Hiteshbhai,
On competitive landscape, I feel, there is hardly any new major player in the Phase-III. Most of the players have been in existence since phase-II barring some regional players in Orissa and Kerala. In the existing cities that ENIL has operations, I do not see any impact of competitive intensity impacting its realizations primarily because, theyare far ahead of it’s competition in many of these cities in terms of listenership and revenue share. Moreover, in many of it’s strong markets, it has acquired second frequency for itself and hence the real challenge is not to canniabalize it’s existing product in those cities. From the concall updates, it is very clear that they are targeting to monetize the second frequency with differentiated product and probably different brand. In nutshell, for it’s existing cities, I feel they will be able to sustain their rates. In fact, from March 2015, they had selectively started improving yields/increasing rates and management has indicated that they are boradbasing this increased rate to all existing stations and they want to continue this process going forward as well.
For new cities, I feel, it will be a challenge for ENIL to compete with incumbents and hence they may have to start with much lower rates than the market leaders. Thereafter, how well they perform and get listenership will decide the trajectory of their rates in new markets. So, ENIL is yet to taste waters here. However, this is true for all player who are entering in new market and not specific to ENIL.
On Profitability, according to management, inspite of rollout of new stations, higher roll out cost and negative operating leverage in new stations, the impact on EBIDTA margin is going to be only 1% on blended basis. Thus, on EBIDTA level, there is likely to be decent improvement in absolute terms if management walks the talk. One of the reasons why the impact at EBIDTA level may be minimal is because, the completely new frequencies are only 7 out of total 52 frequencies. Rest of them are either second frequencies or are acquired ones (TV Today). So, I do not see any negative impact on EBIDTA.
At the same time, there is going to be a significant Amortization charge coming from One time fee for new licenses and renewal fee of existing licenses (yearly 40-45 Crore). Plus, there is interest on short term borrowing kicking in and other income from 500 Crore cash going out. Thus, for a year, the PAT may decline from current levels. So, from business operations perspective one may see positive movement but on accounting front, the numbers may look subdued.
This may present a good opportunity to build position, if market ignores the operating performance and weighs the accounting earning disproportionately.
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