Music Broadcast Ltd. (MBL), the operator of India’s oldest private FM channel Radio City, hit the primary market with a Rs 489-crore initial public offering (IPO) on Monday as the company looks to mop up funds to pare debt.
Music Broadcast is India’s second pure-play radio channel to go public and is looking at a valuation of Rs 1,900 crore at the higher end of Rs 324-333 price band. The offer closes on March 8.
This is the second IPO to hit the primary market in 2017, after the Bombay Stock Exchange Ltd. (BSE), and is a combination of fresh issuance and offer for sale by 23 existing promoters.
Media company Jagran Prakashan, which owns 89.4 percent stake in the radio channel operator, and one of its promoters, Satish Chandra Mishra, will not sell any stake through the offer for sale.
Seventy five percent of the proceeds will be used to reduce the debt of the radio operator and Jagran Prakashan. The remaining amount has been earmarked for general corporate purposes, according to the red herring prospectus.
Business
MBL’s brand ‘Radio City’ is the oldest private FM radio broadcaster in India and has been operating for over 15 years now, with a pan-India presence and radio stations across 37 cities. The company is will start broadcasting in two new cities – Gwalior and Kolkata cities – by April 2017.
All existing licences are valid for 15 years, starting April 1, 2015. Radio City is also present in 12 of the 15 most populated cities in India with a reach of over 49.60 million listeners, according to the red herring prospectus.
Revenue Sources
Advertisements are the biggest source of revenue for the company, which grew at a compounded annual growth rate of 12.5 percent, the highest among its peers, for the last five financial years.
Financial Highlights
- The standalone net worth of the company was Rs 140.1 crore, as on September 30, 2016 .
- At the upper end of the price band, i.e., Rs 333, the earnings per share (EPS) and price-earnings ratio (P/E) for FY16, after issuing new shares (post issue basis) stands at Rs 7.45 and 44.7 times, respectively.
- At the lower end of the price band, i.e., Rs 324 the earnings per share (EPS) and price-earnings ratio (P/E) for FY16 on post-issue basis stands at Rs 7.4 and 43.8 times, respectively, according to BloombergQuint’s calculations.
- Media Broadcast's compounded annual growth rate (CAGR) has been growing at a higher pace than the industry average of 14.5 percent. Company's total revenue was Rs 245.5 crore in financial year 2015-16, and CAGR has been growing at 20 percent over the past four years.
- Net profit for the same period stood at Rs 42.5 crore, growing at a CAGR of 54 percent in the past 4 years.
- For the first half of financial year 2017, the company’s revenue stood at Rs 138.2 crore and net profit stood at Rs 29.8 crore.
What’s In It For The Promoters
Music Broadcast’s current promoter, Jagran Prakashan, acquired the company in December 2014, and the transfer was completed in June 2015. The exact deal size has still not been disclosed, but broking firm Emkay Global has estimated the enterprise value at Rs 650 crore, which translates to Rs 155 per share.
This means that the existing promoters will have doubled their investment in 20 months. Jagran Prakashan’s stake is being valued at Rs 1,356 crore and another Rs 100 crore in cash from the fresh issue.
The company’s revenue and net profit have also doubled over the past 20 months and the company has gone ahead and won bids for 11 radio channels in the recently concluded Phase III auctions for Rs 62.5 crore.
Peer Comparison
The only listed competitor to Music Broadcast is Entertainment Network India Ltd. (ENIL), owner of Radio Mirchi 98.3 F.M. ENIL’s current market capitalisation is more than Rs 4,000 crore, while its revenue is 2.2 times higher.
Music Broadcast’s revenue and net profit growth was more than its listed competitor while the earnings before interest, tax and depreciation and amortisation (EBITDA) margins were in-line, as of the second quarter of financial year 2017.
Music Broadcast may have a higher return on net worth, but its debt-to-equity and price-to-book value is also higher.
The company’s price to earnings ratio and enterprise value by EBITDA is at a discount to ENIL, on the upper price band of Rs 333.
Shareholding
Twenty three out of the 25 existing promoters of Music Broadcast will be selling their entire stake of 6 percent in the company. Post-IPO, public shareholding will be 28.6 percent.
Brokerage View
Eight brokerages have a ‘subscribe’ rating on the IPO on the back of cheaper valuations.
In terms of valuations, the P/E and EV/EBITDA is lower compared to its peers. Moreover, MBL has a better margin and ROE profile than its comparable peers. Hence, considering the above positives coupled with attractive valuations, we recommend a ‘subscribe’ on the issue.Angel Broking
Emkay Global and IIFL recommend subscribe from a long-term perspective.
Based on its popular content, strong sales capability, the advantage of existing JPL relationship with advertisers and expansion into new geographies, we are upbeat on the IPO. Long-term investors seeking to add weight in the music and entertainment sector should subscribe to the issue.IIFL
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