Entertainment Network India Limited (ENIL)

Stock Opportunities Untested - but worth a good look
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My notes from Q1FY18 concall:
Growth and margin : Top line de-grew by 5.8%. Radio is high operating leverage business. Top line drop resulted in significant drop in ebita margin and bottom line_(this has been explained very well by Dhwanil in his goa presentation)_

Reasons for drop in revenue:
* Lingering effects of demonetisation: impacts still persist affecting retail /small clients/real estate.
* Impact of RERA: Builders not allowed to advertise on new projects unless registered with RERA. Significant revenue for radio industry comes from real estate on new project launches which was impacted severely. Real estate is big contributor to radio industry ads. in volume terms its down by 21% for ENIL its down by…as in some markets the contribution from RE was high for ENIL.
*GST IMPACT: Advertising by all the sectors including real estate was down significantly during the month of june…
*Radio industry top 8 categories (govt,fmcg,automobile,education,real estate,media,travel and .com in the order) collectively dropped by 20%. Biggest drop was in govt/ political ad spend on high base of last year, around 19% of radio industry revenue is from govt. Typically govt ad spend is divided (volume)among all players equally but price varies for each player depending on listenership. Mirchi market share in govt ad spend is around 25%. For mirchi the govt ad drop is 70% against 30% for industry.

Comment about other radio players growth:
*one player has added two large metro city station on small base which contributed to growth .If we exclude the new stations contribution growth will b negative. One more player growth may be 2 to 3% after excluding the new stations. Their growth may be due to strategy of accepting ads at low price.(I think he was speaking about Music broad c ltd).

Non radio business : grew by 17% in Q1FY18. Contributed 27% of overall revenue in Q1. Margin contribution increased to 37% from 29%. It is fast growing segment in industry. ENIL focus is on profitability.

CAPACITY utilisation:( based on 13min/hr and 17hrs/day)
*core 36 stations:60% in Q1FY 18 v/s 93% in Q1FY17.
* top 8 stations : 86% in Q1FY 18 v/s 113% in Q1FY17.
*New stations: 20%.

Pricing and strategy: price is up by 11% yoy. Mirchi has established top price in all the cities. Even the second frequency/new channels have has kept at higher price. In cities like Bengaluru/Hyderabad price for new mirchi love station is higher than legacy mirchi station. Other cities pricing is at par or 2nd to mirchi. In media industry achieving higher price is important which gives sustainability for next 15 yrs. ENIL is not going to cut the price to increase volumes. Its very difficult to increase price again once reduced. High price resulted in low capacity utilisation.
During last year peak season(diwali) ad time cap was for 22min/hr. Plan to reduce this to 18min/hr to build listenership and maintain high price.
Market may take another 3 to 6 months to recover. July has been bad for advertising industry. With festival season/H2 it may recover with good volumes. Strategy of high pricing will be reviewed if current situation continues in H2/festive season.

Core 36 stations : de-growth is 15%, cost increased by only 1.5%. Wants to keep the cost low which results in improving margins when revenue recovers. Not much marketing spend for stations**. Core stations EBITA will be 30 to 35%.**

New stations: EBITA loss is reduced to 5 cr ,will be profitable by end of FY18. EXPECT THE CAPACITY UTILISATION IN NEW STATION TO REACH 60 TO 70% IN FESTIVE SEASON FROM CURRENT 20%. When new station is launched first few months is to build brand/listenership ,revenue by 3-4 quarter then to concentrate on margins by 8 quarters. Old mirchi stations is not loosing revenues to new station as not many common advertisers. local advertisers will contribute significantly (70%) when new station is launched. This will change over few years when national advertise increases. New channels are not empelled for govt ads.

Listenership/ research: no absolute increase in radio listenership due high ad time. ENIL does listenership survey with respected global companies whose data will be shared with customers to command high premium pricing. Maximum radio listening(80%) happens on mobile phones. 75% of cars are tuned to FM. Many of newer mobile phones doesn’t have FM TUNER which is threat to fm industry. JIO smart phones which is going to be launched and expected to replace 50% of phones will have FM tuner.

