ENIL's Q4FY19 results (Outperformer) - Entering a sustainable earnings growth cycle!

Q4FY19 Standalone Result Highlights

• Revenue grew 10.1% yoy to ~Rs1.7bn (2% miss). Growth was supported by non FCT business (+26% yoy) as core radio business was flat yoy (most key advertising segments saw double-digit volume growth).
• EBITDA came in at ~Rs438m (23.6% yoy; 2% beat) due to improving margin in non FCT business (gross margin up 500 bps yoy) and improving utilization in Batch I stations. Margins were partially affected due to Batch II EBITDA losses. EBITDA margin stood at 24.9% (+270 bps yoy; IDFCe: 24.0%).
• Radio: Core radio revenue was flat yoy. Key segments like BFSI, Automotive, Organized Retail, FMCG registered declines in volumes. Govt. business grew just 5% this time because of a very strong base. ENIL has seen pricing improvement (of 4% this quarter); however, negating the impact of volume declines.
• Non-FCT: Non-FCT business grew ~26% yoy, while gross margins improved ~500 bps yoy to ~28%. ENIL would continue to focus on improving margins in the non-FCT business.
• FY19: ENIL disclosed the revenue split for the first time with Core-Radio/Solutions business reporting Rev of Rs4.1bn/Rs2.1bn.

Key positives: Strong Non-FCT performance.

Key negatives: Flattish core radio growth.

Impact on financials: 4% upgrade in FY20E EPS; Introduce FY21E.

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 H2FY20E/21E. 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, post TV Today deal) is a unique competitive advantage, in our view, and should create long-term value. We roll-forward our valuation to FY21E. Maintain OP with a revised TP of Rs605 (12x FY21E EV/EBITDA). The recent price correction provides a good opportunity to enter this stock.