India | Media & Entertainment 9 November 2010

Quarterly Update  
 

Entertainment Network India

Good times ahead Rating : Buy
Radio trims royalty costs, OOH business continues to post losses Target Price : INR290
Upside : 22%
ENIL has reported a respectable Q2FY11; standalone revenues
CMP : INR236 (as on 8 November 2010)
comprising radio business grew 12% YoY to INR628mn, largely in line
Global Markets Research

with our expectation of INR610mn while consolidated revenues Key data*

including OOH and Event business were up 9.6% YoY at INR 1079mn. Bloomberg /Reuters Code ENIL IN/ ENIL.BO
The radio business EBITDA of INR157mn was up 8.6% YoY, in line with Current /Dil. Shares O/S (mn) 47.7/47.7
our expectation, posting an EBITDA margin of INR25%. The result of Mkt Cap (INRbn/US$mn) 11.3/253.7
Daily Vol. (3M NSE Avg.) 179,007
the royalty issue saved about 150bps. However, consolidated EBITDA
Face Value (INR) 10
dipped 6.5% YoY to INR127mn, led by the losses in OOH business.
1 US$= INR44.4
Positive Outlook: Radio margins to scale up Source: Bloomberg ; * As on 8 November 2010
Going forward, ENIL will produce better results on account of the
Price & volume
OOH business hiving off and lower royalty costs. Utilization levels
across the industry are at peak levels in the Tier I cities. ENIL has hiked 270 10
250
ad rates in Q3FY11, and as per the management, it has found a good 8
230
response in the incumbent festive season. We expect the company to 6
210
jump to a stable radio business margin of ~30-33% on an annualized 4
190
basis. 2
170
H2FY11 earnings look attractive; EBITDA seen at INR484mn 150 0
Nov-09 Mar-10 Jul-10 Nov-10
On a consolidated basis, ENIL has posted an EBITDA of INR295mn for
Vol. in mn (RHS) ENIL (LHS)
H1FY11 and we expect H2FY11E to deliver EBITDA of INR484mn, due
Source: Bloomberg
to the ongoing festive season and cost savings from royalties besides
the hiving off the loss making OOH business. Our annual FY11E and Share holding (%) Q3FY10 Q4FY10 Q1FY11 Q2FY11
Promoter 71.2 71.2 71.2 71.2
FY12E EBITDA estimates stand at INR779 and INR1,226mn
Institutional Investors 11.0 11.7 10.9 13.5
respectively.
Other Investors 7.2 6.9 6.9 7.7
Radio to command premium General Public 10.7 10.3 11.0 7.6

Our SOTP based target price of INR290 values the radio business on Source: BSE

DCF, deriving a per share value of INR274 while the event business Price performance (%) 3M 6M 12M
and OOH congregate the remaining INR16 per share. This derives an Sensex 14.9 24.3 29.1
implied EV/EBITDA of 16.5x and 9.6x for FY11E and FY12E ENIL 13.4 23.3 29.7

respectively. Reliance Media Works 30.3 37.7 0.6

Source: Bloomberg

Y/E Mar (INR mn) Consolidated Q2FY11 Q2FY10 YoY(%) Q1FY11 QoQ (%) Q2FY11E Variance (%)
Net Sales 1,079 985 9.6 1,150 (6.2) 1,194 (9.6)
Operating Expenses 952 991 (3.9) 1,003 (5.1) 1,016 (6.3)
% of Sales 88.2 100.7 (12.3) 87.2 1.2 85.1 3.7
EBITDA 127 (6.5) (2,050.5) 147.4 (14.0) 177.4 (28.5)
EBITDA Margins (%) 11.8 (0.7) (1,880.1) 12.8 (8.2) 14.9 (20.9)
Depreciation 111 137 (18.9) 113 (1.9) 116 (4.0)
Interest 4 31 (85.6) 9 (51.1) - -
Other Income 1 1 2 - -
PBT 12 (173) (107.0) 27 (54.9) 62 (80.5)
Tax 30 (3) (1,067.3) 22 NA  14 108.7
Effective Tax Rate (%) 248.3 1.8 13,766 81.7 203.8 23.2 969.8
Net Income 3 (170) (101.9) 5 (34.3) 48 (93.2)
NPM (%) 0.3 (17.3) (101.7) 0.4 (29.9) 4.0 (92.5)
Net Income after Minority share 11 (138) (107.6) 5 115.1 48 (77.8)
EPS 0.2 (2.9) (107.6) 0.1 114.7 1.0 (77.8)
Source: Company, Elara Securities Estimate 

Key Financials
Y/E Mar (INR mn) Rev YoY (%) EBITDA EBITDA (%) Adj PAT YoY (%) Fully DEPS RoE (%) RoCE (%) P/E (x) EV/EBITDA (x)
FY08 4,169 75.9 355 8.5 (171) NA (3.6) (3.6) NA NA 32.6
FY09 4,293 3.0 (61) (1.4) (603) NA (12.6) (14.5) (10.4) NA NA
FY10 4,228 (1.5) 445 10.5 (154) NA (3.4) (3.7) (1.7) NA 26.0
FY11E 3,920 (7.3) 779 19.9 314 NA 6.6 7.5 9.0 35.9 14.8
FY12E 3,594 (8.3) 1,226 34.1 740 135.5 15.5 15.3 17.8 15.2 9.4
  Source: Company, Elara Securities Estimate 
Aliasgar Shakir • aliasgar.shakir@elaracapital.com • +91 22 4062 6816
  Elara Securities (India) Private Limited
 Entertainment Network India

