MOSL: MUSIC BROADCAST (Buy)-Operating leverage at play-EBITDA to grow 21% over FY18-21E

MUSIC BROADCAST: Operating leverage at play; EBITDA to grow 21% over FY18-21E

(RADIOCIT IN, Mkt Cap USD0.3b, CMP INR325, TP INR420, 29% Upside, Buy)

The Music Broadcast Ltd (MBL) stock is down ~30% from its peak YTD—partly due to concerns over growth visibility for the radio medium at large, and MBL in particular. Also, MBL posted weak 10% revenue growth in FY18 and 8% revenue CAGR in 1HFY19, which is much lower than our expectation. In this context, we hosted MBL management for an investor roadshow to discuss the radio sector outlook and MBL’s growth prospects. Key takeaways: 

a.)   As per management, the current low growth is largely due to weak retail/local, real estate and government advertisements, which is witnessing slow recovery post demonetization/GST. Management also reaffirmed that over the next three years, company should grow revenues at 13-15% CAGR and PAT at 20-25% led by steep operating leverage coming from 90% fixed cost.

b.)  TV players have seen swift recovery from demonetization/GST due to FMCG companies, which contribute less than 10% to the radio sector v/s over 50% for the TV industry. However, radio has not lost its sheen in India where listenership remains steady at 54mins for 5.1days/week—radio is viable for advertisers due to its reach and also because it’s a cost efficient medium.

c.)   Even in the US/UK, reach as well as time spent on radio has remained strong driven by healthy radio ad growth. In fact, radio ad growth is higher than the growth in the overall media spends.