

Move to strengthen balance sheet, profitability

The OOH business is expected to post an EBITDA of mere INR40mn on a top line of INR1869mn for FY11E. This would imply EBITDA margins of 2% vis-à-vis ~30% from the radio businesses, dragging down the consolidated EBITDA margin to nearly 16%. Post the transaction, we expect the company to record an EBITDA margin of 23% in FY11E, scaling up to 30% in FY12E. ENIL would also save on amortization and interest costs of around INR200mn in FY11E. Thus the sale would impact the top line, but might not leave any major impression on the bottom line. The transaction makes the company debt-free, and improves it cash position. This will enable it to focus on growth opportunities in radio's Phase III policy besides giving trouble-free, capex raising options.

Sale at half the valuation; reducing target price to INR252

ENIL has valued the OOH business at nearly 2x the value of its assets. We believe, being a media business, the company's sales have more value than its balance sheet. Therefore, despite the OOH churning negative profit numbers, it holds a significant intrinsic value. We have valued the OOH business on EV/Sales of 1x for FY12E probable sales, deriving a valuation of INR1956mn. This implies per share value of INR41 vis-à-vis the company's valuation of INR21 per share. Thus, as per our estimates, ENIL has sold off the business at half the OOH operation value. While we slash the target price from INR272 to ~INR 253, we re-iterate our BUY rating on the company. At CMP of 202, it provides an upside of about 25%.

Source : Equity Bulls

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