Recommendation From Media & Entertainment Sector

HERE IS WHY
Strong quarterly performance
Consistent double-digit growth
Positive growth prospects 

Music Broadcast Ltd. (MBL)
FINE-TUNE YOUR PORTFOLIO WITH MUSIC BROADCAST 


Music Broadcast Ltd. (MBL) owns and operates FM radio stations under the Radio City brand name in 39 cities in India. It also operates 51 web radio stations in 10 languages. In addition, it operates a ‘Planet Radio City’ mobile app that plays various stations, such as Radio City Freedom. It is a subsidiary of Jagran Prakashan Limited.

Despite making investments in new stations, the company has been delivering double digit growth in terms of revenue, EBITDA and PBT since FY16. Its PBT is growing 3x faster than the revenue. The company reported revenue of Rs. 87 crore in Q3FY19 as against Rs. 76 crore in Q3FY18, posting a growth of 14 per cent. EBITDA stood at Rs. 29 crore in Q3FY19 in comparison to Rs. 23 crore in Q3FY18, thereby rising 23 per cent. As a result, EBITDA margin stood at 32.9 per cent in Q3FY19 versus 30.6 per cent in Q3FY18, thereby increasing by 220 bps. The margin was slightly pressured on account of higher A&P spends. Consequently, PBT rose to Rs. 25 crore in Q3FY19 from Rs. 17 crore in Q3FY18, registering an increase of 45 per cent. PBT margin was reported at 28.7 per cent in Q3FY19 as against 22.6 per cent in Q3FY18, thereby posting a growth of 607 bps.

 

Thus, it is clear that the company has showcased sustainable operating performance despite facing macroeconomic headwinds. Q3FY19 was the highest-ever performing quarter for the company. The recovery in growth was driven by 11 per cent rate hike in the legacy markets, festive advertising and contribution from the government as well as from the sectors of e-commerce and auto. MBL also witnessed an increase in inventory utilisation of around 53 per cent in the Phase III markets. MBL implemented price hikes as the utilisation hit 60 per cent. In Q3FY19, the government ads increased by 33 per cent. We can certainly expect an upsurge in the political and government spends as well as increasing utilisation of the new stations. Moving forward, there is a potential scope for margin improvement to as high as 45 per cent in matured stations. The company is focused on geographical expansion over multifrequency expansion. It boasts a healthy balance sheet with Rs. 2 billion in net cash, in addition to robust return ratios and steady cash flows.

Recently, the company partnered with Noida Metro Rail Corporation to provide passengers with a distinctive in-transit entertainment experience. Through this initiative, the company is exploring new avenues of entertainment in emerging fields such as the next generation mobility of hyperlocal experiences. Previously, the company had successfully partnered with Lucknow Metro Rail Corporation to offer specialised content across eight Lucknow Metro stations. The management commentary states that it expects MBL’s revenues to grow at 11 per cent CAGR over FY18-23 on the back of 50:50 blend of price increase and utilisation. Also, its FCF generation is forecasted to triple from Rs. 0.4-0.5 billion p.a. in FY18 to Rs. 1.2-1.3 billion in FY23E. EBITDA margins are likely to improve on the back of enhanced utilisation and improved pricing. By virtue of these factors, we recommend our readerinvestors to BUY this stock.

Note: The stocks recommended under this section are fundamentally strong stocks. However investors are advised to wait for the correct opportunity to enter these stocks considering the market sentiment right now.


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