February 27, 2018
Initiating Coverage
ICICI Securities Ltd | Retail Equity Research
Growth driven by prudent investments…
Music Broadcast (MBL), one of the leading FM radio players in India, is in
a sweet spot to capitalise on the growth of the Indian FM radio sector,
aided by expansion into new cities as well as prudent investment
approach vis-à-vis its peers. The company is in a leadership position in
terms of listenership across India and has been reporting industry leading
revenue growth in the past four years. We believe that with major capex
(migration fees, acquisition of new licenses) over, the company is set to
report robust revenue and EBITDA CAGR of 13.9% and 17%, respectively,
in FY17-20E, driven by traction from new stations. The performance is
expected to translate into strong RoCEs and RoEs of 21.5% and 13.8% in
FY20E vs. 11.3% and 6.7%, respectively, in FY17. We initiate coverage on
MBL with a BUY recommendation, valuing the stock at | 450/share.
Radio industry to thrive on expanding presence…
The Indian radio industry is poised to embark on a growth path driven by
deeper penetration of radio as a medium into Tier II & III cities after the
recent auctions. Post Phase III (batch-II) auction, FM radio has expanded
to 407 stations across 113 cities vs. 245 stations across 85 cities in Phase
II. Consequently, the industry is expected to report a healthy ~16%
revenue CAGR in the next five years, driven by stable yield growth of
mature stations and volume uptick in new stations as they ramp up.
Wide reach, balanced approach to aid growth
The company has reported industry leading revenue growth of 20.7%
CAGR in FY14-17. We believe it was driven by its balanced approach in
volume and pricing, since advertisers are continuously putting more
volume into networks that have a greater geographical reach compared to
networks with more depth in coverage. The company is also poised to
benefit from strong parentage of the Jagran group. Coupled with a
prudent approach, MBL has cautiously stayed away from multiple
frequency, the success of which is yet to be proven. We expect MBL to
report healthy revenue and EBITDA CAGR of 13.9% and 17%,
respectively, over FY17-20E, driven by traction from new stations.
Robust growth potential; initiate with BUY recommendation
MBL is poised to benefit from the expanding reach of the Indian FM
industry coupled with its leadership position in terms of listenership,
prudent bidding in auctions and strong parental support. Given the robust
growth potential (topline and EBITDA CAGR of 13.9% and 17.0%,
respectively, in FY17-20E), we assign a target price of | 450/share, based
on triangulated approach (DCF, P/E and EV/EBITDA). We initiate coverage
on the company with a BUY recommendation.
Exhibit 1: Key Financials
| Crore FY16 FY17 FY18E FY19E FY20E
Net Sales 225.5 271.4 298.0 347.0 400.6
EBITDA 78.1 91.3 94.7 121.3 146.2
Net Profit 27.6 36.7 48.1 70.6 90.2
EPS (|) 6.5 8.1 8.4 12.4 15.8
P/E 59.2 47.5 45.4 30.9 24.2
EV/EBITDA 31.5 22.3 21.2 16.2 13.0
RoCE (%) 19.0 11.3 14.8 18.5 21.5
RoE (%) 21.7 6.7 8.6 11.8 13.8
Source: Company, ICICIdirect.com Research
Music Broadcast Ltd (MUSBRO) | 383
Rating Matrix
Rating : Buy
Target : | 450
Target Period : 12 months
Potential Upside : 18%
Key Financials
| Crore FY17 FY18E FY19E FY20E
Net Sales 271.4 298.0 347.0 400.6
EBITDA 91.3 94.7 121.3 146.2
Net Profit 36.7 48.1 70.6 90.2
EPS (|) 8.1 8.4 12.4 15.8
Valuation Summary
FY17 FY18E FY19E FY20E
P/E 47.5 45.4 30.9 24.2
Target P/E 55.9 53.3 36.3 28.4
EV / EBITDA 22.3 21.2 16.2 13.0
P/BV 3.2 3.9 3.6 3.3
RoNW 6.7 8.6 11.8 13.8
RoCE 11.3 14.8 18.5 21.5
Stock Data
Particular Amount
Market Capitalization (| Crore) | 2183.6 Crore
Total Debt (FY17) | 149.8 Crore
Cash & Liquid Investments(FY17) | 294.6 Crore
EV (| Crore) | 2038.7 Crore
52 week H/L 444 / 337
Equity capital 57.1
Face value 10.0
MF Holding (%) 8.0
FII Holding (%) 5.3
Price movement
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
300
320
340
360
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460
Feb-18Nov-17Sep-17Jun-17
Price (R.H.S) Nifty (L.H.S)
*Listed since March, 2017
Research Analysts
Bhupendra Tiwary
Sameer Pardikar
Page 2 ICICI Securities Ltd | Retail Equity Research
Company Background
Music Broadcast (MBL) is the first private FM broadcaster in India. The
company commenced operations of its first radio station in Bangalore in
2001 where it is still a leader in terms of market share, as per latest Radio
Audience Measurement (RAM) data. The Bangalore launch was followed
by launches in Lucknow, Mumbai and Delhi. From four cities in 2003,
today the company has 39 stations in as many cities in India with a pan-
India presence. Out of 39 cities, licenses in 28 cities were won in Phase I &
II while 11 stations were acquired in Phase III auctions. MBL has a
presence in 12 out of the top 15 cities in India by population. It also has a
presence in internet radio space with radiocity.in having 43 radio stations.
In terms of advertisement volume split across sectors, government and
real estate form approximately one-fourth of total advertisement volumes
for the company. The government contributes 16% while the share of real
estate is 10%. It is followed by retail, BFSI and e-commerce with 8%, 7%
and 6%, respectively. Total ad volumes grew at 15% CAGR in 2014-16
from 48.1 million (mn) seconds to 63.7 mn seconds in top 14 cities. The
company has 5.2 crore listeners in 23 cities as per ANZ Research.
Exhibit 2: Pan India presence
Source: Company, ICICIdirect.com Research
Shareholding pattern (Q3FY18)
Shareholding pattern Holding (%)
Promoters 71.4
Institutional Investors 13.2
Others 15.4
Institutional holding trend (%)
5.9
7.5
8.38.0
4.0 4.1
5.1 5.3
0.0
2.0
4.0
6.0
8.0
10.0
Q4FY17 Q1FY18 Q2FY18 Q3FY18
(%
)
DII FII
Page 3 ICICI Securities Ltd | Retail Equity Research
Radio City: Journey from acquisition by Jagran to IPO
In December 2014, Jagran Prakashan acquired a 100% stake in Radio City
in an all-cash transaction for a total consideration of ~| 425 crore,
investments in 20 radio stations and further paid migration fees to the
tune of | 221 crore for migration of licenses from Phase II to Phase III.
Prior to this acquisition, Jagran Prakashan had its own radio business that
was housed under another promoter group company Shri Puran
Multimedia Company (SPML). This radio business was operational in
eight cities viz. Agra, Bareilly, Gorakhpur, Varanasi, Jalandhar, Ranchi,
Hisar and Karnal under brand name called ‘Radio Mantra’. On October 9,
2015, the board of directors approved the scheme of arrangement
wherein the radio business housed in SPML was de-merged and
transferred/merged into MBL while MBL allotted 10 equity shares for
every 112 equity shares of face value | 10 each of SPML. Hence,
accordingly, in November 2016, MBL allotted 31, 25,000 equity shares to
SPML shareholders. The scheme of arrangement came into effect on
November 18, 2016. SPML paid | 15.8 crore as migration fees for Radio
Mantra stations in FY16.
Post this, the reach of Radio city extended to 39 stations including
acquisition of 11 stations in Phase III auctions.
In March, 2017, MBL came out with an IPO offering fresh issue of
1,20,12,012 shares, aggregating to | 400 crore, and offer for sale by
existing shareholders of 26,58,518 shares aggregating to | 88.5 crore. The
total issue size was | 488.5 crore.
