Gearing up for Phase-III ENIL :: Centrum

Gearing up for Phase-III
ENIL posted Q2FY13 results marginally below expectations on the back of
10% YoY growth on ad revenues with 2% YoY decline in pricing while
volume rose by 17.5%. Operating profit grew by mere 3.1% on the back of
margins declining by 199bps YoY due to higher marketing cost while PAT
was up by 14% due to high other income as the company has Rs2.6bn of
cash. We maintain our BUY rating on the stock.
Q2FY13 marginally below expectations: The company posted 11.5%
YoY growth in topline to Rs771mn (4.2% above our expectations) on the
back of 10% YoY ad revenue growth. Operating profit was at Rs189mn (up
mere 3.1% YoY) on the back of 199bps drop in margins while PAT was up
by 14%YoY to Rs103mn due to higher other income.
Strong ad growth in challenging environment: ENIL posted 10% YoY
growth in advertising revenue on the back of 17.5% volumes growth while
pricing was down by 2%YoY. Utilisation for legacy 10 stations was at 90%
while for the remaining stations it was best ever 76%. Blended rate was also
best ever at 72%. Sectors such as durables, real estate and auto have
bounced back adding to volume growth. The share of radio advertising in
the revenue was at 73% while the remaining was on the back of 360 degree
approach which the company took up to garner higher revenue from
clients in the form of activation & BTL activities. The management believes
that the advertisement environment has seen an up-tick in the current
festive season and the growth rates could be better going forward.

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Margins under pressure: Operating margins were under pressure during
the quarter and was down 199bps YoY at 24.5% on the back of higher
marketing cost due to the activation business while employee cost rose
by mere 10.5% YoY. We believe the company is focused on pricing and
has compromised on margins which impacted operating profit. However,
we believe going forward the margins would expand.
Other highlights: The management believes that Phase-III auction could
happen in January 2013 with only a couple of issues to be sorted out such
as auction bidding methodology and channel separation between
frequencies. The company is also launching 4 internet radio stations
which may be monetized at a later stage.
Maintain BUY: The stock is currently trading at 19.6x and 16.4x FY13E and
FY14E respectively. We continue to believe that ENIL is best placed to
capture the upside from the radio industry and phase-III given its
dominance and strong balance sheet. We maintain our estimates and
reiterate BUY on the stock with the target price of Rs258 (18x FY14E).