Music Broadcast IPO

Music Broadcast Ltd promoted which operates the Radio City FM station is entering the capital market on 6th March 2017. Music Broadcast also operates some Radio stations under the brand Radio Mantra. The Company was acquired by Jagran Prakashan which presently holds 96.34% of the equity of the company. Music Broadcast IPO plans to raise up to Rs. 400 crore through fresh issue of shares plus an amount of 88.5 crores through offer of sale by existing investors. Music Broadcast IPO  comes in the background of  aggressive auction of radio frequency by the Government and enthusiastic participation by private players in these auctions. The Music Broadcast IPO could value the company at around 1900 crore. A quick review of Music Broadcast IPO has been attempted.

Related Post : Music Broadcast Ltd IPO : Peer Analysis
Issue Period March 6,  2017 – March 8, 2017 (Expected)
Price Band & LotRs. 324 – 333   ; Minimum Bid 45 Shares
Issue Size (Rs.)Rs.488.5 Crores (400 crore Fresh + 88.5 crore Offer for Sale)
Issue size (Shares)Fresh offer of 12.01 million  & Offer for Sale of 2.6 million Shares
Retail Allocation : 35%
Lead ManagerICICI Securities
About Music Broadcast Limited & Radio Industry :

Music Broadcast Ltd (MBL) brand Radio City is one of the fastest growing FM Networks in India and has witnessed strong sales. Radio City is the first private FM radio broadcaster in India. Music Broadcast Ltd  has grown its presence from four cities in 2001 to 37 cities as on February 15, 2017. MBL also have sales alliances in two cities. MBL has won bids under Phase III Policy to expand its presence to 11 additional cities across India which are primarily located in tier-I, tier-II and tier-III cities. Through Planet Radio City, MBL also operates 31 web radio stations in six languages. Radio City is present in 12 out of the top 15 cities in India by population. As on March 31, 2016, its radio stations reached out to over 49.60 million listeners in 23 cities. The company has 39 frequencies currently (37 operational) including eight stations acquired from Radio Mantra and 11 acquired via Phase III auctions. The company migrated all its Phase II licenses to the Phase III regime, which has a validity of 15 years. In addition, MBL also has a sales alliance with ITM Software and Entertainment Pvt Ltd, which operates “Suno Lemon 91.9 FM” in Gwalior and Ananda Offset Pvt Ltd, which operates “Friends 91.9 FM” in Kolkata. The company also operates ~40 web radio stations via its internet portal planetradiocity.com and has a listener-ship base of 16.94 million. Jagran Prakashan acquired the company in FY15.

FM Frequency Auctions:

At the closure of the e-auction under part I of Phase III, out of the 135 stations put up for auction in the first batch, 97 stations were allotted across 56 cities with a cumulative bid price of ` 11.57 billion against the aggregate reserve price of about ` 4.60 billion, thereby surpassing the cumulative reserve price of the corresponding 97 stations by 6.97 billion or 151.5 percent. 38 stations remained unsold in 22 cities. Out of the 38 stations, no bids were received in the 13 cities having 26 stations and partial bids were received in nine cities with 12 stations remaining unsold. Radio industry is expected to grow at faster rate in coming years as depicted below.

Radio industry at CAGR of 16.9 percent is expected to show the strongest growth among the traditional sectors due to increase in reach in the long term supplemented by increased advertising inventory. In addition to traditional advertising, radio players are exploring other non-traditional avenues for revenue generation such as live concerts, award shows, reality shows etc. Non-music based content is emerging as a key trend among radio players to garner higher revenue. Phase III Policy .

Comparison with Peers :
See Related Post: Music Broadcast Ltd IPO : Peer Analysis
Comparison of Major FM radio Operators in Metros*
Share of FM radio operators in Major cities (RAM report Week 41, 2016)
 Radio cityRadio MirchiBig FMFever FMRed FMOyeRadio nashaRadio one
Mumbai14.713.314.914.711.73.37.5 
Delhi10.413.29.117.410.14.610.7 
Kolkata 20.917.116.18.810.1 6.4
Bengaluru23.917.719.713.55.5  3.9

The figures are for a particular week. However they may be  fairly representative. All big media houses have taken interest  in FM business. Radio City competes with Zee owned Big FM, Bennett Coleman owned Radio Mirchi and Hindustan times owned  Radio Nasha.