DIGITAL : have 21 online streaming stations. Launching new digital channels for young who can listen to radio on smart phone with minimal data consumption. Making lot of video /content/programmes /online radio stations for sponsors for online business. Trying to monetise the online stations. presently revenue from digital is less than 1%. This can rise to 10% of revenue.

Capex/new launches: 25 crs for this FY. Only three stations from batch 1 auction yet to be launched. Jammu and Calicut will launched in august. Srinagar launch will take time. Batch 2 stations roll out starts in next 6-9 months. These are all small station. Not much spend is expected.

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During con cal Mr Prashant pandey mentioned that one of the reason for revenue loss was due to drop in GOVT ads for FM industry/radio mirchi in particular.He also mentioned that new FM stations were not empaneled for Govt ads.Considering the increase in no of new FM stations and dependence on Govt for ads ,I was looking to find out when/how these new stations are going to be empaneled with Govt. Few points noted/interpretation :

1.DAVP (Directorate of advertising and visual publicity(DAVP) is the nodal agency for Govt ad through FM channels.
2.Minimum broadcast period of six months and at least 16hr/day. This will be by verified by DAVP after going through last 6 months program schedule of the FM channel, that means FM channel has to broadcast for at least 6 months before applying for the Govt empanelment.
3. Once empanelled, FM station will remain on panel for period of 10 yrs. During the last year FM channel can apply for renewal.
4. Rate structure: varies based on city category/time band. Listenership data as per IRS 2012 is taken into account while calculating rate .As mentioned by Mr Prashant pandey during concall new IRS is due to be out in few months. For category D cities/cities not covered by IRS, population of the city is considered.
5. ENIL has launched most of the stations acquired in batch I of phase III. Last station was launched on 15/02/2016 at SHILLONG. Essentially all these new channels are qualified (at least in terms of duration of 6 months) to be empanelled with Govt.
More details can be found in the attached Govt document dated 12/08/2016Adv6131282016.pdf (2.7 MB)

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Found some more data on fresh empanelment of FM stations with DAVP( NOTIFICATION RELEASED ON 01/03/2017.)
1.Out of 230 FM stations ,222 FM stations are recommended for empanelment. 192 were already on empanelled (seems like renewal of empanellement).
2.Remaining 30 are new FM stations approved for empanellement and ad rate is offered by DAVP to FM players . last date to respond for the same was March 2017.
3.Many new FM stations of ENIL has been accepted for empanelment.(refer to document attached)
4.AD rate offered to these new stations is quite low. Seems like all the new stations of different players have been offered unifrom price.
5. Interesting thing to note is significant price premium ENIL (RADIO MIRCHI) has got compared to other players in existing stations.
More details can be found hereAdv714232017.pdf (2.2 MB)

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ENIL commenced new radio station from Jammu
94586d1e-ab90-4e5a-885a-b5ed4b1c3e53.pdf (32.7 KB)

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On Sept 20th ENIL commenced it’s new FM station from kozhikode(calicut) bbd39ca4-079c-4b64-b04a-cf90c5a55853.pdf (32.8 KB).
With this ENIL has completed launch of all stations acquired from batch 1of phase III (except srinagar station due to political situation as indicated by management during concall).
As these are small stations the expenses for launch of these must be low.
I have noticed decent pick up in the ad volumes in FM stations from last two months compared to June month. It’s easy to track by listening to FM once in a while during driving.

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Updates : Radio Mirchi ran the unsuccessful ad campaign #MatAaoIndia, apologized later. But has the brand suffered ?