Exhibit 3: Some popular shows on Radio City
The show based on the theme of relationships and romance, also
available 24*7 for listners through Love Guru app
The show is synonymous with humour, has been running for more
than a decade
The show tells about everything about the yesteryears of
bollywood along with songs
The show is singing talent hunt show on radio, first of its kind
It is a live radio concert that features a live multicity simulcast of
concert with well knows faces from the industry
It is an app where listeners can enjoy jokes
Source: Company, ICICIdirect.com Research
Top five cities in terms of revenue contribution are Mumbai, Delhi,
Bangalore, Ahmedabad and Pune that contribute roughly half of the
revenues.
Phase III stations: Kanpur, Patna,
Madurai, Nasik, Kolhapur, Udaipur, Ajmer,
Kota, Bikaner, Jamshedpur and Patiala
Sales alliances: Kolkata & Gwalior
Legacy stations: Mumbai, Delhi, Bengaluru,
Chennai, Pune, Hyderabad, Ahmedabad,
Surat, Nagpur, Lucknow, Jaipur, Baroda,
Coimbatore, Vizag, Ahmednagar, Sholapur,
Sangli, Nanded, Jalgaon, Akola, Agra,
Bareilly, Gorakhpur, Varanasi, Jalandhar,
Ranchi, Hisar and Karnal
Page 4 ICICI Securities Ltd | Retail Equity Research
Exhibit 4: Revenue split across top five cities and others
Revenue contribution (%)
Top 5
51%
Others
49%
Source: Company, ICICIdirect.com Research
Exhibit 5: List of stations with peers
Sr No City
Date of
commencement Category Peers
1 Agra Jul-2007 B Radio Tadka, Big FM, Fever 104
2 Ahmedabad Jul-2007 A MY FM, Radio Mirchi, Radio One,S. FM
3 Ahmednagar Jul-2008 C Radio Dhamal, My FM, BIG FM
4 Akola Mar-2008 C Abhijt Realtors, My FM
5 Bengaluru Jun-2001 A Radio Mirchi,Fever 104, Radio Indigo, S. FM,Radio One, Big FM, Mirchi 95
6 Bareilly Apr-2007 C Fever 104, Radio Tadka, Big FM
7 Chennai Jul-2006 A+ Radio Mirchi, Hello FM, Chennai Live,Aahaa FM, Radio One, Big FM,Suryana FM
8 Coimbatore Nov-2007 B Radio Mirchi, Hello FM, Suryana FM
9 Delhi Apr-2003 A+ Hit FM, Red FM,Radio Mirchi,Fever 104, Radio One, Big FM,Radio Meow and Nasha
10 Gorakhpur Jun-2007 C Fever 104, Radio Tadka, Big FM
11 Hissar Mar-2007 D Radio Dhamal, My FM, Big FM
12 Hyderabad May-2006 A Radio Mirchi,Fever 104, S.FM,Big FM
13 Jaipur Sep-2006 A My FM, Radio Mirchi, Radio Tadka, S.FM
14 Jalandhar Apr-2007 C My FM, Radio Mirchi, Big FM
15 Jalgoan May-2008 C Radio Dhamal, MY FM, Radio Tadka
16 Kanpur Oct-2016 A Big FM, Radio Mirchi, Fever 104,S FM
17 Karnal Apr-2007 D Radio Dhamal, MY FM
18 Lucknow Dec-2001 A Radio Mirchi,Fever 104, Big FM,S.FM
19 Mumbai May-2002 A+ Red FM, Radio Mirchi, Fever 104,Radio One, Big FM, Radio Meow,Nasha, Redtro
20 Nagpur Oct-2007 A My FM, Radio Mirchi, Big FM, S.FM
21 Nanded May-2008 C My FM
22 Pune Apr-2008 A Radio Mirchi, Radio One, Big FM, S.FM
23 Ranchi Oct-2007 C Radio Dhamal,Dhoom FM, Big FM
24 Sangli Feb-2008 C My FM, Tomato FM
25 Sholapur Nov-2007 C My FM, Radio Tadka, Big FM
26 Surat Aug-2007 A My FM, Radio Mirchi, Big FM, S FM
27 Vadodara Jun-2007 B Radio Mirchi, Big FM, S.FM
28 Varanasi Jul-2007 B Radio Mirchi, Big FM, S.FM
29 Vishakhapatnam Oct-2007 B Radio Mirchi, Big FM
30 Ajmer Dec-2016 C My-FM, Radio Tadka, BIG FM
31 Jamshedpur Jan-2017 B Dhoom FM, Big FM, S.FM
32 Kolhapur Feb-2017 C Radio- Mirchi,Tomato FM, Big FM
33 Kota Dec-2016 C MY-FM, Radio Tadka, Big FM
34 Nashik Jan-2017 C My-FM, Radio Mirchi, S.FM
35 Patiala Dec-2016 C Radio- Dhamal, Big FM, Radio Meow
36 Udaipur Dec-2016 C My-FM, Radio Tadka, Big FM
37 Madurai Feb-2017 B Radio- Mirchi, S.FM, Hello FM
38 Patna Mar-2017 B Radio- Mirchi, Big FM, S FM
39 Bikaner Dec-2016 C My-FM, Radio Tadka, Big FM
Source: Company, ICICIdirect.com Research
Page 5 ICICI Securities Ltd | Retail Equity Research
Indian radio industry
Radio industry –expected to outpace growth in preceding years
The radio industry in India, which is a meagre 4% of the overall pie of the
advertisement industry (~| 52800 crore in CY16), is poised to chart a
sustainable growth trajectory as it expands across Tier II, III cities post the
completion of Phase III auctions. We note that the reach of radio, post the
launch of Phase III, batch-II stations, is likely to expand to 113 cities with
407 radio stations vs. the 245 radio stations encompassing 85 cities, post
Phase II auctions. This makes it an attractive medium, especially for local
and national advertising, going ahead.
In the last five years, the radio industry grew from | 1,270 crore in CY12 to
| 2,267 crore in CY16, an impressive growth at 14.6% CAGR (next only to
digital), owing to a rise in advertising spend by companies across multiple
sectors like automobile, banking, financial services, retail. Going ahead,
radio industry, albeit on a small base, is also expected to outpace its
growth in preceding years. Radio industry ad revenues are expected to
grow at 16.1% CAGR in CY17-21 to ~| 4,780 crore. This growth would be
largely contributed by new station launches by operators with the focus
of the industry on ad yield improvement. We highlight that radio growth
over the next five years would remain the second highest, after digital.
Exhibit 6: Advertising industry (| 52800 crore as on CY16) break-up
TV
38%
38%
Digital
15%
OOH
5%
Radio
4%
Source: FICCI-KPMG, ICICIdirect.com Research
Exhibit 7: Radio industry grows at ~14.6% CAGR in CY12-16
1270
1460
1720
1980
2267
0
500
1000
1500
2000
2500
CY12 CY13 CY14 CY15 CY16
(|
crore)
Source: FICCI-KPMG, ICICIdirect.com Research: Company, ICICIdirect.com,
Research
Exhibit 8: Expected to grow at 16.1% CAGR in CY16-21
2640
3070
3590
4150
4780
0
1000
2000
3000
4000
5000
6000
CY17 CY18 CY19 CY20 CY21
(|
crore)
Source: FICCI-KPMG, ICICIdirect.com Research:
85113
235
407
0
100
200
300
400
500
Phase II Phase III
Cities Stations
Expanding reach of FM radio in India
Page 6 ICICI Securities Ltd | Retail Equity Research
Exhibit 9: Radio - one of the superior growing segments in CY12-16
11.0%
6.3%
28.0%
14.6%
0%
5%
10%
15%
20%
25%
30%
TV Print Digital Radio
CA
GR
over C
Y12-16
Source: FICCI-KPMG, ICICIdirect.com Research: Company, ICICIdirect.com,
Research
Exhibit 10: Ex-digital, radio to be fastest growing segment in CY17-21
14.4%
8.0%
30.8%
16.1%
0%
5%
10%
15%
20%
25%
30%
35%
TV Print Digital Radio
CA
GR
over C
Y17-21
Source: FICCI-KPMG, ICICIdirect.com Research:
Radio industry & its transition across various phases of auction
The industry witnessed four FM radio auctions in 2000-16. The
fundamental difference between first auction that took place in 2000 and
the auction that was conducted thereafter was the transformation of the
industry from high license fee to revenue sharing mechanism.
