Mcap: INR 8bn | Sell | TP: INR 14, CMP: INR 24 | Downside: 42%

§Q4FY21 revenues declined 7.4% YoY to Rs 425mn despite a low base, as traditional verticals were continuously under strain, losing to the digital amidst COVID. However, it grew 4.5% QoQ in Q4, contributing 11% YoY to overall volume growth. EBITDA stood at INR 29mn versus INR 53mn loss in Q4FY20 on QoQ revenue recovery, cost rationalization measures and a sharp 34% YoY dip in other expenses. However, EBITDA margin declined 340bp QoQ to 6.8% in Q4FY21. Loss after tax stood at INR 37mn, on weak operational performance and other income contracting 42% – this was partially offset by 64%/5% YoY decline in finance costs/depreciation, respectively.
§ Vertical-wise performance stood as follows – The government vertical (11% of volumes) decelerated 34% YoY, while Real Estate (12% of volumes) surged 29% YoY. The Auto vertical (8% of volumes) grew 69% YoY, Finance/BFSI (contributing 13%) 22% YoY, Pharma (contributing 10%) up 72% YoY and F&B (contributing 11%), up 83% YoY.

Valuations:
_We cut our FY22E/23E revenue estimates 12%/12.2%, respectively, factoring in Wave II impact.
Revenues should likely reach a mere 80% of FY20 levels versus an earlier estimate of 90% by FY23E. We believe, radio ad revenues’ full recovery to pre-Covid (FY20) levels will likely be postponed to FY24E. This is because: 1) radio has been a laggard (industry has ebbed to CY14 levels), heavily depending on local advertisers – these were severely affected by Wave II, 2) huge pricing discounts to attract advertisers has hit ad yields despite ad volume recovery for key verticals to 90-95% levels, and 3) traditional mediums such as Radio/Print have lost ad spends to digital on better measurement, reach and increasing consumer digital presence during the lock-down. Going into H2FY23E, we expect local advertising to script a strong return as pent-up demand will kick-in with complete Covid normalisation and yields will revive to pre-Covid levels, enabling full recovery by FY24E. However, long-term scaling up of the radio vertical is a structural challenge, given the: 1) Digital revolution in India amidst Covid lock-downs on smartphone penetration and cheapest data prices globally, enabling a shift to digital streaming platforms and hence, marring radio listenership, 2) Digital audio streaming platforms are being launched almost weekly – Daily plans are affordable now versus those a few years ago, further triggering a shift; 3) Government vertical is increasing its digital ad spends vis-à-vis radio/print given higher reach, due to which its strong presence in radio, 3-4 years ago, will unlikely be repeated and 4) Higher digital royalty offering on no cap. We expect EBITDA margins to remain under pressure, as cost rationalization measures (INR 520mn savings annually, of which 25-30% is permanent in nature) will be unable to offset revenues weakness. We reiterate Sell with a pruned TP of INR 14 from INR 18 on 9x (unchanged) EV/EBITDA.

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