N Arunagiri, Founder & CIO, TrustLine Holdings in conversation with Editor, N Mahalakshmi on why is ENIL his best investment pick for 2021.
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For more insights, please log on to www.outlookbusiness.com
#Strategy #Investing #Stockstowatch #Business #OutlookBusiness #OutlookMagazine #OutlookGroup
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NewsTranscript
00:00 [MUSIC PLAYING]
00:20 Outlook Business Investment Summit 2021
00:22 is brought to you by icicadirect.com.
00:26 Welcome to Outlook Business Investment Summit 2021.
00:28 In this segment, we are presenting to you
00:30 a stock idea by an accomplished value investor, Arunagiri M.
00:35 He's the founder and CEO of Trustline Holdings,
00:38 which runs a PMS.
00:39 Their value fund has compounded at the rate in excess of 20%
00:44 since 2007.
00:46 First, Arunagiri will present his investment case,
00:49 after which we will take some questions.
00:51 Thank you.
00:52 Hi, hi.
00:53 And thanks a lot for having me on this show.
00:56 And it's my pleasure to be here.
00:58 My best thing which I'm going to be talking about
01:01 is entertainment network.
01:03 And if you look at the market today,
01:05 there are very, very few opportunities
01:07 which can give you deep value, because markets have rallied.
01:10 And a lot of small mid-caps have got
01:13 rerated in the last one year.
01:15 So it's very difficult to identify
01:16 any scope which can give you a deep kind of opportunities.
01:22 And we find entertainment network as one deep value.
01:26 But the reason why we see this as a deep value opportunity
01:29 is because there's a huge disconnect between what
01:33 market perceives this as an opportunity
01:35 and what is the underlying reality.
01:37 If you look at it, market perceives this
01:39 as a pure play radio opportunity,
01:43 whereas there's a huge transformation underway
01:45 in terms of changing the business from a pure play
01:49 radio to a digital ad solution company.
01:53 As for management, they are looking at increasing
01:56 the revenue share from digital ad solution
01:59 from currently maybe about 10%, 11%,
02:02 to close to about 50% in the next three, four years.
02:05 That's going to be a real game changer for this opportunity.
02:08 And because of this disconnect, you're
02:10 getting this at a very, very deep discount.
02:12 And if you look at--
02:15 since market perceives this as a pure play radio,
02:18 and which is not looking at--
02:23 in terms of the digital transformation,
02:25 one is looking at currently the opportunity
02:28 at almost about 15% free cash flow yield.
02:32 So that is one thing.
02:34 And in terms of digital transformation,
02:37 the opportunity is very, very big.
02:39 If you look at digital ad solution,
02:41 there's a big market for anyone.
02:44 But currently, it's a very fragmented market
02:47 with many, many players.
02:48 And there's a huge opportunity because if you
02:50 look at digital ads, it's almost about 40% of the overall ad
02:56 spike.
02:57 So if you look at the overall market size of $10 billion,
03:00 almost close to $4 billion is going to be digital marketing.
03:04 And if anybody can really build a story in that,
03:08 there's a huge opportunity waiting for somebody to tap it.
03:13 And EMIL probably understood this much ahead
03:16 of everyone else in the competition.
03:18 Almost three, four years back, they
03:20 started building this digital ad solution team.
03:22 They foresaw that the radio business--
03:25 the modern radio business is going to be declining.
03:28 And they foresaw this about three, four years back
03:30 and started building this digital ad solution.
03:32 So they have senior hires, and they have a huge content team,
03:37 almost close to about 300 creative people
03:39 in the content team, which can create
03:40 content for the digital ads.
03:42 And they have a huge capital multimedia platforms,
03:46 which they can offer as part of their digital ad solutions.
03:49 So be it their own MX prior, which
03:52 has got a huge subscriber base of 175 million,
03:56 or Tarkovic short video platforms,
03:59 or their own YouTube subscriptions, which
04:02 runs into 11 million subscribers.
04:04 So if you look at all these, I think
04:05 they have-- when you go to an enterprise,
04:09 you can offer digital ad solutions
04:12 across multiple platforms, in addition to their legacy
04:15 traditional media, which is radio and print.
