View: Why Radio City operator IPO deserves a look

Madhuchanda DeyMoneycontrol ResearchAfter a pause of a month, the primary market is abuzz with activity once again. The first issue to hit the market in a busy March is from the stable of well-known media company Jagran Prakashan. Through a combination of fresh issue (Rs 400 crore) and Offer for Sale (approximately Rs 88 crore) from the promoter family, the radio business housed under ‘Music Broadcast Ltd’ (MBL) and popularly known as 'Radio City’ is going public. The issue opens on March 6.With a post-issue market cap of close to Rs 1900 crore (price band of Rs 324 -333) this will be the second listed radio business after Entertainment Network India Ltd (ENIL, promoted by Bennett Coleman & Company).The promoter holding in Jagran will stand reduced to 71 percent from 89 percent following the issue and the fresh capital infusion of close to Rs 400 crore will be utilised to redeem NCDs of Rs 200 crore as well as repayment/pre-payment of Jagran’s ICDs of Rs 98.2 crore.At the upper end of the price band of Rs 333, the stock will trade at 31X FY17 (P) earnings and 23X FY17 EV/EBIDTA, which is reasonable given the multiple tailwinds for the industry and the company.So what’s going right for the business? Relative under-penetration points to higher growth ahead: Radio is one of the fastest-growing segments in the media & entertainment industry. With the commencement of Phase III, it is expected that the radio industry will grow robustly and outpace the growth of the overall advertising industry. Revenues are expected to double by 2020.

Source: MBL DRHPGrowth in listener base: The current radio listeners base of 110 million to 120  million in India is only a small fraction of the overall population and much lower than other countries like US or UK. Radio City is ranked No. 1 in terms of number of listeners and enjoys a leadership position in Mumbai, Bangalore and Delhi. Proliferation of private radio into smaller cities is likely to add to the listener base.

Source: MBL DRHPSweating the inventory efficiently: Major radio stations have been operating at high advertisement inventory utilisation levels and this coupled with the growing advertiser interest has enabled increase in advertisement rates. Radio City’s wide listenership despite operating fewer stations has enabled the company to charge 30 percent higher advertising rates than its peers and 12-15 percent higher than its closest peer. Source: MBL DRHPPhase III upside: By creating additional inventory, through the Phase III auction win, the Company is likely to provide an opportunity for local advertisers to reach out to their target audience in a cost-efficient manner, thereby competing effectively with television and print and ensuring advertisement inventory pick-up.  Currently, about 55 percent of the revenue comes from national clients and 45 percent from local clients. The company, nevertheless, has gone cautiously with Phase III bidding, thereby preventing any big dent in its balance sheet.Geographically de-risked with national footprint: MBL has pan-India presence with radio stations in 29 cities -- 21 radio stations through ‘Radio City’ brand, eight radio stations through ‘Radio Mantra’ brand and two sales alliances which operates ‘Suno Lemon’ in Gwalior and ‘Friends FM’ in Kolkata. With the winning bids under the Phase III Policy, it is expanding to 11 additional tier-I, tier-II and tier-III cities. Out of 29 operating stations, 17 stations are operational for 24 hours. Their existing as well as the new Radio Stations have a license period of 15 years.Financials looking up: Revenue, operating profit and after-tax profit have grown at CAGR ( percent) of 19 percent, 32 percent and 53 percent respectively between FY13 and FY16, which is better than its closest competitor that has shown growth of 13 percent, 15 percent and 14 percent over this period. While the leverage looks on the higher side, the fresh issue will address this problem greatly.