Gains galore from recommendations of Akash Prakash & Kenneth Andrade
First, we have to express our gratitude to Akash Prakash of Amansa Capital and Kenneth Andrade of Old Bridge Capital for generously offering stock recommendations to us.
The two stalwarts put their heads together and handpicked stocks which have the ideal combination of safety and growth potential.
Akash Prakash recommended Federal Bank, the blue chip mid-cap private bank, which is the favourite of Billionaires Rakesh Jhunjhunwala and MA Yussuffali.
Federal Bank is up an eye-popping 123% since then.
Kenneth Andrade recommended Coromandel International, the blue-chip of the reputed Murugappa group.
Coromandel International is up a fabulous 78% since then.
Both stocks are powerhouses and are good for more gains in the foreseeable future.
Kenneth Andrade’s latest recommendation – Entertainment Network India Ltd (ENIL)
“ENIL a.k.a Radio Mirchi is the market leader in the Radio space with 30% market share,” Kenneth told the distinguished audience at the Sohn India 2017 conference even as they listened to him with rapt attention and furiously made notes.
“Radio is an attractive space with 4% of Media spend and growing at a CAGR of 16.9%. ENIL has already done significant capex and its time to reap the benefits,” Kenneth added in his typical soft spoken mumble.
Akash Prakash’s Amansa Holdings already has a stranglehold in ENIL
It is not a coincidence that Amansa Holdings, Akash Prakash’s investment arm, already holds a massive chunk of 28,31,439 shares of ENIL as of 31st March 2017.
The investment is worth Rs. 258 crore at the CMP of Rs. 912.
It is obvious from the size of the bet that Akash Prakash has placed on ENIL that he completely endorses Kenneth Andrade’s theory that ENIL is the ideal investment candidate with low risk and high reward potential.
ENIL boasts of other distinguished shareholders such as Acacia Banyan Partners, IDFC Premier Fund, Pinebridge Investments etc.
|ENTERTAINMENT NETWORK (INDIA) LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||4,351|
|EPS – TTM||(Rs)||[*S]||11.43|
|LATEST DIVIDEND DATE||26 JUL 2016|
|BOOK VALUE / SHARE||(Rs)||[*S]||179.29|
[*C] Consolidated [*S] Standalone
|ENTERTAINMENT NETWORK (INDIA) LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||MAR 2017||MAR 2016||% CHG|
ENIL is a 4x Multibagger: Motilal Oswal
Ravi Shenoy of Motilal Oswal deserves to be complimented for his visionary outlook because as far back as in January 2014, when radio stocks were not even in reckoning as investment candidates, he recommended a buy of ENIL with the confident assurance that the entire radio sector would grow 4x and shower multibagger gains on investors.
His logic is impeccable and deserves to be noted:
“We recommend to Accumulate ENIL for a target of Rs 400 (20xFY15E EPS)
ENIL is part of the Bennett, Coleman & Co Ltd group which has been publishing “The Times of India”, “Economic Times” and regional variants since 1838. ENIL operates in 32 circles in India under the brand “Radio Mirchi” with “Mirchi sun ne wale always khush” (Mirchi audience is always happy) tag line. The “Tikhi Mirchi” (spicy/hot chilli) attracts 34M listeners with it contemporary music offerring.
Radio industry has potential to grow 4x:
The KPMG FICCI M&E 2013 report suggests a 16.6% CAGR in radio adspend over 2012- 2017. Radio is devoid of subscription revenues and depends upon adspends. If radio advertising were to rise to half the global standards of 0.9xGDP, ENIL and the industry have potential to grow 4x.
TV ad-time restrictions and Elections to add to growth:
TRAI regulations restrict TV Ad times to 10min of external ads. Some channels have already implemented this with a resultant sharp rise in ad rates given lower inventory. Hence, lower budget advertisers have shifted to cheaper mediums on TV, print and even radio. Radio will be a key beneficiary if this is fully implemented. Election advertising in the 4 recent state elections through Radio boosted revenues and should add to revenues in view of the upcoming Central elections.
Strongest player in the segment; The Times group advantage:
ENIL enjoys market leadership in the radio space with revenue share of 33-35%. The Times Group network helps bring in advertisements given its association with 25000+ advertisers. The company has one of the strongest balance sheets in the industry with debt free status, cash of Rs 300cr in its books. These factors will be important in expanding reach with more stations during the Phase-III Auctions.
