Music Broadcast Limited (MBL), whose IPO opens next week for subscription, has raised INR146.6 crore (INR1.47 billion) from angel investors. The list of angel investors includes Nomura, Franklin India, HSBC, Morgan Stanley, Reliance MF, DSP Blackrock, HDFC MF, Birla Sunlife MF and UTI MF among others. The company behind Radio City FM stations will sell shares in the price band of INR324-333 per share. MBL IPO will raise INR400 crore by issuing new shares and existing investors will sell shares worth about INR88.5 crore through an offer for sale (OFS). The offer has also received overwhelming support from brokerage houses which have offered their investment thesis in their MBL IPO recommendation. Here is a snapshot of analyst recommendations from major brokerage houses.
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Angel Broking sounded a bullish note in MBL IPO recommendation, citing discount to its larger listed peer Entertainment Network India Limited (ENIL) which operates radio stations under Radio Mirchi name. “Outlook and Valuation: In terms of valuations, the pre-issue P/E works out to 25.2x its annualised 1HFY2017 earnings (at the upper end of the issue price band), which is lower compared to its peers (ENIL is trading at 79.5x its annualised 1HFY17 earnings). Also, MBL’s EV/sales multiple 6.2x, works out to be at discount to ENIL’s 8.2x. On EV/EBITDA front too, Radio City’s issue appears to be attractive 18.7x v/s. ENIL’s 37.4x. Moreover, MBL has a better margin and ROE profile than its comparable peers. Hence, considering the above positives coupled with attractive valuations, we recommend a SUBSCRIBE on the issue,” mentioned Angel Broking’s research note.
In its research note on the IPO, analysts at Way2Wealth Securities have put a subscribe recommendation on MBL IPO. “At the offer price band of Rs 324-333/- the issue is available at P/E of 32x its FY17 estimated diluted EPS of Rs10.4-10.45/-. ENIL is its competitor in the listed space. When ENIL came out with an IPO in 2005 it commanded a similar valuation of 30-34x and is commands a PE of 38-39x. As compared to its competitor MBL seeks public listing when its financial performance is more stable (ENIL was just getting out of losses while MBL has reported steady performance for the last 2-3 years). We believe MBL is well poised to reap benefits of the strong industry dynamics in the radio industry. The issue primarily being used to retire debt. Net Debt: Equity is at 1.9-2.0x. By the end of FY18 the company plans to retire Rs250 crs debt from the existing Rs300 crs. gross debt. The business nature is such that it will entail debt funding in the future auction sales. But we believe this debt reduction will help the company maintain a healthy debt to equity mix (preferably at 1x). We advise investors with a long term investor horizon to SUBSCRIBE this issue,” noted the report on MBL IPO recommendation.
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Leadership position and pan-India presence in the radio industry, popular content coupled with strong sales capability, strong financials and cash flows and association with Jagran Group, a leading media house are the factors Choice Broking has mentioned in its report while making a subscribe recommendation on MBL IPO. “Based on the valuation multiple demanded by MBL and comparing its profitability with ENIL, we believe that there is a valuation gap, which will be positive for MBL. Thus, we recommend a “SUBSCRIBE” rating for the public issue.”
MBL IPO recommendation is also positive at IIFL which has placed a subscribe call on the offer indicating to bright prospects of Radio City. “Our long-term outlook on the radio industry of the M&E space remains positive, which is likely to grow at 16.9 per cent CAGR over CY15-20E,” said analysts while adding that Music Broadcast will be trading at 26.7x P/E of FY16 (pre-listing) on adjusted PAT compared to the P/E ratio of 39.8x for Entertainment Network India. “Based on its popular content, strong sales capability, the advantage of the existing JPL relationships with advertisers, and expansion into new geographies, we are upbeat on the IPO. Long-term investors seeking to add weight in the M&E sector should subscribe to the issue.”
Consistent performance & decent growth across topline and bottomline, 15 years of experience in radio industry, and popular content coupled with strong sales capability are the factors Ajcon Global said will act in favor of MBL. The brokerage house said the company enjoys positive operating cashflow, better margins and ROE than peers, and earnings are set to improve due to debt repayment. Ajcon Global has recommended investors to subscribe the issue and believes investors will benefit because of scarcity premium post listing.
As seen above, brokerage houses are mostly positive in their opinions about MBL IPO. We have highlighted most of these points in our analysis of the IPO, arguing that the pricing of MBL leaves something on the table for retail investors. Furthermore, continued strength of grey market premium (GMP) in the informal market indicates that HNIs expect positive returns from the offer. Head to this page to check the latest discussion around MBL IPO.