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ENIL :Q2 FY18 results:
Income from opeartions: 124 cr v/s 128 cr in q2 fy17 degrowth of 2.5%.
EBITDA of 28 cr v/s 23 cr in q2 fy17 grew by 22% .
PBT of 13 cr v/s 11 cr grew by 18%.
PAT is lower by 25% to 6 cr.(without one time deferred tax grew by 10%)
Radio industry seems to be affected due to decline in ad volumes by real estate and Govt as per concall of other radio players(DBcorp and MBL).
Iinvestor prsentation ENIL Q2 FY 18.pdf (440.0 KB)

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Q2 FY8 CONCALL NOTES:
Industry overview: Overall radio industry volume growth was around 7%.volume growth of old stations during Q2 was sluggish at 1%. It was mainly led by new stations( 6%).In terms of value degrowth of -5%(old) .overall 2 or 3% value growth due to new stations.

Radio mirchi:suffered due to impact of GST and RERA. Real estate has degrown by 45% .other categories like Govt and fmcg sectors were flat . Auto, BFI, Jewellary and retail has shown good growth. Impact of gst is continuing in q3 also. Expecting significant demand escalation in Q4 and fy19. Auto,govt,fmcg to do well in future. Real estate has come back in Mumbai by 60%in volume terms .

Radio industry future remains bright even though facing competition from digital. Consumptions of radio happens everywhere. No of listeners in car increasing. 70% to 80% of cars tuned to FM. Increasing no of cars/travel time will drive the listenership. Digital will be large opportunity for radio broadcasters but it will take time.

Core stations of Mirchi: revenue de-grew by 10%(111cr). volume down by 16%. July and Aug months were bad for radio. Maintained ad cap of 14 min/hr. when demand was high during late Sept increased to 18 min and beyond 22 min only if price is maintained.

New stations: contributed 14Cr of revenue. Presently at 21 % utilization for 13 min inventory ( including recently launched two stations).Many stations like Bengaluru, Hyderabad, Ahmedabad and Chandigarh utilisation is 35 to 40%. Continue to position new channels with premium /higher level pricing. EBITDA loss reduced to 1.8Cr from 10Cr yoy. Expected to turn net positive by fy18 end. Maintained cap on ad timing to 10 min/hr. Even with this if the full capacity utilisation happens expected revenue from new station per/yr is around 250Cr at 100% capacity utilisation based on current price.

Strategy: focus to improve listenership. Continue with ad cap of 14min/hr during off season and 18 min/hr in season. This has led to volume reduction of 16% in Q2. This strategy(18 min) will be continued for coming quarters. Followed price premium strategy. Got average price increase of 8% in weak quarter which is commendable. Lost market share to peers due to rigid pricing strategy. Radio mirchi will have meaningful business with premium pricing when the demand comes back in Q4 and fy19.

Utilisation: for top 8 stations is 101%. other 24 stations 79%. avg realisation Rs 11,400.

Non radio business: contributed to 27% of revenue of Q2. Market was weak resulting in flat revenues. Rejected many ideas due to focus on margins. Gross margins improved from 21 to 29%. EBITDA is early double digits. Large opportunity for non radio business in India. Mirchi will be doing around 100 concerts this year. Most of these business.(concerts/activation/television) doesn’t need much capital investment.

Discl: Holding. Have decided to exit . Till now the ENIL strategy of capping inventory with focus of increasing price is not working. It may work in future. Other thing its quite apparent that the no of FM listeners have gone down with increase in video consumption(except in cars).

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Update
Q3 /2019 Financial update

the company is foray in to oversea market and now in event shows and has slide to near 3 year low This can be good contender to growing the wealth . Curious that why no mutual fund has invested in it yet ???

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Risk : P/e is very high
Govt Regulatrotary changes
technological destruction due to apps (double edged )
Licences distribution risks
Positives
Coming elections and Increased govt expenditure on advertising Greater reach to masses be it may millennium generation or Oldies .
business is scalable
Little capex need to grow

Disc : not vested yet in watch list from two years

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Any idea about how the Q4 results are likely to be ? A few research reports seem to suggest a good Q4. IMO seems like a good investment at the current rates. Opinions invited.

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Can someone tell regarding continue downfall in this company. Is it fundamental issue or something else?