There was a major shift in one of the regulations before the Phase II
auctions that had a positive impact on the private FM industry in India,
which was bleeding with losses at that time. In Phase II, the government
changed the high license fee structure to a revenue sharing arrangement,
the journey of which has been explained below:
Exhibit 11: Journey of privatisation of radio industry
Phase I Phase II Phase III
Objective Attract private investment Increase reach of FM radio in major metros
and cities
Reach 85 per cent of Indian territory
License fees terms Annual License fees One time fees + 4% gross revenue every year One time fees + 4% gross revenue every year
or 2.5% of one time fees whichever is higher
Type of auction Ascending non-electronic
Auctions
Single step close bid tenders Ascending e-auction
Source: FICCI-KPMG, ICICIdirect.com Research
Phase I auctions marred by high license fees
In 2000, for Phase I auction, 108 licenses were auctioned across 40 cities.
Licenses were awarded for 10 years. The government received bids for
101 licenses but received actual payment for only 37 frequencies since
payment for remaining licenses were defaulted. Out of 37 licenses, only
22 were operational across 12 cities.
The failure of the auction can be attributed to high license fees and
escalation charges thereafter. e.g. Mumbai, license fees for the city was
~| 9.75 crore for year 1 of license. There was an escalation charge of
15% from the second year till the end of the license period. Hence,
cumulatively, payment outflow for operators was north of | 195 crore.
Also, unlike the telecom sector, where deferred payment option is
available, license winners had to make full payment within 15 days from
the conclusion of the auction. The following table depicts the challenges
that the industry has faced after Phase I auctions.
Page 7 ICICI Securities Ltd | Retail Equity Research
Exhibit 12: Industry losses because of high license fees
Operator /Induatry Year No of stations Revenue Loss License fees
License fees as a %
of Revenue
ENIL FY03 9 21 (40) 26 122
Radio City FY03 4 20 (37) 27 134
Radio Industry FY03 48 (118) 84 176
ENIL FY04 9 57 (29) 35 61
Radio City FY04 4 38 (36) 34 91
Radio Industry FY04 116 (122) 108 93
Source: TRAI, ICICIdirect.com Research
…replaced by one-time fees +revenue sharing model from Phase II
The FM radio industry was running into losses. The government realised
that fixed annual license fees and yearly escalation till the end of the
license period was unviable. The government in 2003 appointed Radio
Broadcast Policy Committee under the chairmanship of Dr Amit Mitra to
provide recommendations on Phase II auctions and various other issues
including license fees structure. Accordingly, the committee
recommended that the license fee structure should be replaced by an
entry fee +revenue share model. The committee also recommended that
the entry fee would be decided by a competitive bidding process to
determine true value of a frequency. Successful bidders in the auction
process would have to share 4% of gross revenue with the government.
The government, in recommendations for Phase III license auction, said
that once Phase II license period expires, there was no provision of
automatic renewal. Instead, operators would have to pay one-time non-
refundable migration fee to migrate their licenses from Phase II to Phase
III. The government has collected | 3,933 crore as migration fees from all
operators for migration of their licenses from Phase II to Phase III.
Phase III auction
Phase III auctions were conducted in two batches. Batch I of Phase III
auctions were costliest in the FM industry history. All operators together
paid one-time non-refundable entry fee (NOTEF) of | 1,055 crore (that was
~2.5x of the reserve price) along with non-refundable one-time migration
fee (NOTMF) payable at | 3,933 crore. In Phase III, batch-II auctions, 66
channels in 48 cities were sold with a cumulative bid price of | 200 crore,
a mere 6% higher than cumulative reserve prices.
After Phase III, batch-II results, ENIL became the leading FM player in
India operating 73 stations (they did not renew the license for their Goa
operations) followed by the Sun Group, Big FM 68 and 59 operational
stations. MBL currently has 39 stations. It strategically stayed away from
Phase III batch-II auctions.
Exhibit 13: Industry wise payout in Phase II
Company No of cities OTEF* amount ( in | crore)
DB Corp 17 51
ENIL 25 130
HT Media 4 75
Music broadcast 24 59
Others 82 214
Sun TV 41 177
TV Today 7 29
Zee Media 45 160
Total OTEF 245 896
Migration fees 250
Total payout (OTEF+Migration) 1145
Source: MIB, ICICIdirect.com Research, *OTEF ( Non-refundable one time entry fees)
Page 8 ICICI Securities Ltd | Retail Equity Research
Exhibit 14: Phase III batch-I results
Company No of stations Payout (| crore)
DB Corp 14 32
ENIL 17 339
HT Media 10 340
Music Broadcast 11 63
Others 25 165
Zee Media 14 117
Grand Total 91 1056
Source: MIB, ICICIdirect.com Research
Exhibit 15: Industry transformation from fixed fee to revenue sharing
Phase I (2000) Phase II (2005) Phase III, Batch I (2015) Phase III, Batch II (2016)
Offered - 40 cities,108
frequencies
Bought 12 cities , 21
frequencies
Offered - 91 cities,338
frequencies
Bought 86 cities , 245
frequencies
Offered - 69 cities,135
frequencies
Bought 54 cities , 97
frequencies
Offered - 92 cities,266
frequencies
Bought 48 cities , 66
frequencies
Fixed License Fees
+
Escalation charges
One time fees
+
Revenue Sharing
Source: Trai, ICICIdirect.com Research
Page 9 ICICI Securities Ltd | Retail Equity Research
Current industry landscape
Indian private FM players can be divided into four categories viz. all-India
players, metro focused players, non-metro focused players and niche
players. Red FM (owned by Sun TV), Big FM [now owned by Zee Media
Corporation, earlier Anil Dhirubhai Ambani Group (ADAG) company],
Radio Mirchi (owned by Entertainment Network India, a Times group
company), Radio City (owned by Music Broadcast, subsidiary of Jagran
Prakashan) and Fever FM (owned by HT Media) are all-India players.
Private FM players that are metro focused are Oye FM (owned by TV
Today) and Radio One (owned by Next Media Works). Some of the non-
metro focused players are My FM (owned by DB Corp), Radio Tadka
(owned by Rajasthan Patrika), Dhamaal (BAG Entertainment) etc. There
are some niche radio channels Radio Mango, Nine FM, etc.
In the public FM category, All India Radio (AIR) remains the single largest
broadcaster with unmatched reach across the length and breadth of the
country. AIR currently operates more than 400 radio stations in 23
languages. In June 2016, it completed 80 years of operations. In the B&C
category cities, private broadcasters depend heavily on AIR for
supporting infrastructure. Hence, they have been broadcasting their
channel through AIR. Prime Minister Narendra Modi’s Mann Ki Baat is one
of the most popular shows on AIR. As per a KPMG-Ficci report, this show
has been providing strong revenue contribution to AIR since it commands
a premium pricing of advertisement rate (| 2 lakh/10 second).
Exhibit 16: India FM Industry Landscape
Private FM
All India Players
Red FM (Sun TV)
Big FM (Zee Media)
Radio Mirchi (ENIL)
Radio City (Jagran)
Fever ( HT Media)
Metro Focused
Non-Metro focused Niche Radio
Oye FM (TV Today)
Radio One (Next
Media)
My FM (DB Corp)
Radio Tadka(Rajasthan
Patrika)
Dhamaal (BAG)
Club FM (Matrubhumi)
Radio oolala
Hello FM
Radio Mango
Nine FM
Radio Chocolate
Others
Public FM -
All India Radio
Indian FM Industry
Source: FICCI, ICICIdirect.com Research
Page 10 ICICI Securities Ltd | Retail Equity Research
Four national players control ~60% of industry revenue in FY17
Currently, as per Trai data, apart from government owned Prasar Bharti,
there are 33 operational FM radio operators, operating in 86 cities in India.
The top four players i.e. ENIL, MBL, Reliance Broadcast (now acquired by
Zee Media) and Sun TV contributed ~60% of the radio industry revenue
in FY17, which reflects the advantage of a wider reach.