Consolidated Financials (Y/E Mar)

Income Statement (INR mn) FY09 FY10 FY11E FY12E Revenue & margins growth trend
Net Revenues 4,293 4,228 3,920 3,594 34.1
4,500 40
EBITDA (61) 445 779 1,226
30
Less :- Depreciation & Amortization 526 526 392 329 4,000 19.9

(INR mn)
EBIT (587) (81) 387 898 10.5 20

(%)
3,500
Less:- Interest Expenses 144 121 13 - 10
(1.4)
Add:- Non operating Income 30 7 2 3,000
0
PBT (731) (195) 376 898 2,500 (10)
Less :- Taxes (3) 23 69 158
FY09 FY10 FY11E FY12E
Reported PAT (729) (218) 307 740 Net Revenues (LHS) EBITDA Margin (RHS)
Minority Interest (16.5%) (126) (65) (7) -
Source: Company, Elara Securities Estimate
Adjusted PAT (603) (154) 314 740
Balance Sheet (INR mn) FY09 FY10 FY11E FY12E  
Share Capital 477 477 477 477
Adjusted profits growth trend
Reserves 3,490 3,490 3,490 4,229
75.2
Borrowings 1,481 574 0 0 1,500 80
Minority Interest 199 134 127 127 57.4
Total Liabilities 5,647 4,675 4,094 4,832 1,000 60

(INR mn)
Gross Block 4,392 4,501 3,715 3,813

(%)
500 40
Less:- Accumulated Depreciation 1,346 1,822 1,938 2,266
Net Block 3,046 2,678 1,778 1,547 0 20
Add:- Capital work in progress 137 39 39 39 FY09 FY10 FY11E FY12E
(500) 0
Deferred Tax (Net) 92 69 69 69
Investments 0 17 17 17 EBITDA (LHS) EBITDA growth (RHS)
Net Working Capital 2,210 1,557 2,191 3,161
Source: Company, Elara Securities Estimate
Other Assets 162 315 1 0
Total Assets 5,647 4,675 4,094 4,832  
Cash Flow Statement (INR mn) FY09 FY10 FY11E FY12E
Return ratios
Cash profit adjusted for non cash items (206) 331 768 1,226
17.8
Add/Less : Working Capital Changes 1,201 574 14 100 20
9.0
Operating Cash Flow 1,103 1,265 727 1,169
10 15.3
Less:- Capex (526) (71) 509 (98) (1.7)
7.5
Free Cash Flow 577 1,193 1,235 1,071 0
(10.4)
Financing Cash Flow (596) (1,041) (588) -
(10) (3.7)
Investing Cash Flow (480) (71) 509 (98)
Net change in Cash 27 153 648 1,071 (20) (14.5)

Ratio Analysis FY09 FY10 FY11E FY12E FY09 FY10 FY11E FY12E
Income Statement Ratios (%) ROE (%) ROCE (%)

Revenue Growth 3.0 (1.5) (7.3) (8.3) Source: Company, Elara Securities Estimate
EBITDA Growth 75.2 57.4
PAT Growth NA NA NA 135.5
 
EBITDA Margin (1.4) 10.5 19.9 34.1  
Net Margin (14.0) (3.6) 8.0 20.6
Return & Liquidity Ratios
Net Debt/Equity (x) 0.3 0.1 (0.2) (0.4)
ROE (%) (14.5) (3.7) 7.5 15.3
ROCE (%) (10.4) (1.7) 9.0 17.8
Per Share data & Valuation Ratios
Diluted EPS (INR/Share) (12.6) (3.4) 6.6 15.5
EPS Growth (%) NA NA NA 135.5
DPS (INR/Share) (12.6) (3.4) 6.6 15.5
P/E Ratio (x) NA NA 35.9 15.2
EV/EBITDA (x) NA 26.0 14.8 9.4
EV/Sales (x) 2.7 2.7 2.9 3.2
Price/Book (x) 2.7 2.7 2.8 2.3
Dividend Yield (%) NA NA NA NA
Source: Company, Elara Securities Estimate
  
