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ENIL
PRICE: RS.254 RECOMMENDATION: REDUCE
TARGET PRICE: RS.257 FY13E P/E: 21.7X
q ENIL reported the following key financials in 2QFY12: Revenues - Rs 692
mn, EBITDA - Rs 184 mn, PAT Rs 90 mn. Results were in line with our expectations.
q Advertising revenues grew 12% in the quarter, an improvement over the
last quarter, which saw 9.7% growth in advertising revenues. Advertising
environment continues to be weak; we see the 12% growth in
2QFY12 as a result of early onset of the festive season. The management
expects 2HFY12 to be challenging in terms of advertising revenues.
q While ENIL continues to the #1 FM radio brand in the country, competitive
intensity has risen meaningfully, especially in the metros (RAM
data). ENIL is thus faced with an environment of low advertising intensity,
faces headwinds of high competition; we believe radio industry on
the whole faces a handicap of inadequate differentiation in the present
policy environment.
q 2Q results, along with the management commentary, and the overall
business environment, indicate that FY12 could be a weaker year for the
company, than we have estimated. We factor in lower revenue growth in
FY12/ FY13, cutting FY12 est by 10%. We cut EPS estimates by 13.4% for
FY12.
q We introduce FY13 estimates, and expect FY13 EPS to come in at Rs 11.7.
Given possible favorable impact of Phase - 3 licensing, we value the stock
aggressively, at 22x PER FY13E. Even so, we believe there is little opportunity
in the stock; ENIL is likely to underperform our media coverage
universe. We maintain REDUCE, with a (revised) price target of Rs 257 (Rs
264 earlier).
Net sales rose 12% y/y, on account of early onset of the festive season in FY12. The
management has indicated that growth in the quarter is largely a result of volume
growth. Utilization in the top eight stations came in over 84%, while utilization in
the "growth stations" came in at 59%. The management believes that in the quarter,
growth in the radio industry was likely in the region of 10%-13%.
Expenses were largely in line with our expectations. Employee expenses rose in the
quarter on account of headcount increase and annual increments. Marketing expenses
in the quarter have risen 45% y/y, on account of greater brand investments
made by the company in the quarter, on new Mirchi properties, as well as marketing
spends required to keep client engagement to a high level. During the quarter,
the company launched two new properties "Mirchi Upswing" and "Mirchi Folkmix".
Administrative and other expenses have come in lower on account of a net credit of
Rs 14.7mn, due to withdrawal of PT provision. EBITDA came in at Rs 184mn, and
PAT came in at Rs 90mn, largely in line with our expectations.
The company generated cash of over Rs 220mn in the quarter. ENIL's balance sheet
now has cash balances of over Rs 1.5 Bn, which shall be a comfort for the company
in bidding for the Phase -3 of radio FM licensing. ENIL has indicated that auction of
Phase-3 licenses may begin in March/ April.
Outlook and Investment View
We believe advertising expenditures by companies are likely to be soft through
FY12. Although radio companies are likely to be less impacted by the decline, the
downturn shall impact the radio industry as well; especially given the rising competitive
intensity in the industry. We note that Radio Mirchi has been in intense competition
for the #1 spot to Radio City in Mumbai as well as Bangalore, and it trails
Fever in Delhi - we believe these ratings are likely to have an impact on clout of
ENIL with advertisers, affecting yields adversely.
As such, we believe the revenue growth for FY12 is likely to be lower than our prior
estimates; accordingly we affect a 9.6% cut in our revenue and 13.4% cut in our
EPS estimates. We also introduce FY13 estimates, and estimate FY13 EPS at Rs
11.7. We note that our estimates do not account for new licenses that may be acquired
during the Phase - 3 of radio licensing.
