Auction win: DB's MyFM targets 14-city rollout in 4-6 mnths

In the recently concluded FM Radio phase III auctions, DB Corp which operates under the brand MY FM acquired around 14 new frequencies after spending around Rs 32 crore. Pawan Agarwal, Deputy Managing Director, DB Corp expects the new frequencies to start operations in the next four to six months.Agarwal is confident of Rs 8-12 crore revenues from the new frequencies in FY17 and expects EBITDA breakeven in three years. Given the renewal, migration costs etc, the total payouts would be around Rs 140-150 crore, which would be funded via internal accruals, said Agarwal.The company has acquired frequencies in Nashik, Rajkot, Ahmednagar, Bikaner, Aurangabad, Muzaffarpur and AkolaThe company currently operates MY FM in 17 cities.Below is the transcript of Pawan Agarwal’s interview with Reema Tendulkar & Nigel D'Souza on CNBC-TV18. Reema: Could you tell us what the total payout is? We understand you spend Rs 32.50 crore for these 14 new frequencies but given the renewal migration cost what is the total payout and how will you fund it? A: We will fund it from our internal accruals only as of now. The total payout, we haven’t received the notification for the migration. Our estimate is it will be anywhere from Rs 80-85 crore minus residual value which will be less than about under Rs 70-75 crore. Those are estimates we are yet to receive the final notifications. So, the total capital for the frequencies should be anywhere from Rs 110-115 crore looks like and of course another round of about Rs 25-30 crore for the capital de-folding stations to put them up. Nigel: What would the total numbers be? You had given us quite a few numbers so I want to know what is the total capital? A: The total capital that will be required should be anywhere between range of about Rs 140-150 crore. Nigel: You are going to fund this by internal accruals? A: We are going to fund from our internal accruals and if required we will take a short-term loan funded because the entire money will not be required immediately. The capital that is required will be required over the next four to six months for putting up the station. Nigel: Then when exactly will you start operations in these 14 new frequencies? A: It looks like another 4-6 months because they are some more government approvals to happen. Most of the stations will need new infrastructure for the third or the fourth frequency. So, anywhere from four to six months. We are hoping that by beginning of next financial year the station should be operational. Reema: Say in FY17 what could be the expected revenues for these frequencies and how many years will it take for it to turn profitable? A: We have always followed a mandate of three years for EBITDA breakeven so that is the reason we picked up the 14 frequencies. As you look, 9 of these frequencies are in Maharashtra which are the core of our new expansion of Divya Marathi. So, we are very happy very excited that everything that we have acquired is in the market which we know very closely. So, yes breakeven time is what we have taken. Likely revenue would be anywhere between Rs 8-12 crore from these stations - combined. This is based on the current market potential because all these stations would be operational. Reema: So in the first year that is FY17 revenues? A: That is right. Nigel: Also tell us you will be incurring some kind of marketing cost, there will be launch cost is that factored in the Rs 140-150 crore or will that be additional? A: Yes, it is factored in the Rs 150 crore including the pre-operative expenses, the entire launch, also the cash loss that we will have to offer in the first year. Reema: There are certain reports that the government is mulling a foreign direct investment (FDI) hike in radio business up to 49 percent. Have you evinced any interest? A: Radio was a part of the DB Corp so there was a upper limit of 26 percent on the news business so right now radio is at 19 percent but with the phase III approvals the overall company will be lifted to about 26 percent. Right now the company is capped at 90 percent FDI. We are eagerly waiting for that. Nigel: What is the current return on capital (ROC) and how will you change with this marginal income of around Rs 12-15 crore that you are talking about coming in. How does it change then? A: The last year revenues for radio were about Rs 80 crore. We are looking at this new additions to add about in the next three years to take about anywhere between 12-15 percent of our current revenue. What also happens is it gives us a large network of Maharashtra also in hand for our national advertisers. So, that should also give us some upside for our national revenues. This gives us also entrances into Harayana with Nisar and Karnal so sort of helps us complete the entire northern zone. Also helps us to complete the Gujarat circuit with Rajkot and strengthening Rajasthan with Bikaner. The entire investment is very strategic to sort of deepen our current presence. Make our street presence complete and offer a larger kitty a better kitty for state as well as the national advertisers. Reema: So radio will contribute 12-15 percent in the next three years to your overall revenues? A: The current, the new stations will contribute. Reema: At least in the previous quarter your ad revenues were quite weak. Have we seen a pick-up in this quarter and when could be expect it considering the Bihar elections are also upcoming? A: The Bihar elections may not have a significant impact on the revenues of radio because we don’t have stations in Bihar. There will be some national revenues but I doubt we will get any national revenues from Bihar because there is no station. The coming quarter which is the Q3 and Q4 are basically the major revenue contributors for radio business. Reema: We were actually asking on print? A: Print, we have shared this story earlier that we have taken a very strong stand on the price increase on the yield improvement. We have maintained that, there has been improvement. We have been able to convince the advertisers rather that we deserve the price that we have been asking for. So, there is some improvement this quarter and hopefully it is going in a right direction because it is all moved to merit based selling and market based selling rather than selling as a kitty.