Music Broadcast

Initiating Coverage February 27, 2018 Rating Matrix Rating : Buy Music Broadcast Ltd (MUSBRO) | 383 Target : | 450 Target Period : 12 months Potential Upside : 18% Growth driven by prudent investments… Key Financials Music Broadcast (MBL), one of the leading FM radio players in India, is in | Crore FY17 FY18E FY19E FY20E a sweet spot to capitalise on the growth of the Indian FM radio sector, Net Sales 271.4 298.0 347.0 400.6 aided by expansion into new cities as well as prudent investment EBITDA 91.3 94.7 121.3 146.2 approach vis-à-vis its peers. The company is in a leadership position in Net Profit 36.7 48.1 70.6 90.2 terms of listenership across India and has been reporting industry leading EPS (|) 8.1 8.4 12.4 15.8 revenue growth in the past four years. We believe that with major capex Valuation Summary (migration fees, acquisition of new licenses) over, the company is set to FY17 FY18E FY19E FY20E report robust revenue and EBITDA CAGR of 13.9% and 17%, respectively, P/E 47.5 45.4 30.9 24.2 in FY17-20E, driven by traction from new stations. The performance is Target P/E 55.9 53.3 36.3 28.4 expected to translate into strong RoCEs and RoEs of 21.5% and 13.8% in EV / EBITDA 22.3 21.2 16.2 13.0 FY20E vs. 11.3% and 6.7%, respectively, in FY17. We initiate coverage on P/BV 3.2 3.9 3.6 3.3 MBL with a BUY recommendation, valuing the stock at | 450/share. RoNW 6.7 8.6 11.8 13.8 Radio industry to thrive on expanding presence… RoCE 11.3 14.8 18.5 21.5 The Indian radio industry is poised to embark on a growth path driven by Stock Data deeper penetration of radio as a medium into Tier II & III cities after the Particular Amount recent auctions. Post Phase III (batch-II) auction, FM radio has expanded Market Capitalization (| Crore) | 2183.6 Crore to 407 stations across 113 cities vs. 245 stations across 85 cities in Phase Total Debt (FY17) | 149.8 Crore II. Consequently, the industry is expected to report a healthy ~16% Cash & Liquid Investments(FY17) | 294.6 Crore revenue CAGR in the next five years, driven by stable yield growth of EV (| Crore) | 2038.7 Crore mature stations and volume uptick in new stations as they ramp up. 52 week H/L 444 / 337 Wide reach, balanced approach to aid growth Equity capital 57.1 Face value 10.0 The company has reported industry leading revenue growth of 20.7% MF Holding (%) 8.0 CAGR in FY14-17. We believe it was driven by its balanced approach in FII Holding (%) 5.3 volume and pricing, since advertisers are continuously putting more volume into networks that have a greater geographical reach compared to Price movement networks with more depth in coverage. The company is also poised to 12,000 460 benefit from strong parentage of the Jagran group. Coupled with a 11,000 440 prudent approach, MBL has cautiously stayed away from multiple 10,000 420 frequency, the success of which is yet to be proven. We expect MBL to 9,000 8,000 400 report healthy revenue and EBITDA CAGR of 13.9% and 17%, 7,000 380 respectively, over FY17-20E, driven by traction from new stations. 6,000 360 5,000 Robust growth potential; initiate with BUY recommendation 340 4,000 MBL is poised to benefit from the expanding reach of the Indian FM 320 3,000 industry coupled with its leadership position in terms of listenership, 2,000 300 Jun-17 Sep-17 Nov-17 Feb-18 prudent bidding in auctions and strong parental support. Given the robust growth potential (topline and EBITDA CAGR of 13.9% and 17.0%, Price (R.H.S) Nifty (L.H.S) respectively, in FY17-20E), we assign a target price of | 450/share, based *Listed since March, 2017 on triangulated approach (DCF, P/E and EV/EBITDA). We initiate coverage Research Analysts on the company with a BUY recommendation. Bhupendra Tiwary [email protected] Exhibit 1: Key Financials | Crore FY16 FY17 FY18E FY19E FY20E Sameer Pardikar Net Sales 225.5 271.4 298.0 347.0 400.6 [email protected] 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 ICICI Securities Ltd | Retail Equity Research Company Background Shareholding pattern (Q3FY18) Shareholding pattern Holding (%) Music Broadcast (MBL) is the first private FM broadcaster in India. The Promoters 71.4 company commenced operations of its first radio station in Bangalore in Institutional Investors 13.2 2001 where it is still a leader in terms of market share, as per latest Radio Others 15.4 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- Institutional holding trend (%) 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 10.0 8.3 7.5 8.0 presence in internet radio space with radiocity.in having 43 radio stations. 8.0 5.9 In terms of advertisement volume split across sectors, government and 6.0 5.1 5.3 4.0 4.1 real estate form approximately one-fourth of total advertisement volumes (%) 4.0 for the company. The government contributes 16% while the share of real 2.0 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 0.0 from 48.1 million (mn) seconds to 63.7 mn seconds in top 14 cities. The Q4FY17 Q1FY18 Q2FY18 Q3FY18 company has 5.2 crore listeners in 23 cities as per ANZ Research. DII FII Exhibit 2: Pan India presence Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 2 Radio City: Journey from acquisition by Jagran to IPO Legacy stations: Mumbai, Delhi, Bengaluru, In December 2014, Jagran Prakashan acquired a 100% stake in Radio City Chennai, Pune, Hyderabad, Ahmedabad, in an all-cash transaction for a total consideration of ~| 425 crore, Surat, Nagpur, Lucknow, Jaipur, Baroda, investments in 20 radio stations and further paid migration fees to the Coimbatore, Vizag, Ahmednagar, Sholapur, tune of | 221 crore for migration of licenses from Phase II to Phase III. Sangli, Nanded, Jalgaon, Akola, Agra, Bareilly, Gorakhpur, Varanasi, Jalandhar, Prior to this acquisition, Jagran Prakashan had its own radio business that Ranchi, Hisar and Karnal 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 Phase III stations: Kanpur, Patna, November 18, 2016. SPML paid | 15.8 crore as migration fees for Radio Madurai, Nasik, Kolhapur, Udaipur, Ajmer, Mantra stations in FY16. Kota, Bikaner, Jamshedpur and Patiala Post this, the reach of Radio city extended to 39 stations including Sales alliances: Kolkata & Gwalior 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. ICICI Securities Ltd | Retail Equity Research Page 3 Exhibit 4: Revenue split across top five cities and others Revenue contribution (%) Others Top 5 49% 51% Source: Company, ICICIdirect.com Research Exhibit 5: List of stations with peers Date of Sr No City 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.

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