04:18 So they have a good story with their building.
04:20 If they execute it well, I think in the next three, four years,
04:23 they can really build this into a large business, which
04:26 can be around 40%, 50% of their overall revenue.
04:29 In addition, radio business also is going to be--
04:33 it gives you a lot of value, because currently it's
04:36 going through challenges because of yield
04:39 in terms of their ad revenues.
04:43 And though the ad volumes have recovered
04:45 to almost pre-COVID levels in Q3,
04:48 the realization is quite low compared to what it used to be.
04:52 So as a result, the revenues are still falling.
04:56 But we foresee this yield to improve the pre-COVID levels
05:00 in the next two, three quarters.
05:02 So as a result, radio business will come back to pre-COVID,
05:05 and it will normalize.
05:06 And the growth will come from digital business,
05:09 which will give you the higher margins and higher earnings.
05:12 And then that's where I think you
05:13 feel the overall intrinsic value of this particular opportunity
05:17 is closer to about--
05:19 I would say about three to four times the current market value.
05:23 And it's one of the very, very deep value opportunities.
05:25 The reason being, even if you look at the cash holdings
05:29 in the balance sheet, it's almost 30%, 35%
05:33 of their market cap.
05:34 In addition to that, if you look at net of cash,
05:38 I think in terms of what they can generate
05:40 as free cash flow in the coming years
05:42 when the business normalizes, it's
05:44 almost close to 120 to 1.2 to 1.5 billion rupees,
05:49 which they can generate as free cash flow, which
05:52 means you're looking at closer to 15% to 20% of the FCA
05:55 field, even if you look at one year down the line.
06:00 So it's a fantastic opportunity.
06:02 It's a growth come value kind of a play.
06:06 Value comes from real business.
06:08 Growth comes from their digital transformation.
06:10 So it's a real deep value opportunity
06:12 which can offer a fantastic upside
06:15 for any patient investors.
06:16 Of course, it's going to take a longer time.
06:18 It's not going to happen over time.
06:19 Overnight, digital transformation
06:21 will take at least two, three years
06:23 to really come to the surface, which
06:25 means one needs to have patience.
06:28 But the current valuation, it's more like a hedge
06:31 you win, tails you don't lose kind of an opportunity
06:34 because it's so distressed kind of valuation
06:36 where the downside is limited.
06:38 But if the story goes well in digital transformation,
06:41 if they execute well their strategy,
06:43 then you're looking at three to four weeks kind of website
06:45 on this opportunity.
06:46 Thanks so much, Arunagiri.
06:48 The first question I want to ask really
06:51 is, last year was obviously a down year for radio
06:55 in terms of ad revenues, so financials suffered.
06:58 And most analysts have been expecting
07:00 that this year will be much better, at least till two,
07:04 three weeks ago, there was great level of optimism
07:07 about how this will be a comeback year
07:09 and also because of the base effect, et cetera.
07:12 But in three weeks, the sentiment
07:13 has changed quite considerably.
07:16 And definitely for media, surely it's the same thing.
07:21 So how do you see this year's financials and spend
07:26 panning out for ENIL?
07:28 And what kind of valuations are we talking about?
07:34 You're right.
07:34 I think, of course, people expected--
07:37 I think the management expected by Q1 or Q2 of FY22,
07:43 the yield would move back to pre-COVID levels.
07:46 And though the volumes have recovered largely
07:48 to the pre-COVID levels, yield was much lower
07:51 in the last quarter.
07:52 But they expected this to correct and come back by Q2
07:55 or by FY22.
07:57 Now it's going to be delayed, of course,
07:59 because of COVID secondary.
08:00 But our own estimate is, yes, even if it is going to delay,
08:04 it's not going to be delayed.
08:06 I think this has slightly got delayed.
08:08 So probably you will see this recovery in yield
08:11 being pushed back to Q3 or Q4.
08:14 So to that extent, it is a challenge.
08:17 But the story is not gone away.
08:18 Radio will still be a significant part of ad pipe.
08:22 It will continue to enjoy that 4% to 5% spend of the ad.
