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ENIL company update

Contributed by Angel Broking

Focus on core business improves profitability: ENIL demerged its outdoor business in FY2010 and scaled down its event management business in FY2012 to focus on its core business. This has enabled the company to post a consolidated profit of Rs.56cr in FY2012 v/s a loss of Rs.15cr in FY2010 (mainly due to losses in outdoor business). Alternate Brand Solutions, a subsidiary company, is now focusing solely on managing its IPR events instead of managing client’s events on account of poor margins (due to increasing competition from unorganized sector).

Volume driven revenue growth a concern: The slowdown in the economy has led to a decline in advertising rates with radio companies increasing ad inventory to sustain top-line growth. However, ENIL has still posted a 9.3% yoy growth in its 1HFY2013 standalone revenue to Rs.144cr, driven by advertising volume growth. But ENIL has already increased its ad air time upto 20 minutes per hour, leaving little room for further volume growth in existing channels. Hence, going forward, the company will find it difficult to sustain top-line growth, if ad rates do not improve, till the time phase 3 policy is in place.

Plans to increase ancillary revenue: ENIL plans to increase its share of revenue from on-ground activities to sustain growth during current subdued environment. The company proposes to offer an integrated advertising solution across print, radio and broadcasting leveraging its parent’s strong presence in print media as well as the news broadcasting business to complement its on ground activities. Phase 3 policy to be key growth driver: The phase 3 policy which is expected to add 839 new frequencies will significantly boost the reach of private FM stations.

Phase 3 proposes to allow a radio broadcaster to own more than one channel, increase the license period to 15 years (from 10 years as of now) and reduce the lock-in period to 3 years, thus encouraging consolidation and operation of niche channels. TRAI has recommended the government to consider halving channel separation to 400 KHz, thereby doubling the number of channels. This is expected to augur well for ENIL and the overall radio industry. ENIL is expected to be the key beneficiary of Phase 3 since it has enough cash (~Rs.274cr in 1HFY2013) to buy new licenses and the scale to increase cost efficiencies.