Rating Rationale

Strengths
* Healthy business risk profile marked by market leadership position
ENIL is the market leader, in terms of revenue as well as inventory sold, in the Indian FM radio broadcasting industry. The business risk profile is also supported by a wide bouquet of channels, and a strong presence in most Indian states. The flagship channel Radio Mirchi has a strong brand equity, which is reflected in the premium charged on average advertisement rates over other FM radio players. Revenue growth was healthy at around 11% fiscal-on-fiscal in 2017 driven primarily by incremental revenue from new stations launched in the fiscal.

However, in the first nine months of fiscal 2018, revenue was impacted by the lingering effect of demonetisation, coupled with lower ad-revenue due to introduction of the Real Estate Regulatory Authority (RERA) bill and the goods and services tax (GST). These resulted in reduced ad-spending by realty players, and automobile and fast moving consumer goods (FMCG) companies. Lower ad-revenue led to a decline in the operating margin to 21.3% during this period, vis-a-vis 23.2% in the corresponding period of the previous fiscal.
However, the recent 3 months' performance of the company ended December 31, 2017, indicates a stabilisation of company's performance with improvement witnessed in revenues and profitability margins. This is due to reduction in losses at the earnings before interest, taxes, depreciation and amortisation (EBITDA) level of the new stations launched, an inherently stronger period due to festive seasons, and an uptick in the ad-spending of clients. All these factors should sustain and result in a better medium-term performance. Furthermore, an increase is likely in ad-spending due to state elections underway in various states where the company has a strong presence.

The top 10 customers account for a little over 10% of total revenue, reflecting a diversified customer base. The company is likely to maintain a strong business risk profile over the medium term, driven by a robust market position and improving operating margin.

* Strong financial risk profile
The networth is large, capital structure comfortable, and liquidity ample. As on March 31, 2017, the gearing was 0.14 time, and cash and equivalents were Rs 136 crore. As most of the planned capital expenditure (capex) during phase III auctions has been undertaken, the capex intensity is expected to wane off gradually, thus further strengthening the capital structure.

The financial risk profile is also supported by strong cash generation ability (over Rs 100 crore per fiscal), expected improvement in the operating performance which will bolster the debt protection metrics further, and absence of any long-term debt repayment.

The strong financial risk profile is thus likely to be maintained over the medium term.

* Strategic importance to a strong parent
The parent, BCCL, holds a 71% stake in ENIL. The latter is strategically important to BCCL, giving the parent a presence across all media platforms and an offering of a bouquet of media advertising options. ENIL itself derives significant operational synergies through BCCL's dominant market position.

CRISIL believes BCCL will continue to provide timely and need-based support to the subsidiary.

Weakness
* Significant dependence on ad-revenue and exposure to competition in the radio industry
Revenue is significantly dependent on advertisement income ' over 70% of airtime sales in fiscal 2017 were due to advertisements. However, radio as a media channel accounts for only 5% of total advertising spend (television, print, out-of-home [OOH] media, and digital account for the remainder); hence, the company remains exposed to significant revenue concentration risk. It also operates in a competitive industry which has considerable pricing pressure.

However, players such as ENIL, with a dominant market position and high advertisement volume in terms of inventory seconds sold, can afford to be flexible about advertising rates with minimal impact on profitability.