2 Elara Securities (India) Private Limited

Good Times ahead
Radio trims royalty cost
ENIL reported a wholesome Q2FY11.
ƒ Standalone revenues comprising radio business
grew 12% YoY to INR628mn, largely in line with our
expectation of INR610mn. Consolidated revenues
including OOH and Event business grew 9.6% YoY
to INR 1079mn.
ƒ Radio business EBITDA of INR157mn grew 8.6% YoY,
in line with expectation, posting an EBITDA margin
of 25%. During the quarter, royalty issue was
resolved and therefore, the company saved about
150bps on the same. The management has
conveyed its strategy of keeping a tight lid on
marketing expenses as in this quarter, marketing
expenses have shown a sharp growth of 54% on
account of event expenses, mainly for the first
edition of Mirchi Music Awards. Consolidated
EBITDA dipped 6.5% YoY to INR127mn, led by losses
in OOH business.
ƒ The company reported a net income of INR50mn on
a standalone basis, a YoY growth of 32%. This is tad
below our expectation of INR60mn due to higher
deferred tax expenses. Consolidated net income
stood lower than standalone numbers at INR11mn.
ENIL’s hiving off OOH business should lead to better
numbers in the coming quarter.
Exhibit 1: Improving utilization levels
100
80
80 71
55
60 48 50
40
20
0 2,000
Q1 FY11 Q2 FY11
Top 10 Remaining 22 Blended
Source: Company
Positive outlook
OOH, royalty headwinds erased
This was the last quarter for accounting OOH business as
ENIL has sold it to the parent company. Consequently,
from next quarter onwards, ENIL should showcase better
results on account of superior EBITDA margin in the
radio business. The OOH business has been a drag on
the overall profitability with EBITDA level losses due to
which the consolidated EBITDA margin have been a
Elara Securities (India) Private Limited  3
Entertainment Network India
mere 12% in the current quarter. We expect the
company to jump to a stable state radio business margin
of ~30-33% on an annualized basis. The company has
also gained significant clarity on the royalty issue which
has been cut down to 2% from the previous 7%. This will
start saving ~400-500bps from the next quarter
onwards. The phase III proceedings of liberalizing private
Media & Entertainment
FM radio should also speed up as the royalty issue was
the major hurdle which now got resolved.
Radio industry poised to grow
Private FM radio industry recorded a growth of 24%-26%
during the quarter. Utilization levels across the industry
are at peak levels in the Tier I cities and thus, radio
players are dropping the low yielding clients, thus
enhancing the average ad rates. ENIL has hiked ad rates
in Q3FY11, and as per management comments, it has
found a good response in the incumbent festive season.
The company has increased rates in double digits and
remains optimistic that it will be sustained throughout
the quarter. We expect all these aspects to reap benefits
over the coming quarters and help a sharp growth in the
bottom line.
Lucrative H2FY11 earnings
On a consolidated basis, ENIL has done an EBITDA of
INR295mn in H1FY11 while we expect H2FY11E to
deliver an EBITDA of INR484mn account of the festive
season, cost savings from royalty and the separation of
the loss making OOH business. Thus our annual FY11E
and FY12E EBITDA estimates stand at INR779 and
INR1,226mn respectively.
Exhibit 2: Growing EBITDA
58 5,000
4,220
3,895
4,000 3,594
3,000
1,226
779
1,000 445
0
FY10 FY11E FY12E
Revenues EBITDA
Source: Company
Radio to command premium
We have valued ENIL on an SOTP basis. The radio
business is valued on DCF, deriving a per share value of
INR275 with a terminal growth of 4.5% and WACC of
13.1%. The Event business is valued on EV/EBITDA 1x
obtaining INR11.5 per share. We remain bullish on the
scrip and maintain our SOTP based price target of
 Entertainment Network India

INR290 per share that provides an upside of 22% from

the CMP of INR236. This derives an implied EV/EBITDA
of 16.5x and 9.6x on FY11E and FY12E respectively.

Exhibit 3: Valuation Summary

DCF Fair value per share of Radio Business (INR) (a)
Enterprise Value (INRmn) 12,348
Add: Cash & Equivalents (INRmn) 733
Less: Debt (INRmn)
Market Cap (INR) 13,081
Diluted Shares (mn) 47.7
Fair Value per Share of Radio Business (INR) 274
Event and OOH business (INR) 16
Total Value per share (INR) 290
CMP (INR) 236
Upside/(Downside) (%) 22
Source: Company, Elara Securities Estimate

 
4 Elara Securities (India) Private Limited
 Entertainment Network India

Coverage History
500

400

Media & Entertainment

300
3

200
1 2

100

0
Jun-08
Jul-08

Jun-09
Jul-09

Jun-10
Jul-10
Apr-09

Apr-10
Feb-09

Feb-10
Aug-08

Aug-09

Aug-10
Mar-08

Mar-09

Mar-10
Dec-08
Jan-09

Dec-09
Jan-10
Sep-08

Sep-09

Sep-10
Oct-08

Oct-09

Oct-10
Nov-08

Nov-09

Nov-10
May-08

May-09

May-10
Not Covered Covered

Date Rating Target Price Closing Price

1 7-May-2010 Buy INR272 INR192
2 12-Jul-2010 Buy INR253 INR202
3 25-Aug-2010 Buy INR290 INR238

Guide to Research Rating

BUY Absolute Return >+20%
ACCUMULATE Absolute Return +5% to +20%
REDUCE Absolute Return -5% to +5%
SELL Absolute Return < -5%
   

 
Elara Securities (India) Private Limited  5
 Elara Securities (India) Private Limited

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