One explanation that I thought for the lower return ratios was the IPO proceeds which were still in the process of being deployed. Over the next few quarters the company should increase its return ratios once its embarks on an aggressive deployment of idle cash.

The last few months have seen some hectic Institutional/ Mutual Fund activity on the ENIL stock. The total FII Holding has increased from 12.45% at the time of allotment to 18.07%.

Amongst the local mutual funds Standard Chartered Premier Equity fund had bought 112,699 shares in June. Other prominent believers in the ENIL story are Magnum Fund, DWS, DSP – Merrill Lynch The total Mutual fund exposure to the ENIL stock has doubled from 127478 shares to 246664 shares over the last one month.

The trigger for this stock has been the slew of policy changes announced by the Govt. Prominent among these are:

• Introducing a one time Entry fees (OTEF) + Revenue share at (4% of gross revenues) against the Fixed License Fee regime. Some years back an explosive growth was observed when the license fees for the Indian Mobile telephony industry was changed from fixed to revenue sharing. Something of that order could be in store for the FM Radio broadcasters.  
• The FDI in Radio broadcasting has also been increased to 20% 
• The number of cities where FM Radio will be introduced has gone up from 12 to 91 
• The number of stations will also go up from 21 to approximately 300 
• The number of players are expected to rise six fold from 7 to 43

 ENIL is currently running 10 radio stations (Delhi, Mumbai, Kolkata, Chennai, Pune,Ahmedabad, Indore, Bangalore, Hyderabad and Jaipur). Over the next 12 to 18 months the company plans to set up 22 additional stations. Clearly the company appears to be in  a high growth phase. ENIL expects the growth opportunity for private FM to increase from 3% (Rs 3.7 billion) of Rs 129 billion market to 8% (Rs 38.0 billion) of Rs 480 billion in ten years starting Fy 07.

The company also qualified for the Out-of-Home advertising rights of Delhi Metro (13 stations), Kolkata (80 hoardings) and Delhi-Noida toll bridge (66 displays) for total license fee of Rs 340.0 mn (US$ 7.6 mn) payable over a license tenure of 2 - 5 years.

Price Waterhouse Coopers estimates the total Out-of-Home media industry to grow at CAGR of 14% in next 5 years increasing its ad share to 7% and size to Rs.17.5 billion.

ENIL is also exploring opportunities to expand its FM radio broadcasting business into international markets and to maintain its market leadership in fast growing radio industry. ENIL proposes to add the following value added services”

• Launch Visual Radio through mobile phones
• Exploit additional revenue streams like Mirchi Activation
• Focus on Out-of-Home media growth
• Explore opportunities to lease sites on a long-term basis
• Introduce innovative technology and processes
• Create  event properties at an appropriate time
• Focus on Life style, Fashion shows and Exhibitions

 The major Institutional shareholders who have taken a meaningful position in the company are:

The company foresees the following challenges in its path of growth

• Rapid roll-out of stations
• Talent identification, training and retention
• Increasing competition will make retaining and growing absolute listenership numbers difficult 
• Cost management – especially with regard to marketing and payroll
• Rationalization of music royalty regime
• Development of listenership research standards and spread       across the country

 Recommendation: At a current market price of Rs 184 the stock does look expensive as it is being valued at 30 times trailing EPS. How ever at a market cap of Rs 877.2 crores there is more to the valuation matrix then the PE multiple. Growth stocks have traditionally been high PE stocks and if the company’s plans are to be believed the EPS should double over the next two years. ENIL is a great concept for people looking at a 2 to 3 year time horizon.