Entertainment Network (BUY): Expects stronger FY23 on low base

Entertainment Network’s (ENIL) Q4FY22 revenues grew 3.6% YoY to Rs1bn driven by FCT revenue growth of 7.6% YoY, while solutions business was down 11.2%. ENIL believes FY23 and FY24 could be strong years for FCT, and also sees non-FCT recovering with macro normalisation. Company has launched a digital app in the international market and is optimistic about the opportunity. It will continue with tight cost control, which will help pave the path toward profitability. However, cost control will be strained due to investment in the digital app. Though digital properties are very expensive, ENIL plans to ramp it up with higher investments in content and technology, and does not wish to incur large cash burn on marketing. We have cut our EBITDA estimate by 18-22% for FY23E/FY24E factoring in investment in the app. Our revised target price is Rs239 (earlier: Rs223) as we roll-forward our valuations to FY24E, and increase EV/EBITDA multiple to 6x (from 5.5x earlier). Maintain BUY.

• Digital app,Mirchi. ENIL launched a digital app (podcast), Mirchi, in the international market. It will have radio stations, and will be financially efficient due to low royalty fees for music outside India market. It is planning to launch the app in India by May’22 though the domestic version will not have radio offering, but will have 800 hours of content produced by in-house creative team, and popular external shows. It plans to add 100 hours of content every month to augment experience. The total operating cost for the digital app was Rs63mn in Q4FY22, and investment run-rate for FY23 will be stable
• FCT staged good growth; non-FCT remained subdued.Revenues rose 3.6% YoY to Rs1bn driven by 7.6% YoY growth in FCT (radio) business while the solutions business (non-FCT) dipped 11.2%. This was despite weak Jan-Feb’22 when FCT revenues dipped on covid-related issues. Radio business revenue recovery was driven by volume growth, and management has guided that FY23 and FY24 growth in FCT will also come on back of volumes. Capacity utilisation for 35 legacy stations was 75% while that for other stations was <30% in FY22. Non-FCT was impacted due to fewer popular own TV properties, and weakness in ground activities. International market revenues were Rs57mn, up 3x in past one year, but down by a sharp 36% QoQ.
• Lower costs helping EBITDA.Despite TV shows and the digital app launch, total expenses grew only 12.5% YoY. There was total cost saving of Rs920mn in FY22 (90% of FY21) and the company believes 50% of the saving will be retained over next few years as well. However, costs increased by Rs63mn due to investment in strategic initiatives. Thus, EBITDA declined 25% YoY to Rs181mn and margins stood at 17.4%. ENIL reported net loss of Rs57mn for the quarter, which was disappointing. Non-FCT EBITDA margin was healthy at 26.7% despite lower revenues.
• Other highlights.1) 10-15% YoY increase in FCT and >40% in non-FCT revenues achieved in Mar’22 has sustained and this will help FY23 revenue growth; 2) digital segment contributed 6.5% of revenues in Q4FY22, and ENIL believes this should increase to >12-13% in FY23 and eventually reach 25% by FY24/FY25.

BCS Bureau