08:25 And that way, I don't think--
08:27 and the other interesting thing is, during lockdowns,
08:30 the listenership is going up for radio.
08:34 Though listenership is going up, as a follow-up,
08:37 your yield should go up, ad reviews and ad volume
08:39 should go up.
08:40 But that is not immediately moving up because of less
08:45 demand because of lockdown.
08:47 But once the situation normalizes,
08:49 one would find this radio getting its due space of that
08:53 4% to 5% in the ad pipe.
08:55 So we don't have any much of challenge
08:57 in terms of getting back those pre-COVID levels.
09:00 But it got delayed.
09:00 You are right.
09:02 Sure.
09:03 Tell me, overall, the story--
09:05 I mean, how do you see, five years down the line,
09:07 the character of this business or the revenue
09:10 profile of this company really changing?
09:12 Do you see radio still as a growing pie?
09:16 Or do you see it as a diminishing pie
09:18 over the next five years?
09:21 So that's a very interesting question, Maha.
09:23 Actually, if you look at it, radio
09:25 will continue to grow, but not at all--
09:27 I know it will be much lower on single-digit--
09:30 low single-digit kind of growth is
09:32 what one can expect in radio.
09:34 So it's not going to really drive growth for the company.
09:38 This company realized this much earlier.
09:39 Three years back, they realized that radio is
09:41 going to be facing headwinds.
09:44 It will continue to grow.
09:45 It will have relevance.
09:46 But unlikely that it will grow that supernormal growth
09:49 which it did three, four years back.
09:51 So as a result, the company took steps to change
09:53 its overall underlying business towards digital ad.
09:57 And if you look at digital ad, this
09:58 is a very, very interesting story.
10:02 As I said earlier, it is a very fragmented industry.
10:05 And it's a very--
10:07 I mean, it's growing at a high speed.
10:09 And when it started growing, the incumbent players,
10:13 like traditionally the ad agencies,
10:16 failed to exploit--
10:19 to capture their market.
10:21 Because it was initially led by technology companies.
10:26 Because the requirement for SEO, as well as analytics, or apps,
10:31 that requirement was so high, the technology companies
10:34 took the lead.
10:36 But there was a [INAUDIBLE] there.
10:39 The technology companies could give only technology,
10:41 and analytics, and apps, but not the content.
10:44 So what happened was the companies
10:46 which wanted to have presence in digital space,
10:50 they had to build their own content team.
10:51 So it became a hybrid model where the technology companies
10:54 gave this analytics and the digital presence.
10:58 And the companies developed their own content.
11:01 So that is why the market is so fragmented.
11:03 And there are no large players.
11:05 The best player has only about 300 people.
11:08 So that's the largest player.
11:09 So there is an opportunity there for someone
11:12 who can give leadership in both content and technology.
11:15 That's where EML comes.
11:17 Now, for content, I think you need a creative team.
11:20 And you need to have social--
11:21 multimedia presence.
11:23 You need to also have capital digital media where
11:26 you've got your own followers.
11:29 And so that's where EML has got a leading edge,
11:32 which other radio players may not have an edge.
11:35 And as I said earlier, EML has got its own MX kind
11:39 of OTT platform.
11:41 It has got its own content team, which
11:43 runs to about 300 people.
11:44 And they're expanding.
11:46 And they have recently hired a senior team
11:48 to lead this digital transformation.
11:50 Plus, they also have an on-ground coverage.
11:53 They do a lot of events which are based on on-ground shows,
11:57 cheap Bollywood kind of shows.
11:59 So they are on-ground presence.
12:01 So overall, when they go to an enterprise,
12:04 they can give a very, very comprehensive solution, which
12:07 is your traditional media on-ground presence
12:10 and the digital OTT and original content,
12:13 which no one else has got a kind of an offering in this--
12:16 currently in this market, be it ad agencies or technology
12:19 companies, which is where I think you have somebody
12:22 like Prashant Pandey, who's leading from the front.
12:24 And he has a very visionary--
12:27 he has a very visionary leadership.
12:29 And he's driving this very passionately.
