Radio ga ga

IPO REVIEW

The growth in the FM radio business over the next few years should be strong and that should keep Radi Mirchi in good stead.

Entertainment Network India Ltd (ENIL), promoted by Bennett, Coleman and Company, is making an Initial Public Offering (IPO) of equity shares.

The company, which operates the largest private FM network in the country, is issuing shares in the price band of Rs 144 "� Rs 162. It is making an issue of 1.2 crore equity shares (constituting 26 per cent of the diluted post-issue paid up capital) and at the lower end of the band, the market capitalisation amounts to Rs 691 crore.

Post issue, the promoters' share in the company's capital would reduce from 98.7 per cent at present to 73.2 per cent, without the green shoe option.

ENIL today has a presence in the four metros and also in Pune, Ahmedabad and Indore.

In the recent round for bids for second round of licenses for FM radio stations, ENIL bagged seven new stations. A substantial portion of the issue proceeds will be used to repay the bridge loans taken to bid for new licenses, to pay the migration fees for its phase one licenses under the phase two policy of ministry of information and broadcasting.

Currently, FM radio in India accounts for only 2.93 per cent of the total ad spend compared with an average of 8.7 per cent worldwide, 15 per cent in the Phillipines and around 12-15 per cent in the USA.

Today, just 12 cities in the country have private FM channels. According to the management, the share of radio could go up to 8-9 per cent over the next ten years accounting for around Rs 3000 crore of ad revenues compared with Rs 300 today.

More important, the new operating norms for the industry which include an entry fee and also revenue sharing as opposed to the earlier regime of a fixed fee, should prove to be more conducive for players.

Thus, with the economy growing at a good pace, the growth in the FM radio business over the next few years, should also be strong. Despite the keen competition, there appears to be room for more than just a couple of players.

The ENIL management says Radio Mirchi "�the brand under which the company operates"�has about 3.67 crore listeners across India according to the National Readership Survey-2005 weekly listenership data.

ENIL deputy CEO, Prashant Panday claims that the daily listenership of the channel in Mumbai is 21.4 lakh and in Delhi it is 38.1 lakh. The penetration of FM radio in the country is still considered to be low and therefore there is scope for growth.

The prospectus states that the government's tenth plan stipulates that private operations would be encouraged to start FM radio services in metros and small cities.

While not strictly comparable, Mid-day Multimedia, at the market price of Rs 98 has a market cap of Rs 184 crore. Thus, shares of ENIL are being sold at a substantial premium.

The premium, according to analysts, is justified because of ENIL's wide network, Bennett Coleman's strong position in the media world and its ability to leverage other products in its stable. The issue appears to be expensive but with advertising revenues growing at around 15 per cent, there is potential for the company to grow its business.

According to ENIL CFO, Harvinderjit Bhatia , "It would not be proper to compare ENIL with Mid-day Multimedia. We are an integrated radio company with presence in the all the 13 key markets of the country. The benefits of the seven new licenses that we have received will accrue over the next 10 years. The issue is priced in line with the growth story that we foresee in the FM radio business."

ENIL is also in the business of event management and out-of-home media and uses the brands 360 degrees and Times Out-of-Home Media. The management feels that the outdoor market in Delhi, Mumbai and Bangalore is fairly large. The company is looking at technologically innovative means like LED screens.

ENIL posted net losses of Rs 40.2 crore, Rs 29.3 crore and Rs 17.9 crore during FY03, FY04 and FY05, respectively. However it has managed to post net profit of Rs 11.1 crore for six months ended September 2005. The total income for these periods were Rs 21 crore, Rs 57 crore, Rs 76.2 crore and Rs 49.5 crore, respectively. 
   

ENIL: FINANCIALS
Rs crore	FY05	FY04	% Change
Operating income	75	55.6	34.78
Operating profit	-13.54	-24.5	-
Net profit	-17.93	-29.33	-
EPS (Rs)*	-5.28	-8.64	-
* After capital reduction

The company attributes the losses in the initial years to high annual fixed license fees for broadcasting stations. It has set off accumulated losses against share capital and reserves through a reduction of capital pursuant to a court-approved scheme.

Analysts add that some time is required to stabilise and that going forward, with more radio stations, profitability is expected to improve. Bhatia expects growth in line with the trend witnessed till now.

Based on annualised half-yearly earnings, the price-to earning ratio works out to 22.45 (lower of the price band) and 25.25 considering the pre-issue equity. On the diluted equity, the stock looks more expensive at 30.04 and 33.79 times earnings.

The prospectus mentions 24 criminal cases (mostly pertaining to articles or advertisements published), 107 civil cases, three cases by banks/financial institutions and 47 labour cases filed against Bennett Coleman and some cases against group companies.

Industry observers view these as a minor negative factor. But Bhatia adds, "The civil case pertaining to the promotional campaign involves two other entities and will not affect ENIL. The criminal cases involve the promoter and we do not see any repercussions on ENIL."