Exhibit 17: Revenues of top four players
556.5
287.5271.4
241.0
159.0127.3
0.0
100.0
200.0
300.0
400.0
500.0
600.0
ENIL Reliance
Broadcast
Music
Broadcast
Sun TV HT Media DB Corp
(|
crore)
Source: Company, ICICIdirect.com Research e: Company, ICICIdirect.com, Research
Exhibit 18: Revenue market share of top four players
25
1312
11
76
0
5
10
15
20
25
30
ENIL Reliance
Broadcast
Music
Broadcast
Sun TV HT Media DB Corp
(%
)
Source: Company, ICICIdirect.com Research: Company, ICICIdirect.com, Rese
Exhibit 19: Competitive positioning of some key players
35
4745
28
17
8
1411
21
13
0 0
73
68
59
39
0
10
20
30
40
50
60
70
80
ENIL Sun Group Big FM MBL
Existing Phase III Batch I Phase III Batch II Now
Source: FICCI-KPMG, ICICIdirect.com Research
Consumer driven segments – key spenders on radio
The key segments that use radio as a medium for advertisement are real
estate, government, FMCG, e-commerce, auto and BFSI. Spending in the
real estate sector has come down from 15% to 12% in CY16 because of
demonetisation impact. At the same time, telecom players have become
aggressive in the market on account of increase in competitive intensity
wherein they have started spending aggressively on launch of 4G/LTE as
well as launch of bundled offerings on a tie-up with some handset players
in the market. This is a reflection of an increase in the pie of the sector.
The automobile sector, which was also one of the major contributors for
radio advertising, has taken some hit because of demonetisation. The
share of the same has come down to 7% from 9% earlier.
Page 11 ICICI Securities Ltd | Retail Equity Research
Exhibit 20: Sector wise spending in 2015
Real estate
15%
FMCG
14%
Telecom
12%
E-commerce
10%
Auto
9%
BFSI
8%
Others
32%
Source: FICCI KPMG, ICICIdirect.com Research Source: Company, ICICIdirect.com,
Research
Exhibit 21: Sector wise spending in 2016
Real estate
12%
FMCG
11%
Telecom
14%
E-commerce
12%
Auto
7%
BFSI
7%
Others
37%
Source: FICCI KPMG, ICICIdirect.com Research Source: Company, ICICIdirect.com,
Research
Data suggests home based listenership drives radio
Unlike the popular myth of radio primarily being heard outside home, the
average listenership at home has been around 78-79% while that of out of
home is 20-21%. Kolkata has highest home listenership of around 89%
across metros, followed by Bangalore, Mumbai and Delhi with average
listenership of 80%, 76% and 72%, respectively.
Exhibit 22: Home listenership
7672
80
89
79.175
7277
89
78.1
0
20
40
60
80
100
Mumbai Delhi Bengaluru Kolkata Average
(%
)
2015 2016
Source: FICCI KPMG, ICICIdirect.com Research CIdirect.com, Research
Exhibit 23: Out of home listenership
25
28
23
11
21.9
24
28
20
11
20.9
0
5
10
15
20
25
30
Mumbai Delhi Bengaluru Kolkata Average
(%
)
2015 2016
Source: FICCI KPMG, ICICIdirect.com Research Company, ICICIdirect.com, Research
Page 12 ICICI Securities Ltd | Retail Equity Research
Is threat of mobile/digital real?
In order to gauge if mobile/digital has made a dent on radio listenership,
we have looked at the UK and US markets and the trends thereon.
…UK seems to have defied notion
Radio reaches 90% of UK population. The average listenership of radio in
UK was at 21 hours per week, according to RAJAR. BBC holds 52% of the
radio listenership share in UK followed by Global and Bauer with share of
20% and 15%, respectively.
Exhibit 24: Overview of UK radio listenership
Source: Ofcom, ICICIdirect.com Research
We have observed that over the years, there has been significant growth
in 4G subscribers in the UK. The 4G subscribers at the end of CY16
reached 52 mn and formed 62% of active subscribers in the UK. On
account of such a rise in 4G subscribers, data consumption per user
reached 1.3 GB per month per user. However, even after such a spurt in
4G subscribers, radio revenue over the same period has been stable.
Exhibit 25: On account of increase in 4G subscribers
2.70 0
23.6 39.4 52.40 03
28
46
62
0
10
20
30
40
50
60
CY11 CY12 CY13 CY14 CY15 CY16
(m
illion)
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
(%
)
4G Subscribers % of all active mobile connections (RHS)
Source: RAJAR, ICICIdirect.com Research Source: Company, ICICIdirect.com,
Exhibit 26: Data consumption per user picks up significantly
0.10.2
0.40.5
0.9
1.3
0.0
0.5
1.0
1.5
CY11 CY12 CY13 CY14 CY15 CY16
Data u
sage p
er G
B p
er c
onsum
er
Source: RAJAR, ICICIdirect.com Research
Page 13 ICICI Securities Ltd | Retail Equity Research
Exhibit 27: Did not have any adverse impact on radio industry revenue
1255 1261.0
1203
1257 1256 1245
800
900
1000
1100
1200
1300
CY11 CY12 CY13 CY14 CY15 CY16
Revenue in m
n G
BP
Source: RAJAR, ICICIdirect.com Research Source: Company, ICICIdirect.com,
Research
Exhibit 28: As radio consumption per week largely remained stable
22.622.0
21.4 21.3 21.3 21.4
15
25
CY11 CY12 CY13 CY14 CY15 CY16
Radio
Lis
tenership
per w
eek (
min
utes)
Source: RAJAR, ICICIdirect.com Research Source: Company, ICICIdirect.com,
Research
So has US, where radio is still relevant...
The radio audience in the US continues to grow despite continuous
growth in mobile penetration and increase in usage per user. If we look at
the reach of different media, radio still commands a higher reach in the
US compared to TV, smartphone and PCs. The radio audience in the US
continues to grow.In India, we believe a similar story will play out wherein
growth of mobile phone users as well as increase in consumption per
user of mobile data is expected to have minimal impact on radio as a
medium. Also, on account of Phase III auction investments in new
stations, radio as a medium will continue to grow while narrowing the gap
between its reach compared to other media like TV.
Exhibit 29: Radio reaches more Americans than TV, smart phones
93
92
95
92
89
79
91
94
83
91
96
70
0 20 40 60 80 100 120
Adults
P 18-34
P 35-49
P50+
Radio TV Smartphone
Source: Nielsen report , ICICIdirect.com Research Source
We believe, going forward, the radio base will grow rapidly with the
launch of stations in new cities by all operators. The growth in radio base
will complement digital apps growth, which eventually fuels the
expansion in the overall music market. The growth of music streaming
apps will have minimal impact on radio listenership and will not act as a
deterrent to its growth, in our opinion.
Interactive RJ talk, localised feel gives radio edge in India
One of the differences between digital/mobile music and radio is the
nature of consumption. While the former entails active listening, the latter,
be it in households or on the go, is a passive medium. Moreover, various
researches indicate the preference for radio is also driven by interactive
RJ talk and localised city updates, giving it a personalised edge over other
media.
Page 14 ICICI Securities Ltd | Retail Equity Research
Investment Rationale
Leadership amid high competitive intensity
Music Broadcast (MBL) is one of the leading FM radio broadcasters in
India with a presence across geographies of India. It has a strong
presence (in terms of number of stations) in Maharashtra with 11 stations
being operational, followed by Uttar Pradesh (UP) where it has been
operating seven stations. Apart from these two states, it has a sizable
presence in Rajasthan, Gujarat, Tamil Nadu, Haryana, Jharkhand and
Punjab with stations ranging from two to five in the cities. MBL has a
limited presence in Andhra Pradesh, Karnataka and Telangana where it
has been operating one station. It does not have a presence in MP,
Chhattisgarh, J&K and north east states, as of now.
