Angel Broking has recommended investors to “Subscribe” to the upcoming IPO of Music Broadcast Ltd, which owns and operates Radio City and Radio Mantra FM radio stations, citing attractive valuations, and better margin and ROE (return on equity) profile than its comparable peers, given its market leadership position, premium pricing, higher revenue share and healthy financial performance.
The company’s IPO opens on Monday, March 6, and closes on Wednesday, March 8 at a price band of Rs 324-333. It hopes to raise Rs 400 crore fresh funding through the issue, with another Rs 86-89 crore being offer for sale.
“In terms of valuations, the pre-issue P/E works out to 25.2x its annualised 1HFY2017 earnings (at the upper end of the issue price band), which is lower compared to its peers (ENIL is trading at 79.5x its annualised 1HFY17 earnings),” Angel Broking said in a research note. “Also, MBL’s EV/sales multiple 6.2x, works out to be at discount to ENIL’s 8.2x. On EV/EBITDA front too, Radio City’s issue appears to be attractive 18.7x v/s ENIL’s 37.4x,” it added in the note.
Music Broadcast Ltd has strong leadership in large markets, Angel Broking said. “Radio City is ranked number one in terms of number of listeners, with a total 49.6 million listeners across top 23 cities, whereas its competitor Entertainment Network India Ltd (ENIL) is at the 2nd place with 40.5 million listeners. Even in the metro cities like Mumbai, Bangalore and Delhi, MBL enjoys a leadership position,” Angel Broking said in the note.
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Music Broadcast Ltd’s leadership position and wide listenership despite operating fewer stations has enabled the company to charge about 30 % higher advertising rates than its peers and 12-15% higher charges than its closest peer, Angel said. “Owing to this, Radio City enjoys healthy 34% operating margin, much better than ENIL’s about 30% margin in FY2016,” it added.
Further, the company’s volume growth outperforms that of the peers as well as the industry. “Radio City’s advertising volumes have grown at a CAGR of about 12.5% over FY2011-16, while, ENIL reported about 9% CAGR in advertising volumes during the same period,” the note said. MBL’s higher listenership gives it higher revenue share in proportion to its lesser radio markets. Radio City operates 20 markets, while ENIL operates a total of 38 markets. Despite this, Radio City has 23% revenue share compared to 24% share of ENIL. “We attribute this to its dominant position in listenership and ability to charge premium advertising rates,” Angel said.
Moreover the company has a track record of healthy financial performance. “Radio City, with about 19% CAGR in revenue, has outperformed its closest peer ENIL, which reported about 14% CAGR in revenues over FY2013-16. In profitability too, Radio City, with about 54% CAGR in PAT over FY13-16, has performed much better than ENIL,” Angel Broking said in the note.