Music Broadcast IPO advertising volumes radio players

Radio City’s advertising volumes have grown at a CAGR of ~12.5% over the five year period FY2011-16, while Radio Mirchi (ENIL) reported ~9% CAGR in advertising volumes during the same period. Radio City’s advertising volumes  are only slighly lower than ENIL while ENIL has a much higher revenue base. 

Objective of the Music Broadcast IPO:

  • Redemption of listed total NCDs of  Rs. 200cr in phases. First trench of  Rs. 50cr in  FY2017, next trench of  Rs.100cr in FY2018 and last trench of  Rs. 50cr in FY2020.
  • Early redemption of the JPL NCDs and repayment/ pre-payment of JPL ICDs of 98.2cr in FY2018.
  • General corporate purpose.

Financials:
 Rs, Million
ParticularsHY 2017201620152014
Income 
Revenue from Operations1,368.902,323.312,008.361,541.67
Other Income13.23131.7566.731.04
Total Revenue 1,382.132,455.062,075.061,572.71
Expenditure    
License Fees94.23171.6594.9981.66
Employee Benefits Exp.323.74516.44430.17363.19
Depreciation and Amortisation Exp.90.09167.24157154.86
Finance Costs80.67189.5662.1156.57
Other Expenses495.84849.35860.2673.18
     