Exhibit 30: Presence across geographies
State Number of Stations
Maharashtra 11
UP 7
Rajasthan 5
Gujarat 3
Tamil Nadu 3
Haryana 2
Jharkhand 2
Punjab 2
Andhra Pradesh 1
Delhi 1
Karnataka 1
Telangana 1
Grand Total 39
Source: Company, ICICIdirect.com Research
The company has been facing competition in every city in which it is
operating. As per company data, the competitive intensity is highest in
metro cities where it has seven to eight competitors while in other cities
peers vary from one to four.
Exhibit 31: Competitive intensity
1
4
2
7
2
3
7
3
8
3
0
1
2
3
4
5
6
7
8
9
C A B A+ D
No.s
Min Competitors Max competitors
Source: Company, ICICIdirect.com Research
We note there is no publicly available independent research of
listenership data for radio in India. We highlight that MBL has claimed to
be in a leadership position across markets as far as listenership is
concerned. The company has 52.5 mn listeners as per ANZ report
(conducted across 23 Indian markets) followed by Radio Mirchi (ENIL), Big
Page 15 ICICI Securities Ltd | Retail Equity Research
FM (Zee Media) with listenership base of 42.1 mn, 27.1 mn, respectively. It
is also in a leadership position in key metro cities of Mumbai, Delhi and
Bangalore with listenership base of 8.4, 9.2 and 4.7 mn, respectively.
We note advertiser’s spend allocation is a function of reach/penetration
that the medium commands. Since Radio City is the leader in terms of
radio listenership, it can command premium pricing vs. competitors.
Exhibit 32: Leadership across markets (No of Listeners)
52.5
42.1
27.2
22.7
15.1
9.1
0
10
20
30
40
50
60
Radio
cit
y
Radio
Mir
chi
Big
FM
Red F
M
Fever
Radio
One
(m
n)
Source: Company, ICICIdirect.com Research Source: Company,
ICICIdirect.com, Research
Exhibit 33: Leadership in Mumbai market (No of Listeners)
8.4
6.4
5.95.5
2
0
1
2
3
4
5
6
7
8
9
Radio city Big FM Radio Mirchi Fever Radio One
(m
n)
Source: Company, ICICIdirect.com Research Source: Company,
ICICIdirect.com, Research
Exhibit 34: Leadership across Delhi (No of Listeners)
9.2
8.2
7.2
5.85.5
0
2
4
6
8
10
Radio city Radio Mirchi Red FM Big FM Fever
(m
n)
Source: Company, ICICIdirect.com Research Source: Company,
ICICIdirect.com, Research
Exhibit 35: Leadership across Bangalore (No of Listeners)
4.7
3.7
3.2
2.7
2.3
0
1
2
3
4
5
Radio city Big FM Radio Mirchi Fever Radio One
(m
n)
Source: Company, ICICIdirect.com Research Source: Company,
ICICIdirect.com, Research
It has also enjoyed a leadership position compared to peers in terms of
advertising volumes. According to the company, advertising volume for
the company grew at industry leading 12.1% CAGR in FY11-17 to 74.9 mn
seconds in FY17. Advertising volumes in FY17 were a notch below market
leader ENIL (75.4 mn seconds of advertising volume in FY17).
Page 16 ICICI Securities Ltd | Retail Equity Research
Exhibit 36: Industry volume growth in FY11-17 & absolute volumes in FY17
75.4 74.963.2
342.3
8.3
12.1
9.0 9.1
0
50
100
150
200
250
300
350
400
Radio Mirchi Radio City Red FM Industry
(m
illion s
econds)
0
2
4
6
8
10
12
14
(%
)
Source: Company, ICICIdirect.com Research
Exhibit 37: Market share for Bangalore
Market S
hare (
%)
0
5
10
15
20
25
30
2014 2015 2016 YTD 2017
Radio City Big FM Radio Mirchi Fever
Source: RAM, ICICIdirect.com Research
Exhibit 38: Market share for Mumbai
Market S
hare (
%)
11
16
2014 2015 2016 YTD 2017
Radio City Big FM Radio Mirchi
Source: RAM, ICICIdirect.com Research
Prudent bidding in Phase III auctions; major capex over
MBL has acquired 11 stations viz. Kanpur, Patna, Madurai, Nasik,
Kolhapur, Udaipur, Ajmer, Kota, Bikaner, Jamshedpur and Patiala in batch
I of auctions. It paid | 63 crore for acquisition of these stations. In the
same auction, ENIL paid | 339 crore for 17 stations against reserve price
of | 155 crore while HT Media paid | 340 crore for 10 stations against
reserve price of | 112 crore. Digital Radio Broadcasting paid | 135 crore
for three stations. We observe that MBL has been prudent in terms of
acquisitions since final successful price to reserve price ratio was ~2x for
MBL compared to 3.6x for Digital Radio Broadcasting, 2.2x for ENIL.
Exhibit 39: Prudent bidding in Phase II, Batch 1 auction by MBL
3.64
3.03
2.422.18 2.17
1.97
0
50
100
150
200
250
300
350
400
Digital Radio
Broadcasting
HT Media Reliance Broadcast ENIL DB Corp Music Boradcast
(|
crore)
0
0.5
1
1.5
2
2.5
3
3.5
4
(x)
Reserve Price Successful bid amount Multiplier ( bid/reserve price) (RHS)
Source: MIB, ICICIdirect.com Research
Page 17 ICICI Securities Ltd | Retail Equity Research
At the same time, MBL has stayed away from Phase III, Batch II auctions.
ENIL and Sun Group were aggressive in acquiring channels in the Batch II
auctions. ENIL acquired 21 channels and paid | 51 crore as a non-
refundable one-time entry fees (NOTEF) while the Sun Group has
acquired 13 channels and spent | 81 crore as a NOTEF.
Exhibit 40: Phase III, Batch II Result
21
13 13
19
51
81
18
51
0
10
20
30
40
50
60
70
80
90
Radio Mirchi (ENIL) Sun Group Sambhaav Media Others
No of channels NOTEF (| Cr)
Source: FICCI-KPMG report 2017, ICICIdirect.com Research
Major capital expenditure in terms of non-refundable one-time migration
fees and acquisition cost for 11 news stations is already over for the
company. They may have to incur maintenance capex of | 4-5 crore on an
annual basis. We believe that since the license period is 15 years in phase
III, MBL is on the verge of a major revenue increase in new cities. This,
coupled with focus on ad yield improvement, would result in robust free
cash flow generation for the next few years and is expected to report
healthy expansion in operating margin. We expect MBL to post healthy
FCF in FY17-20E.
Exhibit 41: Major capex is behind the company
26
63
237
0
50
100
150
200
250
Set up cost License fees for Phase III Migration fees from Phase II to
Phase III and Mantra station
(|
crore)
Source: Company, ICICIdirect.com Research
Page 18 ICICI Securities Ltd | Retail Equity Research
Exhibit 42: FCF over FY17-20E
-22.0
56.8
66.6
80.0
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
FY17 FY18E FY19E FY20E
(|
crore)
Source: Company, ICICIdirect.com Research
Balanced approach in pricing, volume augur well for MBL
The two leading industry players i.e. ENIL & MBL follow different paths as
far as strategy on pricing, volume are concerned. The ENIL management
has focused on premium pricing since they believe it is difficult to raise
prices if there is any correction due to an economic slowdown (referring
to 2008 economic slowdown & as per management, current pricing has
not even reached the peak pricing seen before the slowdown). The ENIL
management is also looking to reduce the ad inventory per hour and
aiming to bring it down to 10 min/hour from the current 13-14 min/hour.
As per management’s internal analysis, higher ad inventory is leading to a
deterioration in listener experience and is the rationale behind the
strategy of clamping down of inventory. ENIL has also been following
multiple frequency strategy wherein they have multiple brands in the
same city where they operate. They have been charging premium pricing
for its new stations compared to its legacy stations.
MBL, on the other hand, follows a balanced approach in volume and
pricing wherein they increase prices whenever there is scope for the
same else growth is driven by volumes. They also strategically do not
follow a multi-frequency approach since they believe second frequencies
essentially cannibalise existing ones, rather than adding incrementally.