@desaidhwanil

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Basically all the cornered midcaps with low free float and low liquidity are coming back to planet earth. Stock had become super expensive over past few years. The stock is still too expensive trading at 29x P/E. In 2012 when there was limited interest in midcaps ENIL was trading at 15x P/E trailing. So you can expect this stock to correct more unless the profits start rebounding.

In the crazy midcap rally all the so called value investing experts used to justify high midcap valuations by creating stories of how these companies had a moat. A company with a moat does not have single digit RoCE.

ENIL reminds me of Wonderla. Another company where experts conjured a non existent moat for which people paid crazy valuations. Now even that is in the process of coming back to earth.

Conjuring moats through blogs and tweets are possible in illiquid midcaps and not in a liquid large cap. The P/E chart of ENIL is self explanatory

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In last 3 year they spend 400 Cr on Auction . and radio industry is direct to link with gdp. Interesting ahead.

Disc:- tracking

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The auction was quite competitive and that is why numbers suffered for quite a few years. If industry is quite competitive it implies there is very limited moat.

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Are you still following it???
What are your thoughts!!!

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@Amitdarji,

I think there are twin challenges for ENIL. One is external and the other one is company specific. The external challenge is related to way the media spend is moving from traditional media to digital media. To compound on that, the economy has been in doldrums and media spend is directly correlated to GDP growth. Thus, the base business is facing significant challenges. Eventhough Newspapers are worst impacted in traditional media spend, Radio too has bear the burnt.

The internal challenge I feel is with respect to the utilization level of the new frequency that they acquired couple of years back. Capacity utilization on new frequencies remained very low at around 25-30%. We must understand that operating leverage is a double edge sword. Hence when business doesn’t scale up while you continue to incur the fixed cost, it creates drag on the P&L. My personal sense is that strategy of bidding for second frequency in the same market (where it was present with Mirchi brand) has backfired as it has cannibalized the Mirchi market and shunted the growth in new frequency. Obviously, there is no data point to prove this, inspite of good content, marketing and differential positioning (less adds, romantic songs - Mirchi Love) if the advertisers are not getting onboarded, this seems a logical inference to make.

Their non-radio and activation business has been doing well scaling up with improved margins. However, it has not moved the needle in terms of profitability.

The only saving grace is the cash flow. They have been generating good cash flow from business and have repaid loan and are accumulating cash again. However, the due to shift of adspend from traditional to digital media - the earlier industry growth of 13-15% looks very difficult to achieve. New normal to me seems mid-high single digits. Market is factoring in this new normal and their inability to scale up second frequencies and hence the fall.

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Considering the cash generation and continuous slide from around 750 to the current 250 levels, it seems that the worst has been priced in.

Looks like a decent investment bet at current levels with a couple of years view.

Would appreciate if some veteran on the forum could analyze the same in detail.

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It looks even more attractive at current valuation. Almost like a debt bargain given that it’s cash rich… very limited downside. what do you think?

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Entertainment Network India Ltd Analyst call key points discussed Q1 FY22:
• Revenue has grown by 44% compared to last year same quarter. PAT has also grown by 24%.
• Lockdown this year were more local and less restrictive than last year.
o Recovery will be faster this year and the company has cut the costs. Growth of volume helped the increase in revenue.
• FMCG was up by 140% in ad volumes Health and Pharma with 157% and auto 135% for radio industry.
• 60% of revenue from radio. FY23 and 24 is expected to make good profit from radio. This is expected that it will be economy of slow down. The first medium to use is radio for promotional activities.
• Started a channel in UAE and is being appreciated. Launched a telugu radio station and is entirely online.
• Working on launching web and app platform. Cash will be used to hedge in case of any crisis and also for investment in digital platform both internal and external. The company has great confidence in their content strategy. Positioning is still work in progress.
• Solutions are given best by entertainment companies than news agency so they don’t have huge competition from times.
• E-commerce will be a trillion-dollar opportunity from 60-70 billion dollar.
• In terms of original work most work is done outside of the company(outsourced) but the ideas are from the company.
• Margins vary by product category. There has been any reduction in licensing. FY24 -25 revenue will be from the platform if the strategy works out well.

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