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ENTERTAINMENT NETWORK INDIA LTD (ENIL)
RECOMMENDATION: BUY
TARGET PRICE: RS.265
FY12E P/E: 17.6X
q ENIL reported strong set of results for 3QFY11. Revenues came in at Rs
775 mn (+22%, y/y), EBITDA at Rs 282 mn (+33%, y/y), and adjusted PAT
at Rs 126mn (+19%, y/y) (standalone financials). Revenues and EBITDA are
well above our estimates. Adjusted PAT came in below our estimates on
account of high deferred tax charge.
q Strong results followed from: a/ improved advertising environment, b/
lower production expenses following the order of the copyright board
that has reduced the royalty payments. Advertising revenues growth was
amply helped by improved pricing in larger cities (11%, q/q), and improved
capacity utilization in the smaller cities. The company has continued
to book lower expenses on production, as a result of an order of the
copyright board. Reported PAT (standalone) has been amply helped by
profits booked on account of sale of OOH division (exceptional items),
while adjusted PAT has come in lower than our expectations, as the company
has taken a deferred tax charge of Rs 78.4mn.
q We make changes to our FY11/ FY12 estimates to incorporate 3QFY11
results as well as higher growth in profits that the results indicate. Our
FY11E/ FY12E EPS is raised to Rs 10.3(+58%)/ Rs12.1 (+1%). Adjusted EPS
(FY11E) is revised upward by 18%.
q ENIL management sounded positive on the announcement of Phase - 3 of
FM radio licensing. The management expects a decision from the government
regarding auctions in the next 3-4 weeks. Auctions themselves
could be held in 3-4 months, and new stations could get operational in
the next 12-18 months.
q The sale of OOH division has brought in ample cash in ENIL's balance
sheet. The company currently has Rs 940mn net cash position, which
would be helpful in funding expansion for the Phase - 3 licenses.
q Improved profitability, continued strength in listenership, stronger cash
position, and exposure to positive regulatory impetus, place ENIL in a
sweet spot among media companies. We are bullish on ENIL and value
the stock at Rs 265, based on 22xPER FY12E EPS. On account of decline in
the stock price since our last update (due, we think to market decline),
we find the risk - reward more favourable on ENIL and upgrade the stock
to BUY.