12:32 So if this gets executed with this kind of drive
12:36 and passion, I think three, four years,
12:38 we have no doubt that the business profile will change
12:40 completely towards digital ad solutions, which
12:43 will constitute almost 40% to 50% of their business
12:46 from the current 10%, 11%.
12:48 And believe it or not, digital ad solutions
12:50 are high-margin business.
12:51 It runs at a much higher operating margin,
12:55 closer to 25% kind of level, compared
12:59 to your traditional business.
13:00 So as the revenue profile changes
13:02 towards digital transformation, the margins will increase.
13:06 And regular free cash flow will continue
13:08 to flow from regular business.
13:09 That's a brilliant point of view.
13:11 Value comes from radio, and growth comes from digital.
13:14 And that makes the whole story very interesting.
13:17 So I agree to this point that in the initial days
13:20 of this digital ad universe, there
13:24 have been all kinds of players, the ad players trying
13:27 to get a piece of action by outsourcing the tech part,
13:31 the tech guys doing it without having expertise and content,
13:35 and so on.
13:36 But with respect to ENIL itself, it's
13:39 part of a group which itself has entrenched interest in media
13:42 across all segments.
13:44 They have their own advertising agency.
13:46 They have traditional media.
13:47 They have presence.
13:49 So pretty much everybody in the group
13:51 is doing everything and trying to offer integrated solutions.
13:55 So now this is a public company, and there
13:58 are much bigger private companies within the group.
14:02 So why should we believe that this company in its own group
14:10 will be nurtured and valued and will make the transition
14:13 and take the big leap, while the rest of the company, which
14:17 is also trying to do an integrated strategy,
14:21 is a larger part of the business and remains private?
14:25 Correct.
14:25 I think that's a serious challenge.
14:28 But I think here, I think we're going
14:29 to go by what the company has been doing so far.
14:33 And if you go by that evidence, I
14:36 think there is a serious focus from the current management
14:39 in terms of transitioning this business from radio
14:41 to digital ad solution.
14:43 So one is they have changed their brand.
14:45 Earlier, it used to be Radio Mirchi.
14:47 Now, Radio has been taken off.
14:48 It's now rebranded as Mirchi.
14:50 And there is a lot of money and focus
14:54 which is going to back up this particular new brand, which
14:56 is Mirchi.
14:57 So that tells you that the group is behind this kind
15:01 of new initiative.
15:02 The other thing comes from the leadership from Prashant Pandey.
15:05 I think I had a one-to-one discussion with him.
15:08 And we had seen his passion in terms of driving this business
15:13 and changing his revenue profile.
15:15 And that's where our confidence comes
15:16 that this is a serious thing for ELIL.
15:19 And they've also realized that radio
15:20 is not going to take them far.
15:22 And it might give them value.
15:24 It might give them free cash flow.
15:25 But it's a business which is going to grow
15:27 at a low single digit.
15:29 So the real growth for ELIL has to come
15:31 from the new digital business.
15:34 And they have a story there.
15:35 And they have increased.
15:36 If you look at the last three years,
15:38 the number of digital customers have gone up three-fold.
15:41 And it is still growing.
15:42 And their credentials, they have built
15:45 in terms of many ad campaigns, which you can see from their
15:48 initial presentation.
15:49 There are who's who in terms of pharmaceuticals,
15:52 as well as FMCG, consumer goods companies,
15:55 where they have really offered integrated solutions
15:58 for their campaigns.
15:59 And it has worked.
16:00 And we foresee that this is going to continue.
16:04 And digital market is a much larger business.
16:07 Everybody has a share.
16:08 Even if you move up from current level percent, which
16:12 is you're talking about 40, 50 crores in their revenue share.
16:16 Of $4 billion is the market size.
16:19 So there is a huge headroom for somebody who's a focused player
16:24 and for the size, which we're talking
16:26 about a company with a market cap of just about 680 crores.
16:31 There's a lot of things which can be done here.
16:34 The other thing is, I think, in terms of valuation,
16:37 EMIL, in spite of being a leader in radio,
16:39 in spite of doing this digital transformation,
16:43 peer-to-peer comparison, if you look at it,
16:45 relatively, it's going cheap compared
16:47 to even its nearest competitor, which is music broadcast.
