ENIL: Emerging stronger after radio auctions

Company has bagged 17 channels, even as approval to its acquisition of TV Today's metro frequencies will act as another growth driver

Entertainment Network (ENIL), which runs FM radio operations under the Radio Mirchi brand, has strengthened its position. ENIL, which bought 17 channels for Rs 340 crore in the recently concluded radio auctions, won a second frequency in all the A-category towns and a third frequency in Hyderabad, apart from acquiring the single frequency in Bengaluru. This adds to the company's growth plans that include inorganic initiatives.

“If the pending approval of its acquisition of three metro frequencies (Delhi, Mumbai and Kolkata) of TV Today’s radio operations goes through, ENIL will be the only radio network to have a second frequency across all A+ and A category towns, barring Chennai. This is a huge competitive advantage, in our view,” says Rohit Dokania, analyst at IDFC Securities. ENIL has received approval to four non-metro frequencies of TV Today, while approval of metro frequencies is pending and will take its total stations/channels tally to 56.

ENIL would see total pay-out of Rs 760 crore, including gross renewal pay-out and acquisition of TV Today’s radio channels. Analysts such as Dokania believe the company’s internal rate of return (IRR) on these investments should be a decent 20 per cent, which is pretty healthy. ENIL’s past track record, too, lends confidence on this front. Against its loss-making peers, ENIL is the only company to earn 18-20 per cent IRR on existing frequencies. Secondly, its outgo of Rs 340 crore in the auction is 2.2 times the reserve price, which is lower than the average bidding of three times the reserve price for overall auction and, hence, is relatively inexpensive.

Operationally, too, even though competition will increase after the auctions, ENIL’s consistent financial performance is comforting. Analysts expect the company's net profit to grow 17 per cent in FY16 and 36 per cent in FY17, driven by existing operations. Ad revenues in radio sector have good growth potential given the lower cost per listener versus other mediums such as TV and print. ENIL’s leadership position and large scale puts it in an advantageous position. While the addition of new channels is a positive, they are estimated to take about a year to start and a few more to add meaningfully to ENIL’s profits, say analysts.

The stock, though, appears to have captured these positives with returns of 15.6 per cent and 61 per cent in the past month and one-year periods, respectively. At Rs 701 a share, the stock trades at 28 times the FY16 estimated earnings and appears fairly priced. While most analysts polled by Bloomberg in 2015 remain positive on ENIL, their average target price stands at Rs 680 apiece. Investors, thus, could look to accumulate the stock on declines.