Moreover, the RoCE after steep bidding seems a difficult proposition,
especially for second frequencies. As far as new stations are concerned,
the management feels the price increase kicks in only when the utilisation
of the station hits 60%. We believe this strategy augurs well for MBL,
which has shown industry leading growth in revenues and EBITDA in the
last four years compared to its peers.
Exhibit 43: Revenue growth in last three years
30.3
12.3
20.4
13.916.0
9.4
16.9
35.1
-5.6-10.0
0.0
10.0
20.0
30.0
40.0
FY15 FY16 FY17
(%
)
Music Broadcast ENIL Reliance Broadcast
Source: Companies, ICICIdirect.com Research Source: Company, ICICIdirect.com,
Exhibit 44: EBITDA growth in last three years
47.1
25.4
16.816.3
9.7
-21.0
46.8
0.0
17.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
FY15 FY16 FY17
(%
)
Music Broadcast ENIL Reliance Broadcast
Source: Companies, ICICIdirect.com Research Source Sourcrect.com, Research
Page 19 ICICI Securities Ltd | Retail Equity Research
In the last five years, margins of MBL have improved consistently and are
now much ahead of market leader ENIL. We note that ENIL also has a
non-radio business that contributes ~25% of revenue and is a low margin
business for the company, as per management. While we do not have a
break-up of margins for radio and non radio margins separately, we still
believe that on a like-to-like basis, margins of MBL could be superior.
Also, while FY18E is expected to witness some moderation in margins
due to new channels launches, we expect margins to picks up from there
on account of additional revenues flowing in from new stations.
Exhibit 45: EBITDA margin comparison of MBL vs. ENIL
21.3
24.5
27.5
31.0
34.733.6
32.130.8
32.533.1
31.3
22.6
15.0
20.0
25.0
30.0
35.0
40.0
FY12 FY13 FY14 FY15 FY16 FY17
(%
)
Music Broadcast ENIL
Source: Companies, ICICIdirect.com Research
Even in 9MFY18, the superior margin trajectory for MBL continued as it
reported consistently higher margins vis-à-vis ENIL.
Exhibit 46: EBITDA margins consistently over 30%; better than ENIL in last few quarters
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18
(%
)
Music Broadcast ENIL
Source: Companies, ICICIdirect.com Research
Show promotion based on content, key man risk relatively lower
The content for the radio business largely consists of radio jockey (RJs)
shows and film music. RJs play an important part in the radio business.
They engage with listeners and keep them tuned to the radio and its
associated music. We highlight that RJs play an important part in
engaging customers and helping them to tune to radio. There is also a
key man risk if shows are being run and become popular in the name of
RJs. The exhibit below lists select shows conducted on radio stations of
the leading peers of MBL. If we look at some of the shows that are being
run on MBL’s competitors radio network, they are largely branded in the
name of their popular RJs. However, MBL, in this regard, follows a
different strategy wherein it does not promote shows in the name of the
RJs. Rather, the emphasis is on the quality of content. This shields them
from ‘key man risk’, to some extent.
Page 20 ICICI Securities Ltd | Retail Equity Research
Exhibit 47: Some popular shows on radio
Owner Brand Name of the show RJs Show time Show days
ENIL Radio Mirchi Hi Mumbai with Jeeturaaj RJ JEETURAAJ 7:00 AM to 12:00 Noon Monday to Saturday
ENIL Radio Mirchi Mirchi Hangout RJ SUREN 15:00 to 17:00 Monday to Saturday
ENIL Radio Mirchi Mirchi TOP 20 with Suren RJ SUREN 17:00 to 19:00 Sunday
Sun TV Red FM Morning No 1 with Malishka RJ MALISHKA 7:00 AM to 12:00 Noon Monday to Friday
Sun TV Red FM Sunday Star Sattack RJ MALISHKA 14:00 to 17:00 Sunday
Sun TV Red FM Mumbai Local with Rishi Kapoor RJ RISHI KAPOOR 17:00 to 21:00 Monday to Saturday
HT Media Fever Picture Pandey with Anuraag Pandey RJ ANURAAG PANDEY 11:00 AM Monday to Friday
HT Media Fever Picture Pandey with Anuraag Pandey RJ ANURAAG PANDEY 10:00 AM Sunday
HT Media Fever MAD MORNINGS RJ Rangeeli Ruchi & RJ GLENN 7:00 AM to 11:00 AM Monday to Sunday
Zee Media Big FM Breakfast show RJ Siddharth Mishra 7:00 AM to 10:00 AM Monday to Friday
Zee Media Big FM Suhana Safar with Annu Kapoor Annu Kapoor 10:00:00 AM to 12:00 Noon Monday to Friday
Zee Media Big FM SALIM SALIM MERCHANT 20:00 to 22:00 Monday to Friday
MBL Radio City Kasa Kai Mumbai (Radio ki Mia Biwi) RJ Salil & Archana 7:00 AM to 11:00 AM Monday to Sunday
MBL Radio City Takatak Mumbai RJ Vir & Harshit 16:00 to 20:00 Monday to Friday
MBL Radio City Love Guru Name Unknown 23:00 to 1:00 AM Monday to Friday
Source: Companies, ICICIdirect.com Research
Strong parent Jagran Prakashan – leading media group
Jagran Prakashan, promoters of Music Broadcast (MBL), is one of the
largest print media companies in India having a diversified interest across
print, digital, activation, OOH, etc. Jagran Prakashan has announced in
December 2014 that it would foray into the high growth business of radio
through acquisition of Music Broadcast Pvt Ltd (MBPL) in an all-cash deal.
Radio City, at that point of time, had a presence in 20 cities. The Phase III
auction coupled with Radio Mantra consolidation led MBL to consolidate
in the key region of Jagran like UP and Punjab. Considering that both
companies have a common presence in nine states, we do believe this
would help in cross-selling the advertisement inventory across the
product portfolio of print, radio and digital services.
Exhibit 48: Jagran Group presence across radio and print
Source: Company, ICICIdirect.com Research
Page 21 ICICI Securities Ltd | Retail Equity Research
Financials
Revenue to grow at 13.9% in FY17-20E
The company expects to clock revenue of | 401 crore in FY20E, i.e. 13.9%
CAGR in FY17-20E, largely driven by revenues coming in from new
stations since the company has already commenced operations in all 11
new stations. We expect new stations to post revenues of | 44 crore in
FY20E. The contribution of revenues from new stations is expected to
reach 11% of overall revenues in FY20. Revenue growth in new stations
would be volume led. We expect capacity utilisations in new stations to
be north of 50% in FY20 vs. sub 10% utilisation in FY17.
Legacy stations are expected to post revenue of | 357 crore in FY20, i.e.
growth at 9.6% CAGR in FY17-20E. Revenue growth in legacy stations
would be largely driven by an increase in effective realised rate (ERR). We
expect ERR to report 8.7% CAGR in FY17-20E. We expect legacy stations
utilisation at ~75% in FY20.
Exhibit 49: Revenue growth of 13.9% over FY17-20E
225
271
298
347
401
0
50
100
150
200
250
300
350
400
450
FY16 FY17 FY18E FY19E FY20E
(|
Crore)
0.0
5.0
10.0
15.0
20.0
25.0
(%
)
Revenue YoY (RHS)
Source: Company, ICICIdirect.com Research
Exhibit 50: Driven by traction from new stations
225
271282
317
357
0 116
3044
0
50
100
150
200
250
300
350
400
FY16 FY17 FY18E FY19E FY20E
(|
Crore)
Legacy stations New Stations
Source: Company, ICICIdirect.com Research
Page 22 ICICI Securities Ltd | Retail Equity Research
Margins to expand since cost increase would be inflationary
Music Broadcast (MBL) has enjoyed a healthy EBITDA margin profile in
the past. EBITDA grew at 28.1% CAGR in FY13-17 while margins
improved ~910 bps over the same period. Margins improved on account
of consistent revenue growth and cost control.
We expect this superior performance to continue in future. We expect
MBL to post 36.5% EBITDA margin in FY20, on account of continued
revenue growth from legacy, new stations and nominal inflationary cost
increase.