16:50 That's trading at 1.3 times the book,
16:52 whereas your EMIL is trading at much below book.
16:56 So this market disconnect is amusing,
16:59 but that's where value comes for somebody
17:02 who can patiently be invested in this kind of opportunities.
17:06 So what kind of earnings and free cash flow growth
17:12 are you looking at over the next three to five years overall?
17:16 I think--
17:17 Low single-digit radio growth means
17:21 it has to be offset by a very significant ramp-up
17:24 in revenues on the digital side for you to even get
17:28 a 15%, 20% earnings or peak--
17:31 Yeah, that's true.
17:33 But if you take FY20 as a base year,
17:36 you can project a much higher growth.
17:37 So that's not the--
17:39 obviously, because FY20 was a very, very low base,
17:42 so that cannot be a reference.
17:44 So if you take a--
17:44 Right now, what is the revenue and earnings
17:46 composition in terms of business?
17:48 In terms of business, I think that normally,
17:50 they used to do about 500, 550 crores, which
17:53 was FY19, 18, and all that.
17:55 But FY20 was a year in which they lost a lot of business.
17:59 So they finally ended up--
18:01 FY20 at probably FY21--
18:05 FY21, December DTM basis, if you look at it,
18:08 this will be around 324 crores.
18:10 So they have--
18:11 What about digital?
18:13 For overall, I think it is 10% digital.
18:16 The rest is radio and--
18:18 OK.
18:18 So the rest is radio, but they also do a lot
18:21 of on-ground even management.
18:22 So if you look at radio alone, that will be around 70%.
18:26 20% will be on-ground media, on-ground campaigns,
18:30 and probably 10%, 11% will be digital.
18:33 Sure.
18:34 So the way we expect this, you may not
18:36 have a very huge growth in terms of top line.
18:39 Actually, what would happen is top line
18:42 would continue to grow.
18:43 Of course, held by digital, it would probably
18:46 grow on the mid-double digit.
18:50 But the real action would be on the bottom line.
18:54 Because the revenue profile, even though it
18:55 is changing from radio to digital transformation,
18:58 currently, if you look at 30%, it comes from non-FCT.
19:02 Non-FCT is basically on-ground even management.
19:06 And that constitutes almost 10% from digital.
19:11 Now, that on-ground business is a very, very low-margin
19:14 even management business.
19:16 That will focus on that and increase the focus on digital.
19:20 So overall, when we say non-radio is going to constitute 50%
19:24 in three, four years, in that 50%,
19:26 bulk of it will be digital.
19:28 So what you will see is the margin profile
19:31 changing dramatically.
19:32 So margins, you can--
19:34 probably, if you look at the bottom line,
19:35 the growth will be much ahead of 25%, 30%
19:40 in terms of earnings growth for the next three, four years.
19:42 But top line, one has to be really conservative.
19:45 One will not see major change, but still, it
19:48 will continue to grow much higher than their radio
19:51 players.
19:52 Sure.
19:52 That's a very foreseeing picture.
19:54 Sure.
19:55 Tell me, right now, radio is really a regulated business
19:59 in the sense it's a licensed business.
20:01 So you have significant market share.
20:02 And ENL obviously has the opportunity
20:05 to consolidate its market share further because of how
20:09 competitors are in terms of reliance is weak there
20:13 and so on.
20:14 But the digital ad market is not like that.
20:17 It's highly fragmented with very small players.
20:20 And they're all competing fiercely in this space.
20:23 So how does that market--
20:26 and going forward, there is great pressure
20:29 on all media companies to really capitalize and squeeze
20:32 that market.
20:33 So there is obviously the risk of undercutting
20:36 and realizations falling, pricing,
20:40 and also the other problem with digital.
20:42 I should not call it a problem because for advertisers,
20:45 it's a great thing.
20:46 There is very high level of measurability,
20:49 which also spoils the party for a lot of media players
20:53 when you go out to sell.
20:55 So it's more outcome-based, yeah.
20:57 It's more and more outcome-based.
20:59 So given these two factors, do you see--
21:04 I mean, you already said you have
21:06 to be conservative about revenue.
