MOSL: MUSIC BROADCAST (Buy)-Expect strong revival ahead

Music Broadcast: Expect strong revival ahead

(RADIOCIT IN, Mkt Cap USD0.3b, CMP INR397, TP INR469, 18% Upside, Buy)

• SG&A expenses drag down margins: Revenue grew 5% YoY (flat QoQ; in-line) to INR762m, led by volume growth (mainly at new stations). While October 2017 saw an impact of a higher revenue base (Diwali was in October 2016), November and December 2017 witnessed ~20% revenue growth, partly attributed to a low base (November and December 2016 suffered due to demonetization). EBITDA declined 12% YoY (+4% QoQ) to INR233m (14% miss) due to a sharp 23% YoY rise in SG&A expenses, particularly on account of the launch of new stations and marquee properties. PAT increased 16% YoY to INR119m (16% miss), led by net finance income of INR4m (v/s net finance cost of INR44m YoY).
• New stations driving growth: Revenue for new stations rose to INR48m, leading to overall revenue growth of 5% YoY. This was led by higher volumes in new stations (35% utilization); legacy stations’ volumes continued to de-grow by 3-4%. However, a 5% yield improvement provided solace to legacy stations’ revenue (at INR714m; flat YoY) and EBITDA margin (at ~34%). Avg. utilization across 39 stations stands at 60-65%. Though government/real estate sectors remain laggards, other sectors (led by FMCG/ auto) are eying a recovery.
• Resurgence led by a revival at legacy stations: According to management, sustainability of Nov-Dec’17 growth, coupled with a revival in volumes, should drive overall growth. Besides, break-even at new stations (expected by 1HFY18), led by volume growth, only testifies the margin outlook. As the lock-in period for phase-III licenses expires in Mar-18, MBL should be able to find good inorganic growth opportunity. With growth levers in place, MBL is well poised to fire on all cylinders; expect MBL to deliver 14%/20% revenue/EBITDA CAGR over FY17-20. We thus keep estimates largely intact.