| Entertainment Network (India) Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to annexure for Details of Instruments & Bank Facilities |
| Detailed Rationale |
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CRISIL has reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the bank facilities and debt programmes of Entertainment Network (India) Limited (ENIL). The ratings continue to reflect ENIL's market leadership in FM radio broadcasting industry, and a strong financial risk profile. The rating also factors in a strong support of parent, Bennett Coleman and Company Ltd (BCCL; 'CRISIL AAA/Stable/CRISIL A1+'). These rating strengths are partially offset by ENIL's significant dependence on advertisement (ad) revenue and exposure to intense competition. |
| Analytical Approach |
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For arriving at its ratings, CRISIL has consolidated the business and financial risk profiles of ENIL and its two subsidiaries, Alternate Brand Solutions (India) Ltd (ABSL) and Entertainment Network, Inc (EN, INC). ABSL and EN, INC have business and financial linkages with ENIL. Further, ENIL's operations in the United States of America are housed under EN, INC. |
| Key Rating Drivers & Detailed Description |
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Strengths * Healthy business risk profile marked by market leadership position ENIL is the market leader, in terms of revenue, 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. ENIL's flagship channel Radio Mirchi has a strong brand equity, which is reflected in the premium charged on advertisement rates over other FM radio players. Revenue growth had slowed down in fiscal 2017 and fiscal 2018 due to macroeconomic headwinds like demonetisation, introduction of RERA and implementation of GST as well as the inventory capping strategy adopted by the company. However, revenue has grown around 18% in the first 9 months of fiscal 2019, indicating that the effects of these headwinds are waning away. ENIL has launched new stations over the past two years. New stations have a gestation period, and have been improving their operating performance and have turned profitable at the operating level. Further new station launches have been happening over the past few quarters; however, these are not expected to materially impact their profitability. The top 10 customers account for a little over 10% of total revenue, reflecting a diversified customer base which further strengthens its business risk profile. CRISIL believes 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 financial risk profile is strong, backed by a large networth, comfortable capital structure, and ample liquidity. Since fiscal 2016, ENIL has acquired 17 and 21 new channels respectively in Batch 1 and batch 2 of Phase III auctions and the existing 35 channels were migrated to the Phase III regime, for a cumulative spend of about Rs 730 crore in migration fee and net one-time entry fee. The same was funded through debt, internal accruals, and existing liquid balances. The company has managed to reduce the debt levels over past couple of years and has maintained minimal debt levels in the recent past. Debt levels are expected to remain low over the medium term due to absence of sizeable capex plans and healthy cash accruals. * Strategic importance to a strong parent ENIL continues to benefit from its strong parent, BCCL. BCCL, holds a 71% stake in ENIL. ENIL 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 advertising revenue and exposure to competition in the radio industry Revenue is largely dependent on advertising income as over 70% of sales comes from advertisements. However, radio as a media channel accounts for only 5% of total advertising spend in the media industry (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. Further, ENIL generates more than 30% of its revenues from the Solutions business, thereby providing diversification benefits and partially reduces dependence on advertising revenues. The solutions business is a strategic part of ENIL's overall business. ENIL has witnessed significant growth in solution business over the last several years in terms of revenue. Increased focus on the solution business has helped ENIL gain larger market share and diversify its business risk. Strong presence in the solution business helps ENIL to cater to non-radio consuming advertisers and is helping ENIL transform itself into multi-media company. |
| Liquidity |
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ENIL has ample liquidity, driven by expected cash accruals of around Rs 100 crore in fiscals 2019 and 2020 and cash and cash equivalents of Rs 180 crore as on March 31, 2018. ENIL also has access to a fund-based limit, which is largely unutilised. The company has no long term repayment obligations with expected capex of around Rs.10-20 crore per annum. CRISIL believes the company has sufficient accruals and cash and cash equivalents to finance its capex requirements and investment requirements in subsidiary. ENIL has sufficient gearing headroom, to raise additional debt for its capex as it has no debt on its book currently. Its unutilized bank lines are more than adequate to meet its incremental working capital needs over the next one year. |
| Outlook: Stable |
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CRISIL believes ENIL will continue to benefit over the medium term from its market leadership, solutions business and strong operating efficiency. The financial risk profile should remain healthy, backed by a prudent capital structure and steady cash accrual. |
| Key Financial Indicators (ENIL) | ||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||||||||||||||||||||||||||||||
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| Annexure - List of Entities Consolidated | ||||||||||||||||||||||||||||||||||||||||||
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of various bank facilities | ||||||||||||||||||||||||||||||||||||||||||
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