21:11 Do we have to be a little circumspect
21:13 about what kind of growth that can really begin?
21:16 Because the nature of the entire industry, media industry,
21:20 is changing.
21:20 And everybody is going to be going after this pie
21:22 exactly in the manner that they are trying to do.
21:26 Yeah, that's a challenge.
21:27 It's a fragmented industry.
21:29 So to that extent, you can look at it as a negative.
21:33 You can look at it from one way, it is negative.
21:35 But the other side is it also offers
21:37 a big opportunity for somebody who is a very focused player.
21:41 So to that extent, I think--
21:44 but more important aspect of this entire story
21:48 is E&M is a little ahead of everyone else.
21:53 They took this initiative three, four years ahead.
21:56 It takes a long time to build a team, content team,
21:59 and then experiment, and then finally
22:01 come back with a very credible solution
22:04 to an enterprise in terms of integrated offering.
22:07 So it takes a long time.
22:08 Even if competition decides today and they won't enter,
22:12 it's going to take three, four years.
22:13 So that kind of an edge E&M has got.
22:16 So to that extent, they have kind of an edge.
22:20 So that will be favorable for them.
22:22 But at the same time, you are right,
22:24 it's a very fragmented industry and a lot of competition
22:28 from various sides.
22:29 And they are very focused on few verticals, which
22:32 is what I feel E&M will do.
22:34 They will not go to all the enterprise in every space.
22:38 Probably they limit themselves to more consumer-oriented
22:41 goods, which in itself is very large,
22:43 and they will spend a lot of money in digital.
22:46 And if you're focused in a particular vertical
22:48 and give this integrated offering
22:50 with their own capital media, which many of the competition
22:53 doesn't have--
22:54 if you look at MX Player, 175 million kind of subscription,
22:58 not many would have a capital social media
23:01 or OTT platform on which they can offer their ad solution.
23:04 They have to rely on third-party OTT kind of solutions,
23:07 whereas these guys have got a capital--
23:09 But Arunagiri, that can be bought.
23:12 Any ad solutions company can go out and buy media.
23:17 It's as easy as that today.
23:19 That's true.
23:20 So the value that an integrated player or somebody
23:22 who has a foot in all the media is really not
23:26 a challenge for a new entrant, because it's
23:28 available for a price.
23:30 That's right.
23:31 And using technology, you can be there everywhere.
23:35 So that's true.
23:36 But when you have a captive, you have a pricing advantage.
23:39 So you can price and mix in.
23:41 You have all the flexibilities in terms
23:43 of giving-- arriving at your pricing for the overall offering,
23:47 whereas competition would find it difficult in terms
23:50 of matching your overall competitive price.
23:55 So that gives an edge.
23:57 That is, at the same time, of course,
23:58 you need to have-- most important part of this
24:00 is the content, rightly you said.
24:02 And that's where the company has been focusing.
24:04 And that's where the differentiation would play.
24:07 And if they get the content right in terms of team,
24:10 in terms of original content, in terms
24:12 of delivering the short-term videos for ad campaigns,
24:16 I think probably they will have an edge,
24:18 because they started this journey three, four years back.
24:20 Sure.
24:22 In your mind, what do you think is the biggest risk?
24:26 The biggest risk, I think, what we see
24:28 is the execution, right?
24:29 This particular journey, I think,
24:31 is to Prashant Pandey started about three years back.
24:34 And it's going slow.
24:35 And they haven't dramatically changed
24:37 their composition of revenues.
24:38 It is still about 11% of their total revenue.
24:41 How we are assuming that it's going to go to 50% in three
24:44 years, how far that is credible, whether they'll be executing
24:47 it, if that doesn't happen, then the whole story falls flat.
24:51 So that, in my view, is the biggest risk,
24:53 that one has to really closely track
24:55 whether these guys are able to execute and bring
24:57 this revenue share.
24:58 And the only thing which I would like to emphasize
25:01 is hedge you win, tails you don't lose.
25:03 That's the biggest secret of this opportunity,
25:06 because the valuation is dirt cheap.
25:09 That you're not going to-- there is no downside.
