Research Reports On ENIL & Music Broadcast By Motilal Oswal & ICICI-Direct

Entertainment Network India Ltd (ENIL) (Radio Mirchi)

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)

Music Broadcast (Radio City)

We met the management of Music Broadcast (MBL) to understand its
growth prospects and plans ahead. It is one of the leading private FM
radio broadcasters in India with the brand Radio City. The company has
39 frequencies currently, including eight stations acquired from Radio
Mantra and 11 acquired via Phase III auctions. MBL’s operating revenues, EBITDA grew at 21%, 29% CAGR in FY14-17 to | 271.4 crore, | 91.1 crore, respectively. Radio City posted a six year CAGR of ~12.1% vs. 9.1% by industry in advertising volumes. It indicated triggers such as incremental revenues from new stations and ability of the company to
pass on rate hikes to the tune of 10-12% to aid overall revenues. The
company expects its new stations to break even within two years. The
management indicated it was in discussions with potential acquisition
targets in some locations. The company would be distributing 80-90% of
profit after accounting for the requisite maintenance capex (barring
additional outlay in case of an acquisition) to enhance shareholder return.

New markets of Phase III to drive revenues, capitalise on radio growth

MBL has launched all Phase III stations in FY17 and would benefit from
incremental revenues arising from new markets. The company focused
on expanding its reach in the last auctions to be a relevant national radio player against a second frequency strategy by some of its competitors.

The next phase of radio growth will stem from newly acquired stations.

The management expects new stations to contribute 10-15% of the
current topline. Coupled with 10-12% growth in core stations, the
company expects overall revenues growth at 16-18% CAGR in the next
couple of years. In our Jagran Prakashan estimates, we have factored in
Music Broadcast revenues will grow at 15.3% CAGR in FY17-19E to
Rs 360.5 crore.

Strong leadership in key cities, leading player in radio space

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…

We believe the company with its strong capital allocation and robust
earning growth potential remains a strong bet on the radio sector. At the current market price, the company is available at 29.6x FY19E earnings, which is at ~15% discount to ENIL.