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Spreading its wings
*ENIL’s revenue grew 35% yoy (13% above estimates), aided by two international artist concerts held during the quarter. The radio business had a strong quarter despite government contribution remaining weak.
* EBITDA margin at 20% (-395bps yoy) came in below estimates due to the losses incurred in international concerts. Non-FCT margins (excl. concerts involving International artists) recorded a 900bps increase from 20.9% to 29.8%.
* The underlying radio business is yet to see sustained healthy growth. However, the company is spreading its wings with international concerts and the recent foray into the US market with an asset-light model. Concert business is volatile and thin margin business, in our view.
* We have aligned our estimates with increased focus on the non-radio business, lower margin assumptions and continued delay in the acquisition of TV Today stations. Downgrade to Reduce with a revised TP of Rs532 (12x FY21E EV/EBITDA) as we ascribe a lower target multiple now.
Losses in international concerts weigh in on performance
Consolidated revenue of Rs2bn registered 35.3% growth on a yoy basis (13% above estimates). ENIL’s revenue growth was driven by international concerts held during the quarter along with both volume and yield improvement in the FCT business. EBITDA at Rs403mn (6% below estimate) was up 13% yoy, with EBITDA margin at 20%, down 395ps yoy. This was impacted by international concerts held during the quarter. Total opex was 19% higher than estimates to Rs1,605mn. PAT at Rs160mn was up 21.9% yoy.
The radio industry has been facing challenges post the demonetization and RERA, while ENIL was impacted due to its focus on raising ad rates. The industry is yet to see a recovery with sustained health ad growth going forward. We expect revenue growth to be volume driven in the near future. The introduction of international artist concert as a new segment remains a key monitorable as the company posted losses from it in Q3, and we believe that it will continue to remain a low-margin business. ENIL’s focus on the concert business and digital content could reap benefits in the longer term, while the consistency of yield increase remains a cause of concern. Management sees the concerts held in Q3 as a learning curve and it remains cognizant of over-investing in it. ENIL also launched the radio business in the US which it expects to break-even in 18-24 months. We expect the radio industry to deliver 12- 14% revenue growth over the next 3-5 years, while there could be risks from rising data acceptance and rising download trends for telco-based music apps. Key risks: a prolonged weakness in the macro-economic environment, losses from the international artist concert segment, lower-than-expected returns from multiple frequency strategy, muted results from the ad rate hike strategy, and shift in listenership to online music streaming.
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