ENTERTAINMENT NETWORK INDIA

Leading player in FM radio

Entertainment Network (India) (ENIL), a leading city-centric media company, operates FM radio broadcasting stations under the brand ‘Mirchi’ in 63 Indian cities. The promoter of ENIL, Bennett, Coleman & Co Limited (BCCL), is the flagship company of The Times of India group, which has a heritage of 175 years and is one of India’s leading media groups.

ENIL has a track record of developing innovative content, thus expanding and retaining its audiences and advertisers through the years. In addition to FM radio, ENIL provides entertainment in the form of videos, on-ground live events and even content that it creates for TV broadcast. The core of its business model involves monetizing listenership and viewership via advertising. Radio Mirchi is the No. 1 private FM radio network in India in terms of listeners, as reported by the last IRS in 2019.

About two-thirds of the company’s revenues come from its core FM radio operations, while the rest comes from its solutions, digital and other products. The company monetises not only its FM radio listenership but also its extensive presence in on-ground events, TV properties, and the solutions that it provides to clients using multiple-media combinations. It also has an extensive bouquet of digital products which it offers to advertisers in its selling efforts.

The company has made steady progress in its financial performance. During the last 12 years, its sales have gone from Rs 311 crore in fiscal 2012 to Rs 440 crore in the fiscal 2023. However, operating profit has declined from Rs 100 crore to Rs 71 crore, and at the net level the company has incurred a loss of Rs 11 crore against a net profit of Rs 56 crore. But the prospects going ahead are encouraging. Consider:

• The radio business in India suffered due to heavy licensing fees and digital competition. However, recent recommendations from Trai, including allowing news on FM channels and making FM receivers mandatory on mobile phones, may revive the medium. These changes could increase listenership, reduce costs and attract more advertisers, giving radio a brighter future. Trai’s recommendation aims to counteract manufacturers who disable radio features to promote their own services.

HUGE LICENCE FEE

• In the past, the licence fee was pegged at 4% of gross revenue (including GST or 2.5% of the one-time entry fee for a city, whichever is higher). For example, in Delhi the highest bid was Rs 169 crore, so the licence fee would be about Rs 4.2 crore even if the station was not earning in the first few years. This applied even to companies that had migrated from phase II to phase III, punishing players who had not bid at those prices. Going by Trai’s analysis, 182 stations paid a licence fee of over 4% of revenues and 34 stations paid a licences fee that was 30% of revenues in FY 2021-2022 But now, Trai suggests that the licence fee be delinked from the non-refundable one-time entry fee and that it should be calculated as 4% of gross revenue, excluding GST. This will help push costs down anywhere between 10-40%calculating the license fee as 4% of gross revenue, excluding GST. The US with a population of 300 million has over 15,000 radio stations generating almost $ 22 billion in revenues. Radio thrives in the US because of its large national and local presence.
• Radio reach in India has stagnated because many manufacturers disable radio receivers in the mobile phone handset to promote their own music streaming of services app. This is why Trai’s recommendations that — “functions or features pertaining to FM radio should be enabled and activated on all mobile handsets having the necessary hardware, and a standing committee will monitor compliance by phone manufacturers and importers” — helps.

RADIO’S REACH

• With respect to the emergency point of view, the reason for this Trai push is that radio’s reach does not depend on bandwidth and electricity but on radio waves (frequency), making it the only communication medium that works during disasters.
• By ensuring that FM features in mobiles are enabled, radio could potentially reach the billion-plus mobile population, potentially doubling listenership to over 520 million. Moreover, allowing 10 minutes of news every hour can diversify programming and attract a new category of advertisers. The icing on the cake is that the DVC rates have been revised in the range of 50% to 60% across various stations.
• Pre-Covid, the government used to spend a lot and the contribution at the industry level used to be in the range of 13% to 14%, which came down post-Covid in the range of about 6%. But the management believes that with elections around the corner for the Centre and states, the spend should go up. The management is optimistic that it could go up to about 9% to 10% at the industry level. ENIL commands a top volume marketshare of 26.6%, marking an improvement of 120 basis points on a year-on-year basis in the September 2023 quarter.
• In Q2, the topline fell marginally by 3%. The dip in revenue can be attributed to the non-FCT segment, partly due to the shift in the festive season and the absence of a significant exclusive event that occurred last year. Nonetheless, the gratifying aspect is a significant improvement in ENIL’s overall profitability, thanks to its diligent cost rationalization efforts over the last 6 months.

