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Volumes driving growth…
Entertainment Network Ltd (ENIL) reported consolidated Q2FY11
results, which were slightly below our expectation. The company
reported a topline of Rs 110.0 crore against our expectation of Rs 113.7
crore, growing 11.7% YoY while declining 4.4% QoQ. Sequentially, it
declined due to lower revenues from OOH and event business, which
declined 10.5% and 21.8%, respectively. However, radio revenues at Rs
60.7 crore grew 8.7% and 6.2% QoQ and YoY, respectively. EBITDA
margins for the quarter at 13.5% improved 1428 bps YoY and 64 bps
QoQ. Improvement in margins was led by reduction in losses from OOH
and event business coupled with the minor impact of lower royalty fee.
Net profit for the quarter was Rs 1.1 crore (I-direct estimate: Rs 3.1
crore) compared to a loss of Rs 13.8 crore in the same period last year.
Highlights for the quarter
Radio revenues for the quarter grew by 8.7% and 6.2% YoY and
QoQ, respectively. The growth was led by higher volume growth
while prices remained firm at Rs 9500-9700/10 second slot. The
impact of the reduction in royalty fees was only for 25 days while
the full impact is expected from Q3FY11E. Marketing expenses
increased by 54.4% QoQ to Rs 9.2 crore primarily due to the launch
of Mirchi music awards in the south. Revenue market share for
Mirchi at the end of Q2FY11 was at 35%.
Admin expenses include a provision of Rs 2.69 crore against private
treaty revenues of Rs 3.93 crore. PAT was flat sequentially due to
higher tax outgo of Rs 3.0 crore on account deferred tax.
Valuation
We have valued the stock on an SOTP basis. Using DCF and assuming
revenue CAGR of 13.0% over FY11E–FY20E, we have valued the radio
business at Rs 257 and event business at Rs 11 (1x FY12 EV/sales). Our
SOTP target price of Rs 268 discounts FY11E and FY12E EPS of Rs 5.8
and Rs 11.9 by 46.1x and 22.5x, respectively. The stock is currently
trading at Rs 238. Our target price implies an upside potential of 13%. We
maintain our view on ENIL with a BUY rating.
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