On our new estimates, ENIL trades at 21.7x PER FY13E PER, at a significant premium
to our media coverage universe. We believe that ENIL is overvalued relative to
peers, and see little opportunity in the stock, even as we value it aggressively (22x
PER FY13E), at Rs 257 per share. We maintain REDUCE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ENIL
PRICE: RS.254 RECOMMENDATION: REDUCE
TARGET PRICE: RS.257 FY13E P/E: 21.7X
q ENIL reported the following key financials in 2QFY12: Revenues - Rs 692
mn, EBITDA - Rs 184 mn, PAT Rs 90 mn. Results were in line with our expectations.
q Advertising revenues grew 12% in the quarter, an improvement over the
last quarter, which saw 9.7% growth in advertising revenues. Advertising
environment continues to be weak; we see the 12% growth in
2QFY12 as a result of early onset of the festive season. The management
expects 2HFY12 to be challenging in terms of advertising revenues.
q While ENIL continues to the #1 FM radio brand in the country, competitive
intensity has risen meaningfully, especially in the metros (RAM
data). ENIL is thus faced with an environment of low advertising intensity,
faces headwinds of high competition; we believe radio industry on
the whole faces a handicap of inadequate differentiation in the present
policy environment.
q 2Q results, along with the management commentary, and the overall
business environment, indicate that FY12 could be a weaker year for the
company, than we have estimated. We factor in lower revenue growth in
FY12/ FY13, cutting FY12 est by 10%. We cut EPS estimates by 13.4% for
FY12.
q We introduce FY13 estimates, and expect FY13 EPS to come in at Rs 11.7.
Given possible favorable impact of Phase - 3 licensing, we value the stock
aggressively, at 22x PER FY13E. Even so, we believe there is little opportunity
in the stock; ENIL is likely to underperform our media coverage
universe. We maintain REDUCE, with a (revised) price target of Rs 257 (Rs
264 earlier).
Net sales rose 12% y/y, on account of early onset of the festive season in FY12. The
management has indicated that growth in the quarter is largely a result of volume
growth. Utilization in the top eight stations came in over 84%, while utilization in
the "growth stations" came in at 59%. The management believes that in the quarter,
growth in the radio industry was likely in the region of 10%-13%.
Expenses were largely in line with our expectations. Employee expenses rose in the
quarter on account of headcount increase and annual increments. Marketing expenses
in the quarter have risen 45% y/y, on account of greater brand investments
made by the company in the quarter, on new Mirchi properties, as well as marketing
spends required to keep client engagement to a high level. During the quarter,
the company launched two new properties "Mirchi Upswing" and "Mirchi Folkmix".
Administrative and other expenses have come in lower on account of a net credit of
Rs 14.7mn, due to withdrawal of PT provision. EBITDA came in at Rs 184mn, and
PAT came in at Rs 90mn, largely in line with our expectations.
The company generated cash of over Rs 220mn in the quarter. ENIL's balance sheet
now has cash balances of over Rs 1.5 Bn, which shall be a comfort for the company
in bidding for the Phase -3 of radio FM licensing. ENIL has indicated that auction of
Phase-3 licenses may begin in March/ April.
Outlook and Investment View
We believe advertising expenditures by companies are likely to be soft through
FY12. Although radio companies are likely to be less impacted by the decline, the
downturn shall impact the radio industry as well; especially given the rising competitive
intensity in the industry. We note that Radio Mirchi has been in intense competition
for the #1 spot to Radio City in Mumbai as well as Bangalore, and it trails
Fever in Delhi - we believe these ratings are likely to have an impact on clout of
ENIL with advertisers, affecting yields adversely.
As such, we believe the revenue growth for FY12 is likely to be lower than our prior
estimates; accordingly we affect a 9.6% cut in our revenue and 13.4% cut in our
EPS estimates. We also introduce FY13 estimates, and estimate FY13 EPS at Rs
11.7. We note that our estimates do not account for new licenses that may be acquired
during the Phase - 3 of radio licensing.
On our new estimates, ENIL trades at 21.7x PER FY13E PER, at a significant premium
to our media coverage universe. We believe that ENIL is overvalued relative to
peers, and see little opportunity in the stock, even as we value it aggressively (22x
PER FY13E), at Rs 257 per share. We maintain REDUCE.
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