Radio City - Bajate Raho... Khareedte jao...

I should have done this first. But I was more excited about the D-Mart IPO that this one went on the backburner and I couldn’t come around until now to review this one. The IPO opened today and will close on 08-Mar giving it a couple of days to apply, if found to be a good opportunity. Music Broadcast Limited (MBL) has come out with their IPO that opened today. The application shall be made in a lot of 45 shares or multiples thereof. The IPO is priced in the range of Rs. 324 to Rs. 333 per share and aims to collect about INR 4.88 Billion.

The IPO involves issuing fresh shares to the tune of INR 4 Billion while the rest of the issue is offer for sale by the promoters. The proceeds from the issue will be used to pay of all the debt of the company making it debt free. This is excellent news from the company’s perspective and will also reduce interest costs of the company.

The company operates radio stations under the brands Radio City and Radio Mantra in 37 cities. Though this is a national player, it is still behind its listed competitor, Entertainment Network India Limited (ENIL) which operates in 43 cities. The company is starting radio stations in 2 other cities in the near future taking its tally to 39 cities. The company’s radio channels have a total of 4.9 million listeners in 23 different cities. The company also has the highest viewers in the top cities that include Mumbai, Delhi and Bengaluru.

This business has a very strong retail connection and its shows are very popular amongst the audiences. The company is also trying to move into core radio broadcasting business by creating events like ‘Gig City’, ‘Radio City Super Singer’ and ‘Radio City Freedom Awards’. This has helped the company tackle competition well especially since Radio Mirchi moved to these segments earlier.

It would have been a problem for the company had the outlook for the industry been weak. However, the forecast for the radio broadcasting industry is also optimistic. The revenue growth is expected to be a healthy 17% CAGR up to 2020. This is excellent news for MBL and its competitors. They have a bigger share of the pie to fight for. The company has also been performing well financially. Their revenue has grown at a CAGR of 18.43% between 2012 and 2016. And given that the industry is expected to grow at 17%, we can expect better times for the company. The profit has grown 54.14% in the 3 years ending March 31, 2016. There was a slight dip in the year ending March, 2016. The numbers are expected to be better in the coming years especially with the interest component removed from the P&L. For the six months ending Sep 30, 2016, the company recorded a profit of INR 297 Million which translates into a Net Margin of 21.50%. This is better than the 17.30% realized in March 2016.

Music Broadcast’s consolidated financial performance (in INR Million)
Details	FY2012	FY2013	FY2014	FY2015	FY2016
Total revenue	1248.00	1405.00	1573.00	2075.00	2455.00
Total expense	1265.00	1289.00	1329.00	1604.00	1894.00
Profit after tax	-22.00	116.00	243.00	471.00	425.00
Net margin (%)	-1.8%	8.3%	15.4%	22.7%	17.3%

The company’s EPS stood at Rs. 9.95 for the FY ending March 2016. Looking at the 6 months results for FY 2017, the full year EPS is expected to be Rs.13.20. With these numbers the PE, at the higher band of the IPO price, using the 2016 EPS stands at 33.5 and 25.2, while considering the 2017 EPS. When we compare this with the only listed rival (which is also a bigger one), ENIL is currently trading at a PE of 39.40 on the basis of 2016 earnings. However, ENIL has better margins than MBL. Considering that, the PE at which the stock is being issued sounds about right (considering it should be at a discount for lower margins.).

Considering all these factors, MBL looks a safe bet to invest in. The listing bonus might not be huge (I still expect the stock to list at a premium) but this will be a good company to stay invested in for long term.