Mumbai: 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 a cash consideration of Rs45 crores.
Additionally, BCCL will repay ENIL’s loan to TIM and also absorb the obligations under the financial guarantees provided by ENIL on account of TIM as on the date of the proposed transaction. As on 8 July, 2010 the loans advanced by ENIL to TIM and the financial guarantee obligations of ENIL on account of TIM were Rs42.50 crores and Rs31.23 crores respectively.
The company, which had posted consolidated losses over the past two years, equity analyst expects to register a net profit of Rs 35-40 crores in FY11.
”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,” Mr. Panday, CEO ENIL 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 Rs15.3 crores from Rs60.3 crores in FY09 while net sales was mostly steady at Rs420 crores.
Two of its large contracts - Delhi and Mumbai airports - are due to expire this month, 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 Rs18 crores on a standalone basis in FY10 while event management broke even during the year.
The company would get cash of Rs87.5 crores towards equity & repayment of its loan from TIM, 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.
ENIL had engaged Morgan Stanley India Company Private Limited to provide a report on transaction rationale and valuation services in relation to the sale / divestiture of its Out-of-Home Media / Outdoor Advertising business.
Shares of ENIL rose nearly 15 per cent 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 Rs20.7 crores in a firm Mumbai market.