Exhibit 51: EBITDA and EBITDA margin trends
78.1
91.394.7
121.3
146.2
34.7
33.6
31.8
35.0
36.5
0
20
40
60
80
100
120
140
160
FY16 FY17 FY18E FY19E FY20E
(|
crore)
29
30
31
32
33
34
35
36
37
(%
)
EBITDA EBITDA margins (RHS)
Source: Company, ICICIdirect.com Research
Healthy topline, margins expansion to drive earnings growth
MBL, which turned into black at the bottomline level in FY13, has
witnessed staggering growth in its earnings in FY13-17 at 33.3% CAGR.
Going ahead, given the healthy traction in topline and operating leverage
emanating thereon, earnings are expected to grow at 35% CAGR in FY17-
20E. We highlight that earnings kicker would also be driven by debt
repayment and subsequent savings from interest expenses.
Exhibit 52: PAT, PAT margins trends
27.6
36.7
48.1
70.6
90.2
12.3
13.5
16.1
20.4
22.5
0
5
10
15
20
25
0
10
20
30
40
50
60
70
80
90
100
FY16 FY17 FY18E FY19E FY20E
(%
)
(| crore)
PAT PAT margins (RHS)
Source: Company, ICICIdirect.com Research
Page 23 ICICI Securities Ltd | Retail Equity Research
Strong cash flow generation over next three years
The major capex cycle is over for the company since it earlier deployed
| 326 crore, which includes migration fees of | 237 crore for migration of
licenses from Phase I, Phase II and | 63 crore on license acquisition of 11
new cities in Phase III.
Going ahead, we expect the company to incur moderate maintenance
capex over the next three years, which would result in free cash flow
generation of | 203 crore for FY18-20E.
Exhibit 53: Capex, free cash flows trend
222.5
100.9
10.0 10.0 10.0-22.0
56.8
66.6
80.0
44.3
0.0
50.0
100.0
150.0
200.0
250.0
FY16 FY17 FY18E FY19E FY20E
(|
crore)
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
(|
crore)
Capex Free Cash flows (RHS)
Source: Company, ICICIdirect.com Research
Return ratios to improve, expect company to start paying dividend
We expect the return on net worth (RoE) and return on capital employed
(RoCE) to improve significantly on account of operating leverage and
reduction of finance expenses being a net cash company in FY19E.
Debtors days are expected to improve further and come down, going
forward. The management has attributed the improvement in debtor days
to the dedicated focus of the organisation on improvement of the same,
which has been fructifying.
We highlight that we have built in dividend per share of | 5 for FY18E,
FY19E and FY20E, as we expect some cash to be utilised for acquisition of
stations in cities to fill its coverage gaps.
Exhibit 54: Return ratios expected to improve
6.7
8.6
11.8
13.8
11.3
14.8
18.5
21.5
0.0
5.0
10.0
15.0
20.0
25.0
FY17 FY18E FY19E FY20E
(%
)
RoE RoCE
Source: Company, ICICIdirect.com Research
Page 24 ICICI Securities Ltd | Retail Equity Research
Risk & concerns
Risk of digital adoption remains
The Indian market offers a variety of apps for music streaming. Most of
them offer two variants i.e. free and subscription based. In case of free
streaming of songs, advertisement is the source of income. These apps
also offer subscription based plans ranging from | 99 per month to | 999
per year plans for ad free music offering. The music streaming apps have
been operational in India since 2009/10 (Saavn came in in 2009 while
Gaana.com came in around 2010). The music streaming app is catching
up in India (Gaana recently crossed 50 mn mark, Link) but still remains at
lower levels compared to the radio reach in India. Sharper adoption
though remains a risk for radio as a whole as advertisement pie shift
could be seen. Considering the higher reach of TV and digital compared
to radio, (albeit they charge a premium compared to radio), there lies a
continuous risk of losing advertising share to these two media
Exhibit 55: Music streaming apps in India
App name Songs on the platform (mn) Type of songs Add on Subscription
Gaana 30.0 Hindi, English & Regional |999/year, | 549/6 months,| 297/3 months, |99/month for Gaana Plus
Saavn 30.0 Hindi, English & Regional | 99/month for Saavn Pro
Wynk 3.0 Hindi, English & Regional |99/month for Android and |120/month for iOS
Hungama 3.5 Hindi, English & Regional
Amazon Prime Music Hindi Subsumed into |499/year subscription of Amazon PrimeNew player
Source: Media articles, ICICIdirect.com Research
Recent success of second frequency may be detrimental to MBL
We note that most radio industry players have adopted a strategy of
‘Multiple frequency’, wherein they have started an additional
brand/station in the same city where they are already operational. The
second frequency has been conceptualised with some differentiation in
terms of music being played on it. E.g. HT Media, who are owners of
Fever brand, has created another brand called Radio Nasha. While Fever
has been branded for latest Hindi Film songs, Nasha has been branded as
a station solely playing Hindi Retro music. Within just a year and a half of
launch, Radio Nasha along with Fever have been on the top of the table of
the recent RAM ratings in Delhi market.
MBL has cautiously stayed away from multiple frequency approach since
the management believes the high investment in the same market may
not yield expected returns. We believe the success of the second
frequency of its peers could potentially create a threat for MBL in terms of
loss in advertiser’s mindshare. This could, subsequently, result in a loss of
market share impacting its financials.
Increase in content cost may take away benefits of operating leverage
The primary content for radio stations is sound recordings that they
broadcast. A majority of these sound recordings are licensed by third
parties. The company pays royalties/license fees to these third parties for
the right to broadcast them. These agreements are typically for a period
of 12 to 36 months and renewal option is with third parties. Any
alternation or termination of such contracts could affect content sourcing
and subsequently result of operations. In additions to this, there is the risk
of the same content being available to competitors, which could result in
probability of loss of viewer ship and subsequently revenues.
Page 25 ICICI Securities Ltd | Retail Equity Research
Valuations
Music Broadcast is one of the quasi plays on the expanding reach of radio
driven by new stations in Phase III. The company has exhibited industry
leading topline and EBITDA CAGR of 17.3% and 28.6%, respectively, over
FY12-17, which reflects its efficiency in a highly competitive industry.
Another distinguishing factor for MBL has been its balanced approach in
terms of avoiding the high priced second frequency bidding in Phase II
auctions, which reflects that the company is primarily focused on
profitable growth strategy. Moreover, we also highlight that it has been
prudent enough to manoeuvre its “volume and pricing “strategy amid the
difficult times vis-à-vis leader ENIL, who seemed to have been adamant
on pricing, resulting in relatively lower topline growth for the latter.
Going ahead, we expect 13.9% CAGR in topline in FY17-20 driven by
growth from new stations on capacity utilisation improvement as well as
steady growth from legacy stations on yield improvement. The improved
profitability of new stations coupled with operating leverage derived from
handsome growth of legacy stations is likely to result in 17% CAGR in
EBITDA over FY17-20E, with margins expanding to 36.5% in FY20 vs
33.6% in FY17.
MBL has been listed since March 2017 on the stock exchanges. Therefore,
trading history is limited for the stock. The only pure play listed peer for
MBL is ENIL that is largely into FM radio broadcasting (~75% of revenue).
Therefore, to evaluate valuations, we have triangulated it on DCF (largely
capture new stations driven sustainable growth for five years) along with
comparable valuations on P/E and EV/EBITDA.
On a DCF basis, we assume revenue CAGR of ~14.3% in FY17-25E,
largely driven by Phase II stations ramp up. Furthermore, with terminal
growth of 4%, thereon, we arrive at a fair value of | 440/ share. Similarly,
assigning a P/E and EV/EBITDA multiple of 30x and 15x on FY20E EPS
and EBITDA (similar to ENIL) of | 15.8 and | 146.2 crore, yields a fair value
of | 474 and | 435, respectively. We assign a similar multiple to MBL
despite its smaller size, given the superior growth trajectory, both over
the last five years and its potential, going ahead.
The average of the above-mentioned three methodologies yields a target
price of | 450/share. Given the robust growth potential (topline and
EBITDA CAGR of 13.9% and 17.0%, respectively, in FY17-20E), we initiate
coverage on the company with a BUY recommendation.
