Long term barriers a positive for Industry: Radio Industry is protected by licenses
for 15 years, thereby restricting the entry of new players. This would support the
existing companies to strengthen their position and maintain a healthy growth
rate. The new radio stations are being added in the semi-urban areas which is
positive for the industry as this will increase the listener base. As radio
broadcasting enjoys pricing advantage over other ways of broadcasting such as
TV, print, etc. we believe that the industry is expected to see faster revenue growth
going ahead, benefitting all the players. KPMG-FICCI expects the Radio Industry
to grow at a CAGR of 16.9% over FY2015-20.
Higher listenership, wider reach to fetch premium advertisement rates: As on
March 31, 2017, Radio City reached out to over 52.2mn listeners in 23 cities
(ENIL- 42.1mn). It grabbed the Number 1 position in Mumbai, Bengaluru and
Delhi in terms of number of listeners. Leadership position in top markets, wider
reach (62% of population) and better quality of content has enabled MBL to
charge ~30% higher advertising rates than its peers and 12-15% higher charges
than its closest peer. Owing to this, Radio City enjoys healthy 33.6% operating
margin, much better than ENIL’s ~22% margin in FY2017.
Leading the industry owing to better financials: MBL outperformed its closest peer
with 18.4% CAGR in revenue over FY2013-17 (ENIL reported 13.2% CAGR in
revenue). On the profitability front too, MBL, with 32.3% CAGR in PAT over
FY2013-17, has performed much better than ENIL (-5.2% CAGR in PAT).
Moreover, Radio City posted a six year CAGR of 12.1% v/s. 9.1% of industry
owing to higher advertising volumes.
Capex for next 15 years done, paving the way for healthy free cash flow: Capex
for 39 licenses have been done for the next 15 years, hence no heavy incremental
Capex requirement would emerge. Moreover, the maintenance Capex would be
as low as `5-10cr. This would leave sufficient cash flow to distribute as dividend.
Outlook & Valuation: We expect MBL to report Revenue/EBITDA/PAT CAGR of
17%/19.2%/47.6% respectively over FY2017-19E driven by launches of new
stations, increase in advertising rates and improvement in utilization of radio
stations. MBL is trading at relatively lower valuations compared to its peer ENIL on
FY19E, (MBL is trading at P/E-26.3, P/B-3.1, EV/EBITDA-14.2 as compared to
ENIL P/E-34.3,P/B-4.3,EV/EBITDA-18.6). Considering sustainable growth
opportunities over the next 5-7 years, most of the capex already through and
strong parentage, we initiate coverage on MBL with a BUY recommendation and
a Target Price of `434 (31x of FY19E EPS `14/-.)

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