ENIL's Q3FY19 results (Outperformer) - Strong overall performance!

Q3FY19 result highlights

• Standalone rev. grew 35.9% yoy to ~Rs2bn (2% beat) largely due to festive season shift (which led to muted Q2 performance) and two international concerts.
• Standalone EBITDA came in at ~Rs404m (13.5% yoy; in-line) due to higher non-FCT contribution and Batch II EBITDA loss stations. Margins fell ~400 bps yoy to 20.1% (IDFCe: 20.4%). Adjusting for concerts business loss, EBITDA would have been ~Rs487m (27.5% margin).          
• Radio: Core radio revenue has grown by ~25% yoy. Legacy stations revenue grew by ~21% yoy (top 8 cities utilization at 124%; remaining 27 at 89%); Batch I stations revenue was up ~41% yoy (utilization at 38%), while Batch II station revenue stood at Rs15m (12% utilization). Most of the growth was volume led. Blended pricing improvement was 1% yoy (excluding govt. pricing improved ~3% yoy). Legacy/Batch I/Batch II EBITDA margins stood at 20.4%/18.8%/-48.6% respectively.
• Non-FCT: Excluding two ‘international’ concerts, non-FCT revenue grew 11.9% yoy while gross margin came in at 29.8% (vs 20.9% yoy). International concerts business grew ~500% yoy. Non-FCT business was ~39-40% of total revenue in Q3.

Key positives: Strong radio performance.

Impact on financials: Trim FY20E EPS by 7%.

Valuations & view

We believe ENIL’s ‘perfect storm’ (which led to earnings/stock underperformance) is now firmly behind, and its revenue growth should outperform the industry’s hereon. Profitability too should consistently improve, led by operating leverage across its legacy stations (~80% utilization) as well as new investments (Phase III Batch I/II) going forward. Growth should pick-up in FY20E as well, although margins could see some ceiling due to new business initiatives like international concerts, US forays, Batch II station launches, etc. We note that ENIL’s existing stations were renewed at ~3 year FCF for a 15 year license term making their IRR strong at ~50% plus. On top of this, having a dual station in all A+ and A category towns (ex. Chennai) is a unique competitive advantage, in our view, and should create long-term value. However, given the recent headwind on the entire media sector, we cut our target multiple and target price accordingly. Maintain OP with a revised TP of Rs618 (16x FY20E EV/EBITDA versus 18x earlier).