Radio Mirchi

#5
Initial Public Offer

Entertainment Network (India) Ltd.


Entertainment Network (India) Ltd (ENIL) is the largest private FM radio broadcaster in India and
operates FM radio broadcasting stations through the brand Radio Mirchi. ENIL currently broadcasts in
7 cities and is the only broadcaster present in all the four metros. ENIL has successfully participated in
the FM radio phase II bidding and has won 7 more A+ and A cities thereby becoming the only
broadcaster who would be present in all the 13 cities in India which has a population of 2mn and more.
Radio Mirchi reached 36.7mn listeners across India, which is the highest among all private FM radio
stations in India (Source: National Readership Survey-2005).

ENIL through its subsidiary Times Innovative Media P Ltd (TIMPL) is in the business of event
management and out of home media through the brands 360O and Times-Out-Home Media. TIMPL is
planning to use LED screens and evaluating other out of home media technologies available in
international markets.

Financial Highlights
Revenues had grown at a CAGR of 186% during FY02-FY05. H1 FY06 revenues are at Rs484mn
with PAT of Rs111mn. Airtime sales were the only major source of revenues. Contribution from the
newly acquired event management and out of home businesses would start coming in from H2 FY06.
Shift from a fixed license fee to a revenue license fee retrospectively from April 2005 would help the
bottomline to a great extent.

Concerns
ENIL had bid large amounts for the 7 new frequencies it had won and plans to bid for few for
frequencies, this along with its migration fees would require a minimum amortization charge of around
Rs16mn each year over the next 10years, which would make a dent in the bottomline for the next 2
years at the least. Moreover, the difference between the bid amount between few of its competitors and
ENIL are very high, which could be a disadvantage for ENIL.

Industry

Indias radio industry is estimated to be around Rs2.2bn and is expected to grow by 20% annually
(Source: CII-KPMG). The regulatory changes brought in by the government in the Phase II of the
privatization policy by sifting from a fixed license fee to a revenue sharing model would result in a
more viable radio business model. Radio industrys ad pie in the Indian ad spends are around 2%
whereas the world average is around 8%. Due to the regulatory changes and other favorable changes
happening in India the ad pie of radio industry is set to go up to world average at the least.

The live entertainment business (LEB) is a highly unorganized business, but a number of organized
players from the media and advertising agency space have entered in recent times. As the size and
scale of an event increases, organized players are likely to capture a large share of the overall live
entertainment business. LEB is a low margin business but as the company moves up the value chain
margins are higher.

Evaluation

Price band for the issue is fixed at Rs144 to Rs162. Though the regulatory framework has been shifted
to a more favorable model, with the phase II of FM radio privatization competition is heating up.
Large companies like Adlabs are entering into the radio space in a big way, which would result in a
stiff competition for the ad pie. ENIL has the first mover advantage and the industry is expected to
grow at a high rate, which is reflected in the premium valuations.

EPS H1 fy06 - 4.6 - 4.8
P/E --------- 34 - 35

Cheers
Ml
source:Indiainfoline
 
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