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The initial public offer (IPO) of Music Broadcast Limited (MBL) that owns FM radio channel, Radio City, opens today for subscription. The issue consists of equity shares of face value of Rs 10 each for cash at a premium consisting of a fresh issue of up to Rs 400 crore and an offer for sale up to 2,658,518 equity shares. The price band for the offer is fixed from Rs 324 to Rs 333 per equity share.
The issue proceeds will be used to repay most of its Rs 300 crore debt, thereby reducing its interest cost and improving the overall cash flow. Last week, Music Broadcast Limited finalised allocation of 44,01,158 equity shares to anchor investors at Rs 333 per equity share, aggregating Rs 146.56 crore.
According to reports, Radio City is ranked No. 1 in terms of number of listeners, total 49.6 million listeners across top 23 cities, followed by Entertainment Network India Ltd (ENIL) with 40.5 million listeners. Even in the metro cities like Mumbai, Bangalore and Delhi, Music Broadcast owned Radio City enjoys a leadership position.
So, should you invest in this IPO? Here is what leading brokerages across the country suggest?
ANGEL BROKING
Radio City operates 20 markets, while ENIL operates a total of 38 markets. Despite this, Radio City has 23% revenue share compared to 24% share of ENIL. We attribute this to its dominant position in listenership and ability to charge premium advertising rates.
Radio City, with ~19% CAGR in revenue, has outperformed its closest peer ENIL, which reported ~14% CAGR in revenues over FY2013-16. In profitability too, Radio City, with ~54% CAGR in profit after tax (PAT) over FY13-16, has performed much better than ENIL (~17% CAGR in PAT over FY2013-16).
In terms of valuations, the pre-issue P/E works out to 25.2x its annualised 1HFY2017 earnings (at the upper end of the issue price band), which is lower compared to its peers (ENIL is trading at 79.5x its annualised 1HFY17 earnings). Also, MBL’s EV/sales multiple 6.2x, works out to be at discount to ENIL’s 8.2x. On EV/EBITDA front as well, Radio City’s issue appears to be attractive 18.7x v/s. ENIL’s 37.4x. Moreover, Media Broadcast Limited has a better margin and return on equity (ROE) profile than its comparable peers. Given the positives coupled with attractive valuations, we recommend a SUBSCRIBE on the issue.
ANTIQUE STOCK BROKING
At the upper band of Rs 333, the stock is valued at FY16 P/E of 34x which is at a discount to its listed peer ENIL which trades at 40x FY16 EPS. Media Broadcast has reported healthy revenue / EBITDA / Net Profit CAGR of 19%/32%/69% over FY13-16E. Volume growth has been highest within the peer group (volume CAGR of 12.5% over FY11-16 against 9% of ENIL owned "Radio Mirchi"). Acquisition of new radio stations (Phase III auctions and Radio Mantra) will aid volume growth going forward. Hence, we believe Media Broadcast can continue to out-perform the industry growth (FICCI- KPMG estimates 16.9% revenue CAGR over CY15-20e) and hence is a attractive investment option.
IDBI CAPITAL
Music Broadcast provides a pure play in the radio space which is forecasted to grow at CAGR of 16.9% over 2015-2020. It has licenses for 39 cities of which 37 cities are already operational giving its presence in 12 of the top 15 cities. Its brand ‘Radio City’ has a strong listenership in most of the markets where it is present. Further, Music Broadcast has a track-record of growing faster than the industry which we believe it can continue going forward.
HDFC SECURITIES
There is scope for a greater reach for FM radio as compared to television and print, which already have a national footprint. With a forecasted CAGR of 16.9 percent till 2020, industry revenues are expected to double by 2020.
Increase in the listener base New stations in existing cities and proliferation of private radio to smaller cities are likely to increase the listener base. Current radio listeners are estimated at 110 million to 120 million in India which is only a fraction of the overall population. In more developed countries like the U.S. and U.K., the listener base is a significantly higher percentage of their respective population. While socio-economic trends in India are changing, growth opportunity will continue to exist.
However, as a ‘free to air’ FM radio broadcaster, MBL does not earn any subscription from its listeners. It is heavily dependent on advertisements as the main source of its revenue. Any reduction in ad-spend by the advertisers or a reduction in effective advertising rates due to market forces, competition, excess inventory, inability to maintain market position or the loss of advertising customers or its inability to attract new advertising customers could have a material adverse effect on the business, results of operations and financial condition.
NIRMAL BANG
Over FY12- FY16 the sales grew at a CAGR of 17.4% even as earnings before interest, taxes, depreciation and amortisation (Ebitda) grew at a CAGR of 31.9%. In FY12, Media Broadcast reported a loss of Rs 2.17 crore, however from FY13-16 the company has continuously reported profits, indicating an improvement in the financials.
In FY16, Media Broadcast Limited reported profit of Rs 42.5 crore. Ebitda to cash flow from operations is consistently higher at around 85%, indicating lower working capital requirement by the company.
Going ahead, expansion in different geographies, playing music as per audience preferences and attracting listeners, will help in attracting advertisers and in turn fuel in growth to the company. Media Broadcast enjoys ROE of 39.6%.
On the valuation front, at the given upper price band of issue of Rs 333, as per our estimates, Music Broadcast is offered at PE of 33.4x its FY17E EPS of Rs 10 and FY17E EV / Ebitda of 19.3x which is lower to its peer. We recommend subscribing to the issue.
IIFL
The company did not pay any tax in FY16 owing to accumulated losses, however all the loss is expected to be set-off in FY17. Consequently, PAT margin is expected to come down from FY18 and based on the current IPO price of Rs 333, the stock should trade at a P/E closer to ENIL. Compared to ENIL, the stock is trading at reasonable valuations. It’s available at a return on capital employed (ROCE) of 21.1% of FY16.
Although the stock does not look all that promising on a relative valuation basis, our long-term outlook on the radio industry of the M&E space remains positive, which is likely to grow at 16.9% CAGR over CY15-20E. Based on its poplar content, strong sales capability, the advantage of the existing JPL relationship with advertisers, and expansion into new geographies, we are upbeat on the IPO. Long-term investors seeking to add weight in the M&E sector should subscribe to the issue.
