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MOSL: MUSIC BROADCAST (Buy)-Asset monetization phase to drive earnings

Music Broadcast: Asset monetization phase to drive earnings

(RADIOCIT IN, Mkt Cap USD0.3b, CMP INR307, TP INR455, 48% Upside, Buy)

 

• Operating leverage drives earnings: Revenue grew 8% YoY (flat QoQ; in-line) to INR757m, led by higher utilization at new stations and yield improvement at legacy stations. Inherent operating leverage from the fixed cost nature of business led to 18% YoY EBITDA growth to INR261m (in-line). EBITDA margin expanded 290bp YoY to 34.4%. PAT grew 25% YoY to INR135m, a 12% miss primarily due to MTM adjustments partly offsetting EBITDA growth.
• New stations firing: New (phase-III) stations contributed 9% of revenue at INR68m (up 84% YoY) v/s 5% in 1QFY18. However, the growth at legacy stations remain muted – up just 3% YoY to INR689m. EBITDA margin for the legacy stations was up 120bp YoY to 36.2%. For new stations, EBITDA margin was 17% (EBITDA loss in 1QFY18), leading to an uptick in overall EBITDA margin.
• ConCall highlights: (1) Rate hike of about 8% taken in 12 key markets; this contributed to MBL’s 8% revenue growth (ahead of industry growth of 5-7%), primarily led by volumes. (2) Management expects 12-15% growth in FY19 – growth is likely to be higher in 2H due to higher government spending, festive season and improvement in ad market. (3) Management will continue to look at inorganic growth opportunities.
• Poised to grow: We largely maintain our estimates for FY19/20; we expect healthy 15% revenue CAGR over FY18-20. This is primarily on (1) low base, (2) volume uptick – signs of local ad spends gaining momentum across categories including government (pre-election spends), and (3) yield improvement (at legacy stations). This coupled with inherent operating leverage and higher EBITDA contribution from new stations should drive strong 24%/36% EBITDA/PAT CAGR over FY18-20. Besides, ‘Friends FM 91.9’ acquisition-led revenue and cost synergies remain latent for growth.