Management Speak: Entertainment Network (India) Ltd (Outperformer) - Tuning in to growth!

We present key takeaways of our interaction with Entertainment Networks India Ltd’s (ENIL) management to gauge the way forward for the company:

• Back to the growth phase: Given that its volume cut strategy, and large client issues are firmly in the base, ENIL is now targeting 20% yoy revenue growth in FY19E, and is confident of adding incremental ~Rs1bn in FY20E (18% CAGR over FY18-20E). Revenue growth would come from Phase III Batch I stations, ramp up in TV Today metro stations, rising utilization and pricing at legacy stations and higher non-FCT revenue. Management is confident of gaining revenue market share from FY19E onwards.
• Radio and non-FCT segments to boost margins: Management expects gross margins in the non-FCT segment to improve to 29% in FY19E (and to 35% in the medium-term) from 24% in FY18. Profitability in Phase III Batch I and legacy stations should help improve core radio margins, although Batch II launch and TV Today metro stations would partially put pressure on the same.
• Laying the foundation for digital presence: ENIL believes radio and OTT music streaming players can co-exist with the latter providing a means to tap an emerging listener base (courtesy, data revolution). ENIL has made its 20 digital radio stations available on Gaana.com and is working with Saavn and Wynk for similar tie-ups. The company is also leveraging its staff base to create original content options (video/audio). ENIL is working to create 20 hours of original video content by end FY19E, by when it expects to launch ‘Mirchi Play’, an app that would house all its digital properties and content.

Valuation & View

We believe ENIL’s ‘perfect storm’ (which led to earnings and stock underperformance) is now firmly behind, and its revenue growth should outperform the industry hereon. ENIL’s profitability should consistently improve, led by operating leverage and turnaround in past investments (Phase III Batch I/II, TV Today metro stations), going forward. While we have cut our EBITDA estimates by 13%/9% for FY19E/20E, respectively, to incorporate earlier-than-expected rollout of Batch II stations, we see this as a near-term blip, post which earnings should see a stark improvement. We build in an EBITDA/PAT CAGR of 32%/63% over FY18-20E, respectively. We maintain our Outperformer rating with a revised target price of Rs791 (18x FY20E EV/EBITDA).