Exhibit 56: DCF Valuation Assumptions
Particulars Amount
WACC 9.9%
Revenue CAGR over FY17 - FY25E 14.3%
PV of Cash Flow Till Terminal Year 545.5
Terminal Growth 4.0%
Present Value of terminal cash flow 1,679.1
PV of firm 2,224.6
Less: Net Debt -287.1
Total present value of the Equity 2,511.7
Number of Equity Shares outstanding 5.7
DCF - Target price (|) 440
Source: Company, ICICIdirect.com Research
Page 26 ICICI Securities Ltd | Retail Equity Research
Exhibit 57: Peer Matrix
M Cap
(| Cr) FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
MBL 2,184 8.4 12.4 15.8 45.4 30.9 24.2 21.2 16.2 13.0 14.8 18.5 21.5 8.6 11.8 13.8
ENIL 3,456 8.3 16.7 26.7 87.2 43.3 27.1 28.3 18.3 13.6 6.5 11.9 17.6 4.0 8.3 11.7
RoCE (%) RoE (%)
Company
EPS (|) P/E (x) EV/EBITDA (x)
Source: Company, ICICIdirect.com Research
Exhibit 58: One year forward EV/EBITDA
500
900
1,300
1,700
2,100
2,500
2,900
3,300
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
(|
crore)
24x 20x 16x 12x EV
Source: Company, ICICIdirect.com Research
Exhibit 59: One year forward P/E
180
230
280
330
380
430
480
530
580
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
(|
)
Price 20.0 X 24 X 28 X 32 X 36 X
Source: Company, ICICIdirect.com Research
Exhibit 60: I-direct vs. Consensus
| Crore Consensus Idirect Variation (%)
Revenues
FY18E 297.8 298.0 0.1
FY19E 338.0 347.0 2.7
FY20E 389.5 400.6 2.9
EBITDA
FY18E 92.7 94.7 2.1
FY19E 114.0 121.3 6.4
FY20E 142.8 146.2 2.4
PAT
FY18E 47.5 48.1 1.2
FY19E 69.4 70.6 1.8
FY20E 87.3 90.2 3.3
Source: Bloomberg, ICICIdirect.com Research
Page 27 ICICI Securities Ltd | Retail Equity Research
Financial Summary
Exhibit 61: Income statement
(Year-end March) FY17 FY18E FY19E FY20E
Total operating Income 271.4 298.0 347.0 400.6
Growth (%) 20.4 9.8 16.4 15.5
Production Cost 0.0 0.0 0.0 0.0
License Fee 0.0 0.0 0.0 0.0
Administrative Expenses 115.1 133.3 146.8 162.4
Employee Expenses 65.1 70.0 78.9 92.0
Total Operating Expenditure 180.2 203.3 225.7 254.5
EBITDA 91.3 94.7 121.3 146.2
Growth (%) 16.8 3.8 28.1 20.5
Depreciation 19.7 26.2 26.5 27.0
Interest 19.0 15.2 4.7 2.9
Other Income 4.4 18.3 16.8 20.2
Exceptional Items - - - -
PBT 57.0 71.6 106.8 136.4
MI/PAT from associates - - - -
Total Tax 20.3 23.5 36.2 46.2
PAT 36.7 48.1 70.6 90.2
Growth (%) 32.7 31.2 46.9 27.7
EPS (|) 8.1 8.4 12.4 15.8
Source: Company, ICICIdirect.com Research
Exhibit 62: Balance sheet
(Year-end March) FY17 FY18E FY19E FY20E
Liabilities
Equity Capital 57.1 57.1 57.1 57.1
Reserve and Surplus 491.1 504.9 541.3 597.3
Total Shareholders funds 548.1 562.0 598.4 654.3
Total Debt 149.8 49.8 29.8 19.8
Total Liabilities 697.9 611.7 628.1 674.1
Assets
Gross Block 348.0 355.0 362.0 369.0
Less: Acc Depreciation 36.4 62.6 89.2 116.2
Net Block 311.6 292.4 272.8 252.8
Capital WIP - - - -
Total Fixed Assets 311.6 292.4 272.8 252.8
Investments 26.7 26.7 26.7 26.7
Deferred tax assets 25.2 25.2 25.2 25.2
Debtors 81.7 89.7 104.4 120.5
Loans and Advances 28.7 31.5 36.7 42.3
Other Current Assets 19.3 19.1 20.0 20.8
Cash 267.9 196.6 224.1 280.1
Total Current Assets 397.5 336.8 385.1 463.7
Creditors 32.9 36.1 42.8 49.4
Provisions 6.9 7.5 8.9 10.3
Other Current Liabilities 23.5 25.8 30.1 34.7
Total Current Liabilities 63.2 69.4 81.8 94.4
Net Current Assets 334.3 267.4 303.3 369.3
Application of Funds 697.9 611.7 628.1 674.1
Source: Company, ICICIdirect.com Research
Page 28 ICICI Securities Ltd | Retail Equity Research
Exhibit 63: Cash flow statement
(Year-end March) FY17 FY18E FY19E FY20E
Profit after Tax 36.7 48.1 70.6 90.2
Add: Depreciation 19.7 26.2 26.5 27.0
Add: Interest Paid 19.0 15.2 4.7 2.9
(Inc)/dec in Current Assets 1.9 -10.6 -20.8 -22.6
Inc/(dec) in CL and Provisions 6.1 6.2 12.4 12.6
CF from operating activities 83.4 85.1 93.4 110.1
(Inc)/dec in Investments -12.1 0.0 0.0 0.0
(Inc)/dec in Fixed Assets -35.2 -7.0 -7.0 -7.0
Others 6.4 0.0 0.0 0.0
CF from investing activities -40.9 -7.0 -7.0 -7.0
Issue/(Buy back) of Equity 369.1 0.0 0.0 0.0
Inc/(dec) in loan funds -155.6 -100.0 -20.0 -10.0
Interest paid -19.0 -15.2 -4.7 -2.9
Dividend outflow 0.0 -34.2 -34.2 -34.2
Others 15.0 0.0 0.0 0.0
CF from financing activities 209.6 -149.4 -59.0 -47.1
Net Cash flow 252.0 -71.3 27.5 56.0
Opening Cash 15.9 267.9 196.6 224.1
Closing Cash 267.9 196.6 224.1 280.1
Source: Company, ICICIdirect.com Research
Exhibit 64: Ratio analysis
(Year-end March) FY17 FY18E FY19E FY20E
Per share data (|)
EPS 8.1 8.4 12.4 15.8
Cash EPS 12.4 13.0 17.0 20.5
BV 120.4 98.5 104.9 114.7
DPS 0.0 5.0 5.0 5.0
Cash Per Share 58.8 34.5 39.3 49.1
Operating Ratios (%)
EBITDA Margin 33.6 31.8 35.0 36.5
PBT / Total Operating income 26.4 23.0 27.3 29.7
PAT Margin 13.5 16.1 20.4 22.5
Inventory days 0.0 0.0 0.0 0.0
Debtor days 109.8 109.8 109.8 109.8
Creditor days 44.2 44.2 45.0 45.0
Return Ratios (%)
RoE 6.7 8.6 11.8 13.8
RoCE 11.3 14.8 18.5 21.5
RoIC 18.9 18.9 26.9 34.8
Valuation Ratios (x)
P/E 47.5 45.4 30.9 24.2
EV / EBITDA 22.3 21.2 16.2 13.0
EV / Net Sales 7.5 6.7 5.7 4.7
Market Cap / Sales 8.0 7.3 6.3 5.5
Price to Book Value 0.0 0.0 0.0 0.0
Solvency Ratios
Debt/EBITDA 1.6 0.5 0.2 0.1
Debt / Equity 0.3 0.1 0.0 0.0
Current Ratio 2.1 2.0 2.0 1.9
Quick Ratio 2.1 2.0 2.0 1.9
Source: Company, ICICIdirect.com Research
Page 29 ICICI Securities Ltd | Retail Equity Research
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk,
ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
Page 30 ICICI Securities Ltd | Retail Equity Research
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