DSIJ Mindshare

Tune in to Radio City for listing gains

About the Issue
The company is going to raise Rs 489 crore via Offer for Sale (OFS) and fresh equity of face value Rs 10 per share in the price band of Rs 324-333 per share. The IPO has already opened from March 6 and will close on March 8, 2017, and the company has already raised Rs 146.5 crore via anchor investors. As some part will be sold, post the Issue, Jagran Prakashan’s stake will be reduced by 15.40 per cent.   
        
Purpose of the Issue
The raised amount will be used to reduce debt, for general corporate purpose and redemption of listed NCDs. The company would not get any amount from offer for sale.

Company outlook
Music Broadcast Ltd., (MBL) is the music arm of Jagran Prakashan Ltd., (JPL) and operates under the brand, Radio City. MBL has established its presence in 37 cities over the last seventeen years. Apart from Radio City, the company has alliance with ITM Software & Entertainment Private Ltd., which operates Suno Lemon 91.9 FM; and with Ananda Offset Private Ltd., which operates Friends 91.9 FM; and with 40 other web stations through planetradiocity.com. It offers 24 hours radio broadcasting.

It has 49.60 million listeners in 23 cities. It also topped the list in terms of listenership position in Bengaluru and Mumbai with 24.17 per cent and 17.10 per cent listenership respectively. MBL’s main revenue driver is advertising. According to FCCI and KPMG's reports, advertising growth in radio is going to overtake TV and print advertising by 2020, with a CAGR of 16.90 per cent as regards advertisement growth; and MBL is maintaining its lead position among peers, with a CAGR of 12.5 per cent over the last five years, which is reasonably higher than industry CAGR of 10.40 per cent. The company enjoys strong parentage of Jagran Prakashan Ltd.  

Risks associated

1.    Advertising is the only source of revenue.
2.    Source of sound recording is given to a third party to broadcast on its radio station.
3.    The company is involved in litigations over copy rights
4.    FM radio industry is highly competitive.
5.    The government’s policy can adversely impact the company over cross media ownership.

Financial performance
 MBL’s revenue grew at CAGR of 18 per cent in last five years. The company recorded revenue growth of 20.45 per cent CAGR over FY13-16 to Rs 245.5 crore in FY16. EBITDA of the company grew at CAGR of 32.40 per cent over FY13-16. While net profit grew at CAGR of 54.09 per cent over FY13-16.
 
Valuation and peer comparison
MBL is valued on upper price band of Rs 333 with P/E of 33.4x and EPS of Rs 9.95. The Company has only one listed peer i.e. Entertainment Network Ltd., which is valued at P/E of 33.8x . As per our view this IPO is overvalued, and high risk investors can invest in this IPO for long term, otherwise one can go for subscription to get benefit of listing gain.

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