Friday, June 1, 2012


  4QFY12 ahead of estimates, on account of stronger revenues, oneoffs: ENIL's reported financials are ahead of estimates on account of stronger than expected revenue growth (+14% y/y), as also lower administrative expenses on account of private treaties provision write back. Decline in employee expenses (-13% y/y, -28% q/q), likely on write backs of incentives provided for earlier, further contributed to the strong PAT.

  Revenue growth strong on account of higher non-radio solutions: The management said that efforts of the company to provide more solutions to client needs, via activations, and new division "Mirchi Innovation" have led to strong growth in revenues, even as (radio) industry revenues have grown at a soft pace in the quarter. 75%-80% of the company's revenues have come through sale of commercial time (compares with 85%- 90% in earlier years), while the remaining have come in via other initiatives taken by the company. We note that other activities have lower margins than radio business of the company.

  Adex environment weak, expect soft growth in FY13: As per management, growth in radio industry revenues has been soft, and the scenario is comparable to 2009, in terms of curtailed client activity. The company expects to continue outperforming industry on account of greater ability to provide integrated marketing solutions to clients. However, the same shall affect margins adversely (non-radio margins are lower). The management has guided for ~30% margins in the near future, with hope to take it up to mid-30s over the longer term.

  Phase - 3 auctions still some time away, ENIL geared up with a stronger balance sheet:Phase - 3 auctions are delayed, and shall likely take place around August, the management said. The company has, meanwhile, focused on strengthening its balance sheet and has Rs 2.2Bn in cash. ENIL reiterated that the company would not aim to have the largest network, but would focus on adding potentially profitable stations in the bidding.

  Change in Estimates, Price Target; Maintain REDUCE: We make changes to our FY13 estimates for the company on account of a weaker advertising environment, and softer margins, and we see -0.8% growth in EPS in FY13 (revised est. is 0.5% ahead of prior est). We note that the company shall not benefit from private treaties write-back any further, and (normalized) expenses shall rise faster than income. Also, we note that the changing composition of revenues that shall exert pressure on marketing expenses. We cut our price target to Rs 212 (Rs 233 earlier), on account of weaker advertising environment and lack of visibility in earnings. We maintain REDUCE. We would reconsider our rating/ price target closer to the Phase-3 auctions, or upon having greater visibility on revenue growth.