Strong quarter ENIL :: Centrum

Strong quarter
ENIL posted Q4FY13 results above expectations with 12.3%YoY (4% above expectations) growth in revenues on the back of 9.3%YoY ad growth. Operating profit was up by 6.4% YoY (19% above expectations) with 186bps fall in EBIDTA margin on the back of higher employee cost. Re-negotiation of the contract with T-Series and BCCL will boost margins in coming quarters. Lower tax rate on the back of savings from liquid investments boosted profitability as Adj PAT (for one time credit of tax of Rs28.6mn) was up by 16.2% YoY (31.8% above expectation). We maintain a Buy rating for the scrip with a revised target price of Rs285 (based on 16x FY15).
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Results better than expectations: ENIL posted 12.3% topline growth to Rs1050mn on the back of 9.3% ad growth where events and activation contributed 33% to revenues. Operating profit was at Rs350mn up by mere 6.4%YoY on the back of higher employee cost (up 67% YoY) contracting OMP by 186bps. Adj PAT was at Rs228mn (up 16.2% YoY) due to higher other income and lower tax rate.
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Ad growth momentum continues: Ad growth during the quarter was up 9.3%YoY on the back of increase in utilisation levels across stations. Blended utilisation rate was 93% with volume growth of 19% and pricing decline of 1.9%. Management has taken a rate hike in select markets and plans to hike rates across stations before the start of the festive season. Sectors such as FMCG (17% share), BFSI (14% share), retail (14% share), media & entertainment and Government/NGO posted strong growth during the quarter.

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Operating margins decline during the quarter: During the quarter margins declined by 186bps due to 67%YoY increase in employee cost on the back of high variable performance incentives. Production expenses declined by 8.9% YoY and 17.4% QoQ as the company re-negotiated the terms for music royalty with T-Series which accounts for 28-30% of the music played on the stations and the net music royalty will now be ~2.2% of sales. During the quarter, there was a net credit of Rs94mn for withdrawal of brand capital provision for 9MFY13 and earlier years, as the contract was re-negotiated with BCCL and ENIL would now get 100% share compared to 66% earlier.
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Other Highlights: The tax charge of Rs52.1mn for Q4FY13 is net of credit for prior period excess tax provision Rs28.6mn. Adj. tax rate was low at 27.5% for FY13 on the back of savings in tax on investment in long term MFs. Management has guided for 29% tax rate for FY14. The company currently has unrealised gains of Rs64mn on the back of investments in liquid Mutual Funds. Management expects the Phase-III auction process to start by the end of May’13 and actual auction to start in Q4FY14. They expect many smaller stations to remain unsold due to the high reserve price.
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Estimates revised; Maintain BUY: We have revised our FY14 margins lower on the back of higher marketing & admin cost while PAT has been increased due to higher other income. FY15 revenues have been increased on the back of increase in ad growth and margins lowered for high marketing expenses. PAT is increased by 10.4% on the back of higher other income as company would have more than Rs4.7bn in cash & investments. ENIL is currently trading at 16.6x and 14x FY14E and FY15E respectively. We maintain Buy rating for the stock with a revised target price of Rs285 (based on 16x FY15E EPS of Rs17.8) with an upside of 15%.