ENIL

Investors with a long-term perspective can buy the stock of Entertainment Network India (ENIL), which operates the radio channel, Radio Mirchi 98.3 FM. Within the media sector, radio is poised to record the fastest growth in advertising spends, although on a low base. It is also likely to be less vulnerable to any slowdown in advertising spends given its lower advertising rates compared to television and print. As a market leader with a 47-48 per cent share of the radio industry and an increasing presence in the other emerging and promising media platforms – outdoor advertising and event management – ENIL is a unique play within the listed media space.

However, all three platforms – radio, out-of-home media and event management – are yet to mature as advertising platforms. Radio as yet accounts for only 3 per cent of the advertising pie. Hence, a three-five year holding period is necessary to reap the full benefits of this investment. The valuation of the stock, too, from a near-term perspective is expensive. Government approval of TRAI’s recommendations for the radio sector on hiking the FDI limit, allowing operators to operate multiple channels within a city and permitting the broadcast of news, are likely triggers for the stock.

ENIL has successfully rolled out 22 radio stations over the past year, taking its total number of stations to 32. New stations weighed on profitability in 2007-08, with margins on a standalone basis dropping by about 200 basis points to about 24 per cent. Operating margins of its 10 legacy stations are, however, at close to 40 per cent levels. Margins have also improved sequentially, which suggests rising profitability in newer radio stations as well. There is, therefore, significant headroom for margins to expand once the new radio stations start maturing.

ENIL has a presence in all key markets and enjoys a leadership position in most. This makes it a preferred choice for both national and local advertisers. Both the outdoor media and the events management business are growing at a strong pace, on the strength of the promoters’ experience in this business. The outdoor media subsidiary, TIM, is well funded for further expansion in the outdoor business and is aggressively buying properties in key metros. Delays in handing over of properties can affect operations, however, as was the case in the fourth quarter. However, ENIL may be one of the leading players in this emerging media segment.