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Entertainment Network (India) Limited
Initiation as Overweight
ENIL.NS, ENIL IN
Tuning in
• Initiate with Overweight, price target of Rs290: Our PT implies a
potential upside of 27% from current levels. ENIL is the leading FM
radio operator in India, operating 32 stations across India under the
‘Radio Mirchi’ brand. We believe it is well positioned to benefit from
rising share of radio advertising in the Indian advertising market.
• Strong growth for radio advertising in India: Radio accounts for 2%
of total advertising in India v/s global average of 8%. Favorable
regulation driving expansion of FM radio into smaller cities and
increased advertiser preference for radio is likely to drive 17% CAGR in
radio advertising over the next 3 years.
• Ad inventory utilization and yields picking up: Pick-up in economic
growth is driving higher advertising inventory utilization for ENIL,
which is supporting yield improvement, boding well for margins. ENIL
also gains from recent norms reducing royalty payments to music
companies. We forecast EPS CAGR of 30% over FY11E-FY13E.
• Impending regulatory changes bode well for margins: Soon to be
implemented phase III radio licensing norms will expand the reach of
FM radio to tier II and III cities, boosting growth for radio advertising.
The new norms would also drive industry consolidation (ENIL well
positioned to acquire smaller players given strong balance sheet) and
drive strong operating leverage. We see potential 10%-15% upside to
ENIL’s margins post phase III, not built into our estimates.
• Price target, valuation, key risks: Our Sep-11 PT is based on 22x
FY12E P/E, at 10% premium to domestic media peer group average. We
believe that premium to global players is justified given immense scope
for expansion of radio broadcasting in India, supported by ENIL’s strong
balance sheet, free cash generation and strong earnings growth. Key risks
include aggressive bids for phase III licenses, rise in competitive
intensity, entry into non core segments and adverse legislation.
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