february 27, 2018 music broadcast ltd (musbro) |...

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

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Feb-18Nov-17Sep-17Jun-17

Price (R.H.S) Nifty (L.H.S)

*Listed since March, 2017

Research Analysts

Bhupendra Tiwary

[email protected]

Sameer Pardikar

[email protected]


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


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


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


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


Exhibit 4: Revenue split across top five cities and others

Revenue contribution (%)

Top 5

51%

Others

49%


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



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%

Print

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


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


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.


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)


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


frequencies


frequencies


frequencies


frequencies


frequencies


frequencies

Fixed License Fees

+

Escalation charges

One time fees

+

Revenue Sharing

Source: Trai, ICICIdirect.com 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


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


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.


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


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


Data u

sage p

er G

B p

er c

onsum

er

Source: RAJAR, ICICIdirect.com 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


Revenue in m

n G

BP


Research

Exhibit 28: As radio consumption per week largely remained stable

22.622.0

21.4 21.3 21.3 21.4

15

25


Radio

Lis

tenership

per w

eek (

min

utes)


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.


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


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


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


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)



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)



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)



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).


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

(%

)


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


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)



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


(|

crore)


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


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


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.


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


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



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)


Exhibit 50: Driven by traction from new stations

225

271282

317

357

0 116

3044

0

50

100

150

200

250

300

350

400


(|

Crore)

Legacy stations New Stations



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


(|

crore)

29

30

31

32

33

34

35

36

37

(%

)

EBITDA EBITDA margins (RHS)


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


(%

)

(| crore)

PAT PAT margins (RHS)



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


(|

crore)

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

(|

crore)

Capex Free Cash flows (RHS)


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


(%

)

RoE RoCE



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.

https://timesofindia.indiatimes.com/business/india-business/gaana-becomes-the-first-indian-music-streaming-app-to-cross-50-million-monthly-active-users/articleshow/61911924.cms


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



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)


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


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


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


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


Exhibit 62: Balance sheet


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



Exhibit 63: Cash flow statement


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


Exhibit 64: Ratio analysis


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



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

[email protected]


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