HIGH-END FOCUS

Its prudent and consistent cost rationalization endeavours resulted in cost savings of approximately 4% to 5% during the quarter, similiar to the first quarter. Furthermore, ENIL has deliberately focused on high-margin opportunities while selectively stepping away from low-margin deals in the market. While this strategy may temporarily impact the topline, the management believes it’s a crucial step for sustaining profitable market leadership. As a result, its EBITDA margins, excluding digital, improved to 26.6% in the quarter from 24.9%. EBITDA margins for the non-FCT business improved from 39.8% in Q2 FY23 to a whopping 47.7% in Q2 FY24. Its dedication to sustainable and profitable growth extends to international initiatives as well. ENIL secured a revised licence fee in Bahrain, enhancing the profitability and sustainability of its operations there. Overall, the international business continues to be profitable this year with positive PAT of Rs 54 lakh in Q2FY24 and Rs 1.27 crore in H1FY24.

FESTIVAL BOOST

• The company’s balance sheet remains robust, with cash results totalling Rs 251 crore as on September 30, 2023. z The management anticipates that the upcoming festival season will provide a significant boost to the overall media industry and to its business as well. Monetisation of the Mirchi Plus app, which has 3,000 hours of content, has not yet been done. The target is to have content of 10,000 hours. ENIL has tied up with almost all major OTT apps. The management is confident that H2 will see a major recovery in performance. Although ENIL is the undisputed leader in FM Radio, very few know that 33% of its revenue comes from the event management business, which is growing at a faster pace. In FY 2024, we expect the company to register sales EPS of Rs 2.6, and EPS of Rs 6.1 for FY 2025. As on November 20, 2023 the share price closed at Rs 190. P/E on the expected FY 2025 EPS works out to 31.1

PERFORMANCE INDICATORS (Rs. in crore)

SEPC

Multi-segment EPC player

SEPC (previously Shriram EPC) provides integrated design, engineering, procurement, construction and project management services in India and internationally. It offers turnkey contracting solutions, including design, engineering and construction for ferrous and non-ferrous industries, cement plants, coke oven and by-product plants, process plants, and material handling plants, as well as transportation; water and sewage treatment plants, intake wells and pump houses, underground drainage systems, water distribution and pipe rehabilitation systems; and biomass and thermal power plants, as well as wind farms.

The company also provides engineering services for mining and mineral processing. Formerly known as Shriram EPC Limited, it changed its name to SEPC Limited in March 2022. The company is an Engineering, Procurement and Construction (EPC) end-to-end solutions provider offering multi-disciplinary services and project management solutions. It is focused on providing turnkey solutions in the following business areas: 1) Infrastructure: a) Water & Sewers, b) Roads 2) Process and Metallurgy: a) Process Plants, b) Steel Plants, c) Mine Development, d) Power Plants.

PERFORMANCE DIP

The company has not performed well on the financial front. During the last 12 years, its sales turnover has declined from Rs 1,862 crore in fiscal 2012 to Rs 379 crore in fiscal 2023, with operating profit turning from a profit of Rs 248 crore to a loss of Rs 56 crore and at net level a profit of Rs 42 crore turning into a loss of Rs 5 crore. However, the prospects ahead are encouraging. Consider:

• SEPC has a proven track record in executing orders across segments such as water and waste-water distribution and water treatment plants, process and metallurgy projects, mines & mineral processing, and power plants, including renewable energy. The water sector especially enjoys high potential and provides the company a significant opportunity for further growth in India and overseas
• SEPC works with various technology suppliers on a project-specific basis. Some of the suppliers it has worked with in the past are Primetals Metallurgy, Shandong Goldgroup Mining, Hutni Project Metallurgy, Danieli & C Metallurgy, SMS Mevac Metallurgy, KMG Pipe Rehabilitation, Perco Pipe Rehabilitation, and INCO Engineering s.r.o, Czech Republic.