25:11 There's a major downside support.
25:12 There's a lot of cushion.
25:13 There's a lot of margin of safety.
25:15 But even if it works, half of what we estimate,
25:18 still you're going to make a big upside in this opportunity.
25:21 Why do you say you don't lose?
25:24 Because going by how the market has
25:26 been valuing all these stocks in transition,
25:29 or value stocks, whether you look at NTPC, or ITC,
25:33 or any of these companies, you know
25:35 that the market can continue to derate these companies
25:38 for a long time.
25:40 And so even if you're available at a very attractive price
25:45 to next year, it could be even more attractive,
25:48 because the market perception doesn't change quickly enough.
25:53 I understand where you're coming from.
25:55 Basically, if you look at the--
25:58 basically, as I said, the value comes from radio,
26:00 growth comes from digital transformation.
26:01 For a minute, let's assume that digital transformation probably
26:06 is not going to work, and the execution goes wrong.
26:08 And you're not going to get those big margin
26:13 upside from the digital.
26:15 Let's assume only radio is going to survive,
26:16 and digital is not going to add big time.
26:19 Even then, when the radio cycle, ad cycle,
26:22 normalizes in one year's time, you
26:24 are looking at a free cash flow of almost about 120
26:27 crores to 150 crores.
26:30 And radio is not going to go anywhere.
26:32 It will still grow, but no single digit.
26:34 And it will still throw a lot of cash flows.
26:36 And radio has got its relevance, as we said often,
26:39 that the listenership is there, and it
26:41 is going to get that 4% to 5% of the pipe.
26:44 So even if this story on digital doesn't work,
26:47 because of the free cash flow support,
26:49 because of the cash balance sheet,
26:51 what the balance sheet holds in terms of cash,
26:54 and the earnings are going to come back.
26:55 And if you look at the pricing, even the worst of the times
26:58 in March 2020, when there was a big market crash
27:03 and small and mid-caps, the stock price
27:05 didn't move much below 140.
27:07 So which means you are trading at a very close price point,
27:11 which is close to all-time low.
27:13 So to that extent, there is a decent downside support
27:15 in this opportunity.
27:17 Of course, I think what happens, no one
27:18 can be 100% sure about anything in this market.
27:22 But I think if you assign probability,
27:24 I think there is less than 10% probability
27:27 that there will be much more downside on this.
27:29 But there is a 90% probability that you
27:31 will make at least 2x to 3x upside
27:33 in over a period of three, four years.
27:36 Not immediately, over a period of three, four years.
27:39 That's very, very critical.
27:40 One final question.
27:41 What will you be watching out for in this stock
27:46 over the next few quarters?
27:49 I think the key thing which we'll watch out
27:50 for is the revenue profile change in the new business,
27:53 which is going to come from digital transformation.
27:55 What kind of clients they add in terms of their digital ad
27:59 solution?
27:59 What is the percentage change over a period of time?
28:02 Are they really executing what they're saying?
28:04 So every compound, what we are going
28:07 to do in terms of their earnings,
28:09 in terms of their business updates, are they executing?
28:12 And are they going on track in terms
28:15 of getting more traction in digital ad solution?
28:18 That's a key thing to watch out for.
28:20 And that's what tells you.
28:21 And that's the story we have invested for.
28:23 Sure.
28:25 Thank you so much, Arunagiri.
28:26 It sounds like a very interesting stock,
28:28 the whole idea of value plus growth at a time when--
28:31 especially in today's times when value is not performing
28:35 and growth is overpriced.
28:38 For all our viewers, this is not really a recommendation to buy.
28:41 But it is just an investment analysis.
28:43 And we've done a-- he's done a thorough analysis.
28:46 And we have tried to present the risks associated
28:49 with this stock.
28:49 Please do your own research and go through the numbers
28:53 before you take a call on this stock.
28:56 Thank you so much, Arunagiri.
28:57 Thank you for today's discussion.
28:59 Thanks.
28:59 Thanks a lot.
29:00 It's a pleasure.
29:01 It was a great opportunity to talk to you.
29:03 Thanks a lot.
29:05 (upbeat music)