Entertainment Network (India) Ltd Results Analysis: Nirmal Bang

Entertainment Network (India) Ltd Results Analysis: Nirmal Bang Entertainment Network (India) Limited (ENIL) operates FM radio broadcasting stations through the brand Radio Mirchi in 32 Indian cities and is headquartered in Mumbai. ENIL has a wholly owned subsidiary, Times Innovative Media Limited (TIM), through which it operates its outof? home media brand Times OOH and experiential marketing brand 360 Degree Experience. Its promoter, Bennett, Coleman & Co. Limited (BCCL), is the flagship company of The Times Group, which has a heritage of over 150 years and is one of India's leading media groups.

Quarterly Results
Revenues below our Expectations ?? ENIL declared its Q1FY10 results which were below our expectations on the revenue front as well as the profitability front. Revenues were down mainly due to a fall in the advertising revenues because of slowdown in the economy. The company reported revenues of Rs. 87.1 crores in Q1FY10 as against Rs. 107 crores in Q1FY09 i. e. a fall of 18.4% on a YoY basis and Rs. 99.6 crores in Q4FY09, a fall of 12.3% on QoQ basis.

The company provided for doubtful debts worth Rs. 1.74 crores and a provision was made for private treaty revenues for Rs.2.59 crores thus increasing the administrative expenses. ENIL reported an operating loss of Rs. 6.4 crores in Q1FY10 as against a profit of Rs. 4.3 crores in Q1FY09 and a loss of Rs.10.8 crores in Q4FY09.

ENIL reported a net loss for Q1FY10 to the tune of Rs. 19.4 crores after minority interest against a loss of Rs. 8 crores in Q1FY09 and a loss of Rs. 23.4 crores in Q4FY09. Performance Analysis During the quarter, the impact of the economic downturn on ‘Out Of Home Media’ sector was quite severe. The advertising spends in the OOH segment basically comes from Real estate and financial services segments, with both these sectors the worst hit in the recent meltdown the advertising revenues from these segments went down drastically and the company also had to face cancellation of some of the deals.

The revenues for the 10 legacy stations were down by 12.5% and the 22 new stations led to a further decline in revenues of the company by 11.6%. The FM Radio segment however accounted for an operating profit of Rs. 9.2 crores. The company remains the leader with approximately 41?42% of the market share even though the private radio industry declined by around 2224% in Q4FY09.

The revenues for the TIML business were down by 22.6%. There have been new additions in customer base in the airports and traditional sectors to the tune of 22 and 98 customers respectively. The revenues for the event management business also reduced by 37.3% due to the slowdown in the advertising spend. The company is working on a major cost cutting spree thus reducing the operating expenses by around 10% on a consolidated basis.

 The general view for the media sector as a whole is that the general economic slowdown has hurt advertisement revenues. Client advertising spends have been under pressure but we believe advertising spends will improve going forward in Q3FY09 and Q4FY09. Future Plans The company has planned horizontal expansion in the radio business by way of getting additional licences in new cities under Phase III.

 The phase III plans are on its way and the auctions are expected very shortly. They are also planning to establish footprints in top 25 cities in India for the OOH segment growth. Valuation & Recommendation We believe with advertising spends from sectors like auto & FMCG increasing in the first quarter & with the economy on the recovery path the advertisement revenues from sectors like financial services & Real Estates will also start flowing. We expect the radio business to start contributing more from the second quarter onwards as all the stations are now operational & all associated costs with it are over by Q4 of FY09.

 We expect Demand in the OOH segment to pick up from the third quarter onwards as a slew of new public offerings in the financial markets are expected towards the second half of the year coupled with revival in the Real Estate spending on advertisements. We expect the company to be positive at the operating levels for the current year but will add to the bottom line only by next year. At the current price of Rs. 187 per share, ENIL is currently available at 42.6x FY12E. However the high PE multiple in the initial years is justified looking at the huge capex plans of the company and the company being in the high growth phase. At Rs. 272.1 per share the stock is trading at a discount of45.5% from our intrinsic price of Rs. 272.1 per share. We Put a HOLD rating on the stock with a revised price target of Rs. 272.1 per share.

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