• A number of government flagship programmes are aimed at creating immense infrastructure development and urban transformation. Since the company has got qualifications exactly in these areas, the following programmes are available as a market for the company to bid and take orders.
• SEPC has experience of laying roads for the Ministry of Road Transport & Highways (MORTH). Using this qualification, SEPC proposes to bid for new projects and augment this vertical.
• SEPC has done mine development projects using the advanced Shaft Sinking technology for mine development. It is qualified to do several types of mining for various minerals like copper, gold, coal, chrome, manganese and uranium.

WIDE EXPERIENCE

• SEPC has domain knowledge and a good customer base, having executed various projects in integrated steel plants in areas like construction of Special Bar mills, Sinter plants, Wire Rod mills, medium structural mills, hot strip mills, coke ovens, coal chemical plants, coal dust injection systems, air and oxygen turbo compressors, raw material handling systems and secondary refining units, and has qualifications to participate in this segment along with technology providers. SEPC has also completed the balance of plant and main equipment erection for a 1.2 mtpa steel plant in Oman.
• Initially, Dubai-based Mark AB Capital LLC invested Rs 350 crore to pick up 26.48% of fresh equity in SEPC. This is part of a restructuring of SEPC Limited under the Stressed Asset Provisions of the RBI. As a result, Mark AB Capital became the promoter of SEPC, while the existing promoter SVL ceased to be a promoter.
• Mark AB capital is a leading investment company/family office headquartered out of Dubai. The company has over $1 billion assets under management. It intends to grow the company’s EPC business both in India and in the Middle East region by tapping into the opportunities in the infrastructure space, including water projects.
• Following the Rs 350 crore investment for fresh equity, it went to the banks to slash the existing debts. As part of the restructuring, the consortium of bankers has converted part of the debt, another Rs 350 crore, into CCDs and NCDs. Consequently, SEPC’s existing debt came below Rs 200 crore. The consortium has also paved the way for the company to utilise its sanctioned working capital requirements from now on, enabling SEPC to handle operations smoothly.

SAUDI OFFER

• In a very interesting development, a company managed by Saudi Prince Mohammed bin Salman invited SEPC to do business in Saudi Arabia. In April 2023, Roshn Real Estate Company, Riyadh, invited SEPC to participate in a contractor’s framework infrastructure. The contractor’s framework infrastructure is to develop strategic framework agreements with select key partners to achieve successful completion of projects due to the scale, number and timing of the projects. Roshn Real Estate Company is a national real estate developer powered by the Public Investment Fund, committed to delivering high quality communities to Saudi citizens.
• Real estate developer Roshn has quickly established a reputation as a change agent in the Saudi Arabian real estate industry. Roshn was founded with the mission of improving the quality of life for locals and aspires to build thriving, sustainable communities. As a division of the Public Investment Fund (PIF), Roshn has access to the substantial resources and assistance of one of the biggest sovereign wealth funds in the area, enabling it to take on challenging projects that are consistent with the kingdom’s vision. Saudi Vision 2030 is an ambitious roadmap initiated by Crown Prince Mohammed bin Salman in 2016. It’s designed to usher the Kingdom into a future less dependent on oil revenues. Housing is a key component of this forward-looking strategy, alongside other vital sectors like entertainment and tourism. Housing, within the context of Saudi Vision 2030, isn’t just about construction — it’s about bolstering economic prosperity, societal stability and an enhanced standard of living. The ambitious target is to uplift home ownership from 47% to a staggering 70% by the end of this transformative decade. In FY 2024, we expect the company to register sales EPS of Rs -0.5 and EPS of Rs 0.9 for FY 2025. As on November 20, 2023 the share price closed at Rs 232.75 (available cum rights in the ratio of 1:36 at a premium of Rs 3). P/E on the FY 2025 EPS works out to 22.3.

PERFORMANCE INDICATORS (Rs. in crore)