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ENIL - stock update

Result Update: ENIL
• ENIL: De-growth in revenues reflects the challenges of a deteriorated macro for advertising revenues; high fixed cost base in OoH does not help. Maintain REDUCE.
• Q3FY09 results reflect the impact of a slowing macro environment on advertising spends; radio revenues are down 12% YoY while consolidated revenues drop 19% YoY. OoH subsidiary pares profit from radio business translating into losses at the consolidated level.
• Quarterly revenue growth trends validate our cautious outlook towards advertising spend trends. A visible slowdown in advertising spends towards alternate media platforms like radio, outdoor (part of ENIL’s bouquet) likely to hurt over the challenging medium term.
• OoH to remain a drag as the cost base rises with new investments while revenues are yet to gain traction; a weak macro does not help. Incremental margin gains will be difficult given the challenging macro and the high fixed costs that will likely push back new business break-evens.
• Adjust earnings to account for the Q3FY09 results; maintain REDUCE rating with a price target of Rs.170 (Rs.185 earlier).