Phase-III auctions will drive growth beyond 2016:
Phase-III auctions are expected to be completed in 2014. Phase 3 will allow expansion to 100 stations. Given the cash on books and strong cashflow generation, ENIL will be able to easily fund the capex for Phase-III. Phase-III will allow strong growth beyond 2016, but will entail a one time large investment for the license, migration fee and capex.
Valuations & View:
We estimate that ENIL will grow its revenues and PAT at 12% and 19% CAGR over FY13-FY15E. Growth beyond FY15E will depend upon Phase-III auctions which will be a key trigger in FY15E. We recommend to Accumulate the stock for a target of Rs 400 (20xFY15E EPS)”.
The stock is up 175% since Ravi Shenoy’s buy recommendation.
Entertainment Network is poised for healthy growth ahead: ICICI Direct
Bhupendra Tiwary and Sneha Agarwal of ICICI-Direct have also conducted a meticulous analysis of Radio Mirchi and given it the all-clear signal.
The core logic is as follows:
“Margins to improve as new stations break even from H2FY18 onwards
The newer channel launches as well as demonetisation impact led to a sharp decline in margins to 22.6% in FY17. During Q4FY17, overall EBITDA was impacted by heavy marketing expenses incurred towards new station launches and lower operating leverage owing to lower ad revenues. The company reiterated new stations breakeven cycle of six to eight quarters as they achieve increase in capacity utilisation and higher ad yields. It also said peak potential margins of second frequencies would be up to 45-50%. Furthermore, the company aims to improve the non-radio business margins to ~30% from current levels of low double digits over the next 3-5 years. Considering the above-mentioned factors, we expect margins to inch up to 26.5% & 28.7% in FY18E & FY19E, respectively, aided by the new stations breakeven as well as ad growth recovery.
Key beneficiary of expanding reach of radio; upgrade to BUY
Radio, as a segment in the Indian media sector, is likely to outpace its peers such as television, print owing to expanding reach and higher leverage in terms of pricing. The segment is likely to report 16-18% revenue growth over the next three to five years. We also reiterate that ENIL, being a leader, is expected to be a key beneficiary of the expanding reach of the radio. While the new channel launches in phase III are expected to pressurise margins in H1FY8E, a gradual recovery would be seen from H2FY18E onwards. The company’s focus on improving the profitability of the non-radio business is also heartening. Therefore, we upgrade the recommendation on ENIL to BUY with a DCF-based target price of Rs 860.”
Of course, the conservative target price predicted by the duo has been effortlessly taken out by ENIL.
What about Music Broadcast?
At this stage, we have to note that Music Broadcast is ENIL’s arch rival. While the latter runs ‘Radio Mirchi 98.3’, the former runs ‘Radio City 91.1’.
Both radio channels are top favourites amongst the teeny boppers who listen to radio channels.
According to Bhupendra Tiwary and Sneha Agarwal of ICICI-Direct, Music Broadcast is also a powerhouse given that its operating revenues and EBITDA have grown at 21%, 29% CAGR in FY14-17 to Rs 271.4 crore, Rs 91.1 crore, respectively.
Radio City has posted a six year CAGR of ~12.1% vs. 9.1% by industry in advertising volumes.
Strong leadership in key cities, leading player in radio space
It is also stated that Radio City is the first and oldest private FM radio broadcaster in India with over 15 years of expertise and a pan-India presence spanning 39 frequencies. As per RAM data, it has consistently been the No. 1 radio station in terms of average listenership share in Bengaluru and Mumbai with 24.1% and 17.2%, respectively, among private players. MBL is also present in 12 of the 15 most populated cities in India. The presence in key metros along with an expanded network in some key cities makes it a meaningful player in the eyes of advertisers.
Strong financials, cash flows, discount to ENIL
Bhupendra Tiwary and Sneha Agarwal have opined that Radio City, with its strong capital allocation and robust earning growth potential remains a strong bet on the radio sector. It is emphasized that at the current market price, the company is available at 29.6x FY19E earnings, which is at ~15% discount to ENIL.
So far, novice investors have been focusing on traditional investment avenues. The idea of investing in a FM radio station has never occurred to us. However, the guiding light shown by Kenneth Andrade and Akash Prakash enables us to become pioneers and take an early position in these stocks before the hoi polloi does!