Radio City operator's IPO subscribed 51% - Should you tune in?

Music Broadcast hit the Street on Monday with its initial public offering (IPO). It was subscribed 51 percent. The Radio City operator’s issue will close on March 8, 2017. The price band has been set between Rs 324 and Rs 333. Analysts have largely given the issue price and prospects a thumbs up and recommend investors to subscribe.Angel Broking recommends subscribing the issue on the back of leadership position, premiums on advertisements along with attractive valuations.“Radio City is ranked No. 1 in terms of number of listeners, total 4.96 crore listeners across top 23 cities (according to a survey conducted by AZ Research), whereas, its competitor, Entertainment Network India Ltd (ENIL) is at second place with 4.05 crore listeners,” the brokerage said in a report.Meanwhile, its advertisement volumes growth outperformed industry standards and peers, the brokerage observed. Axis Capital, additionally, said that the company’s advertiser base has increased from 4,118 advertisers in FY14 to 5,211 advertisers in FY16. Monarch Networth, on its part, has highlighted the company’s robust infrastructure and HR management. “MBL has installed studio and transmitter equipment across all stations from renowned manufacturers like Gates Air or Broadcast Electronics. IP broadcast consoles and audio codecs are manufactured by leading companies such as AVC India (NZ) Ltd and WorldCast Systems S.A.S. respectively,” the research firm said in a report. Analysts are also upbeat on the valuations front. ”Given the long term growth potential of the industry and market leadership of Radio City , the offer is attractively priced at EV/EBITDA of 15x/12x on our FY18e and FY19e respectively,” Equirus said in note. INDSEC too concurs with the view. “At the upper price brand of Rs 333 the stock is valued at 21.9x FY16 on EV/EBITDA (Pre issue). Its nearest comparable, ENIL, is trading at 25.9x EV/EBITDA FY16. We have considered EV/EBITDA multiple for comparing the valuations as ENIL is on a expansion spree with spends towards adding new stations as well as increased marketing spend for boosting add revenues,” it said in a report. It recommends subscribing the issue with medium to long term investment horizon. However, the brokerage also cited risks to the stock which could include slowdown in economy, changes in technology that may disrupt radio industry.ICICI Direct feels that its sole dependence on fewer advertising agencies could affect the business. “…The loss of one or more of these significant advertisers or advertising agencies or a reduction in ad-spend by the advertisers/reduction in effect advertising rates due to market forces, competition, excess inventory, inability to maintain market position or inability to attract new advertising customers could have an adverse effect on its business,” it said. Furthermore, its strong reliance on third parties towards content sourcing is also a challenge, citing instances of its licensing agreements. “The licensing agreements are typically on a non-transferable and non-exclusive basis and have a period of 12-36 months. The business is exposed to the risk of non-renewal of license agreements, which would prohibit the company from broadcasting content owned by the said license,” the report added.