Entertainment Network - Innovations to the fore; visit note; :: Edelweiss PDF link

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Entertainment Network (ENIL IN, INR 223, Not Rated)

We recently met Mr. Prashant Panday, CEO & ED, Entertainment Network India (ENIL). Radio Mirchi,ENIL’s flagship property, has ~33% market share in the private FM segment. Given the current ad slowdown, ENIL has been focussing on innovative strategies to improve ad yields. The impending Phase III auctions provide an immense opportunity to expand, but ENIL would like to focus on profitability although it has adequate funding in place. Currently, we do not cover this stock.

Innovations drive ad revenues amidst slowdown

The radio segment has been severely hit by the continued slowdown in ad revenues. Being the market leader, ENIL has been at the forefront of offering innovative strategies to clients. Innovative programming, coupled with on-ground activations and multi-media solution offerings within the group to clients, have grown its revenues in Q4FY12, albeit at the cost of margins. Yields are, thus, marginally up for ENIL. As per the company, ad revenues will be better in Q4FY12 in comparison with Q3FY12. However, softness in ad spends is expected to continue till H1FY13 at least.

Huge opportunity of Phase III, but concerns remain

The Ministry of Information & Broadcasting had announced the Phase III e-auctions in July 2011. However, owing to various delays, the auctions are unlikely to be conducted before October 2012. After the auction is over, it will take up to six months for the stations to commence operations. ENIL worries that e-auctions, which allow participants to outbid competitors’ bids, may lead to irrational bidding. Radio companies, being entirely dependent on ad revenues, may find it difficult to sustain if there is over-bidding. However, the key positive about e-auctions for ENIL is that ENIL cannot lose by surprise.

Outlook: Growth hinges on Phase III; Positive

Being India’s largest radio player (in terms of revenues) and amongst the well funded, ENIL is best placed to capture new opportunties in Phase III. Promoted by the Bennett Coleman Group, we perceive huge opportunity for the company in Phase III over the longer term. Currently, we do not cover the stock.

Entertainment Network - Innovations to the fore; visit note; Not Rated

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