By Prabhudas Lilladher
ENIL’s management appeared confident in scaling the non-FCT business (30% revenues) to 50% in the next 4-5 years. While non-FCT business is margin dilutive compared to traditional air time sale on radio, gross margins (GM) have witnessed an uptrend over the last 3 years (19% in FY17 to 28% now).
Given low capex, minimal working capital requirements and strong talent pool of employees (350 people), non-FCT business will be a key driver even as the traditional radio business is under pressure (industry growth of 6-7% in FY19). While the non-FCT business provides diversity, it has long gestation period and is cumbersome in nature, manpower intensive, requires high marketing budget and in-depth knowledge about the product/geography.
In light of renewed focus on non-FCT business, we turn apprehensive and cut our target EV/Ebitda multiple from 18.5x to 15.5x. This translates into per share value of `649 per share. Our DCF enabled per share value stands at `676 per share. We arrive at blended TP (50% weight to each methodology) of `662 per share. We cut our rating from ‘Buy’ to ‘Accumulate’.
Inventory utilization for 35 phase 2 and 17 batch 1 stations is closer to ~85% and ~35%, respectively. We expect the utilisation levels to rise gradually to 85% (phase 2), 40% (batch 1) and 20% (batch 2) in FY20E. Rise in utilisation and calibrated price hike is likely to drive top-line at a CAGR of 15% over FY18-21E.
Due to renewed focus on non-FCT business, we expect Ebitda margins to decline 10 bps y-o-y to 21.6% in FY19E. However, we expect a sharp jump of 350 bps in FY20E to 25% given (1) improved profitability of batch 1 stations and (2) networking nature of 21 batch 2 stations. (1) Non-FCT business contributed `1.6 bn in top-line in FY18. Growth is expected to be in the region of 25% in FY19. (2) 85% of the non-FCT business comes from the top 8 markets. (3) In the radio business, no single category contributes more than 15% while no single advertiser contributes more than 3% to the top-line. (4) TV Today acquisition is still pending, I&B ministry is expected to take a call only post polls.