Total expenditure 1,084.571,894.241,604.471,329.46
Profit bef exceptional items & tax 297.56560.82470.59243.25
Exceptional Items0135.75
Profit before tax 297.56425.07470.59243.25
Current Tax58.7398.8836.97
(MAT)    
MAT Credit Entitl-58.73-4.25-4.03-1.78
Tax0000
Net Profit as restated297.56425.07470.59243.25
OPM %33.24%33.83%31.02%27.48%
NPM %21.74%18.30%23.43%15.78%
Networth1,401.561,073.92575.79106.23
NAV31.1225.5514.82.73
RONW %21.23%39.58%81.73%228.98%
Equity450.43420.35389.1389.1
FV10101010
EPS6.6110.1112.096.25
IPO Price333   
PE (Pre Issue Equity)25.1932.94  
Cagr sales 1 yr 15.68%  
Cagr sales  3 yr 18.95%  
Cagr  PBT  1 yr 19.17%  
Cagr  PBT  3 yr 69.00%  
Post issue equity57.05257.052  
EPS (Post Issue Eq)5.227.45  
PE ( Post Issue Eq -ann)31.944.7  
P/BV 13.04  
Market Cap 1899.83 crore 
Market Cap/Sales Ratio 8.18  
Assessment of Music Broadcast IPO
  • Radio industry which has been growing at rate of 14-15% for last five years. Growth has been driven by both volume enhancements in tier-II and tier-Ill cities and an overall increase in advertisement rates.
  • The size of the Indian media and entertainment industry is expected to grow at a CAGR of 14.3 percent to 2,260 billion by 2020 with advertising revenues expected to grow to Rs. 994 billion at a CAGR of 15.9 percent.
  • Radio’s share in the overall media and entertainment industry pie is approximately 4 percent of the total advertisement market size. The completion of the Stage I of the Phase III auctions, migration of existing operators from Phase II to Phase III and the announcement of the hike in the foreign direct investment (FDI) cap for FM radio has benefited the industry. There is scope for a greater reach for FM radio as compared to television and print which already have witnessed significant growth. With a foretasted CAGR of 16.9 percent till 2020, it is expected that the radio industry will grow robustly and outpace the growth of the overall advertising industry in the coming years.
  • Phase III auctions regime offers more flexibility to broadcasters compared with the previous two phases in terms of Longer license period, ownership of multiple frequencies in one city and sharing of network infrastructure for multiple frequencies are likely to support profitability.
  • The Radio City brand enjoys leadership position in most markets and MBL has a healthy operating profit. MBL’s operating revenues and EBITDA have grown at 18.9% and 32.4% CAGR, respectively, in FY12-16 to  Rs. 232.3 crore and Rs. 78.6 crore, respectively.
  • While ENIL stock trade at a premium valuation over MBL, it also has a  higher  and diverse revenue base (almost twice of MBL’s FY16 revenue). Similarly ENIL  OPM in FY16  are better than MBL. However MBL HYFY17 margins are much superior. Further ENIL has dual radio stations in 12 of the 13 major cities. This enables ENIL to offer multiple entertainment channels targeted at specific customers.  Radio City does not have a dual stations concept. ( For Detailed Peer Analysis Click Here )
  • MBL claims to have taken a lead in setting up networking stations across cities in a particular State. Music Broadcast in Maharashtra, broadcasts in five cities, namely, Sangli, Nanded, Jalgaon, Sholapur and Akola from a single hub out of Ahmednagar. Similarly,  Kota &  Udaipur Radio station, Ajmer & Jaipur radio stations, Jamshedpur radio station & Ranchi radio station, Patiala & Jalanadhar stations are networked. Its  radio station in Bikaner  which became operational  a day earlier as per schedule will be part of Kota, Udaipur network.This would help Music Broadcast to reduce its operating costs. 
  • Radio City’s advertising volumes have grown at a CAGR of 12.5% over FY2011-16, while this stands at about 9% for  ENIL.
  • Music Broadcast (MBL) is  well-positioned to transform from a pure play radio company to an audio entertainment company. It is already trying to create and distribute content across various platforms and devices to transcend the radio and geographic restrictions. It intends to increase in digital eco-systems.
  • MBL, has high dependency on the top five advertisers (32 per cent of FY16 revenue) and about half its revenue is contributed by as the three metros of Mumbai, Delhi and Bengaluru.
  • Being a nascent industry & with fresh auctions, spending on marketing is likely to remain high for  media companies. It will be a near-term concern for MBL, too. Additionally, as its 11 new stations come on stream, the margins could see some near-term pressure due to initial start-up costs. However they should recover as these units ramps up as most of MBL’s costs are fixed in nature, with licence fees paid to the government (4% of revenue) and royalty to music companies (3%).
  • Music Broadcast has strong leadership position and pan-India presence in radio industry… Radio City is the first and oldest private FM radio broadcaster in India with over 15 years of expertise and a pan-India presence spanning 39 frequencies (two yet to be operational). As per RAM data, it has consistently been the No. 1 radio station in terms of average listener-ship share in Bengaluru & Mumbai with 24.1% & 17.2%, respectively, among private players. The company is also present in 12 of the 15 most populated cities in India and has been able to reach out to over 49.60 million listeners and covers 62% of India’s population with access to FM radio in 302 towns (post Phase III). New markets of Phase III  should help Radio Players to drive revenues and  capitalize on radio growth.
  • MBL has Strong financials and cash flows. MBL’s operating revenues and EBITDA has grown at 18.9% and 32.4% CAGR, respectively, in FY12-16 and has generated positive operating cash flows over the past five years.
  • Music Broadcast IPO comes from the house of Jagran Prakashan who have wide experience in media industry. Jagran Prakashan holding in the company shall stand at 71.54% well above the minimum 51% promoter limit mandated by government for Radio companies. 
  • MBL has registered 15.0% CAGR in FY14-16 in its advertisement volumes with the total number of seconds advertised in its top 14 cities at 63.72 million . MBL’s advertiser base has increased from 4,118 in FY14 to 5,211 in FY16.
  • The Radio business is subject to government guidelines and conditions Priced at FY16 PE multiple of 44.7x on higher band. Music Broadcast IPO price band of Rs. 324-333, the stock is available at a multiple of 43.7-44.7x FY16 EPS.
  • In terms of valuations, the pre-issue P/E works out to 25.2x MBLs 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).
  • As major part of the Music Broadcast IPO shall be used for retirement of debt, MBL’s profitability  likely to improve.  Revenue form new cities is also likely to add to revenues & bottomline. The NCD’s issued by company presently enjoy Crisil AA/Stable rating which has been reaffirmed in Dec 2016.
  • Grey Market is not very active in Music Broadcast IPO and stray deals at Rs. 62/- are reported. Old time investors are also vary of track record of Lead manager ICICI securities and also recall that Jagran Prakshan IPO  which itself came out  in Feb 2006  at Rs. 320/- closed listing  day at Rs. 274 in loss. 
  • Keeping all factors in mind, even as Music Broadcast IPO is not cheap which poses a degree of risk, its performance compared to  peers ENIL appears reasonable and as the sector is likely to witness good growth, I am likely to subscribe to Music Broadcast IPO 

 

Standard disclaimer:  I am not a SEBI registered analyst. I may have vested interest in every stock I discuss. Please do your own due diligence as stock market investments have high degree of inherent risk.