ENIL to turnaround after outdoor business sale

Entertainment Network (India) Ltd expects to swing to profit in FY11 after selling its loss-making out-of-home unit helping it strengthen its balance sheet and focus on core operations, a senior official said.

ENIL, which operates the Radio Mirchi network of radio stations, said it was selling Times Innovative Media Ltd, in which its holds 83.4%, to parent Bennett, Coleman & Co. Ltd for 1.18 billion rupees, including debt.

The company, which had posted consolidated losses over the past two years, expects to register a net profit of 350-400 million rupees in FY11, said Dalpat Jain, assistant vice president, strategic finance and investor relations.

"This out-of-home unit was incurring losses in traditional and airport terminal businesses. There were uncertainties about new orders and it needed additional capital. The overall dynamic was not looking attractive," Jain said over the telephone.

Its outdoor business has presence in all segments including street furniture, transit, large formats and digital screens.

In 2009-10, the firm's consolidated net loss narrowed to 153 million rupees from 603 million in FY09 while net sales was mostly steady at 4.2 billion rupees.

Two of its large contracts - Delhi and Mumbai airports - are due to expire this month, Jain said adding that though it has won the bid for Delhi terminal, ENIL was not keen on investing fresh capital as it wanted to save cash for radio expansion.

ENIL will now be left with the radio and event management businesses after the stake sale. It radio business posted a net profit of 180 million rupees on a standalone basis in FY10 while event management broke even during the year, Jain said.

After the sell-off and debt repayment, the company expects to get cash of 750 million rupees, which it will use to boost expansion and growth in radio business, he added.

Indian media and entertainment industry is heading for several such mid-sized deals in coming quarters as loss-making operators look to consolidate around core-segments while regional players try to expand.

"Radio is a highly operating leverage business. Majority of the revenue flows to bottomline. For phase 3 expansion we will need capital. So we will conserve this cash for now," he said.

The firm plans to bid during the Indian government's phase 3 roll-out of radio frequencies. Radio operators are expecting additional allocation of frequencies and opening up of current affairs and news content to private radio operators.

Investors, however, gave a thumbs down to the deal, saying ENIL sold its business, which was expected to grow at a faster pace and contribute meaningfully to the topline, cheap.

Analysts said this is not a fair price for the business which was expected to be a significant growth area for the company.

"It's a value destruction for shareholders. Because the company created momentum for this business earlier and now are selling it at a dismal valuation," said a Mumbai-based analyst who did not want to be named.

Morgan Stanley India was the adviser to the deal.

Shares of ENIL rose nearly 15% in the last 3 months helped by prospects of new contracts from major airports in the country, analysts said.

At 12.35 pm., shares of the firm were down 11.82% at 207 rupees in a firm Mumbai market.