Music Broadcast

On the move

The company is adding many cities to its FM network

CM RATING

44/100

Radio City, promoted by Jagran Prakashan Ltd (JPL), is the first private FM radio broadcaster in India. The company operates radio stations under the brand "Radio City". The company has grown its presence from four cities in 2001 to 37 cities as on February 15, 2017. The radio stations include the eight "Radio Mantra Stations" transferred from Shri Puran Multimedia Ltd (SPML) and nine out of eleven New Radio City Stations. The company expects the remaining two New Radio City Stations to be become operational by March/ April 2017. The company is present in 12 out of the top 15 cities in India by population. As on March 31, 2016, the company's radio stations reached out to over 49.60 million listeners in 23 cities.

In 2015, JPL acquired a majority shareholding in the company through its direct holding in Spectrum and indirect holding in Crystal. In 2016, the radio business of SPML was demerged and subsequently transferred to the company, and Spectrum and Crystal were merged with JPL. JPL is one of the leading media and communications groups in India with interests spanning across the print, radio, digital and out of home space and brand activations. JPL publishes eight newspapers and a magazine in five different languages across 13 States in India and has over 400 editions and sub-editions. These include titles such as Dainik Jagran –India's largest read daily and – Inquilab, one of India's leading Urdu daily

All the Phase II Radio City Stations which were under Phase II Policy have been migrated to the Phase III Policy. These include Radio City stations that are present in Bengaluru, Lucknow, Mumbai, New Delhi, Chennai, Pune, Hyderabad, Ahmedabad, Surat, Nagpur, Jaipur, Vadodara, Coimbatore, Vizag, Ahmednagar, Sholapur, Sangli, Nanded, Jalgaon and Akola and the Radio Mantra Stations that have been transferred to the company pursuant to the scheme of arrangement located at Agra, Bareilly, Gorakhpur, Varanasi, Jalandhar, Ranchi, Hissar, and Karnal (together the Existing Radio Stations). Under the Phase III Policy, new cities were opened up for auction, pursuant to which the company acquired 11 additional radio stations i.e. the New Radio City Stations. The New Radio City Stations that have become operation are located at Kanpur, Ajmer, Kota, Udaipur, Patiala, Jamshedpur, Nasik, Kolhapur and Madurai. The remaining two New Radio City Stations namely Bikaner and Patna are expected to become operational by March/ April 2017.

Under the Phase III Policy the license period for radio stations has been increased to 15 years and radio stations are now permitted to carry news bulletins of All India Radio and also network their radio stations in all cities. The company has already networked its stations located at Sangli, Nanded, Jalgaon, Sholapur and Akola in Maharashtra and operates it from a single hub at Ahmednagar. Similarly, the company networked its radio station in Kota from its Udaipur radio station, Ajmer radio station from its Jaipur radio station, Jamshedpur radio station from Ranchi radio station and Patiala radio station from Jalandhar radio station. The company plans to replicate this similar structure for its radio station in Bikaner, which will be networked from Udaipur.

In addition to the above, the company also has sales alliance with ITM Software & Entertainment Private Ltd (ITM) which operates Suno Lemon 91.9 FM (Suno Lemon) in Gwalior and Ananda Offset Private Ltd (AOPL) which operates Friends 91.9 FM" (Friends FM) in Kolkata. The company also operates online web radio on its web portal www.planetradiocity.com (Planet Radio City), which was launched in 2010. The company operates 40 web radio stations through planetradiocity.com in eight languages. As of January 2017, 30 of these 40 web radio stations are hosted with the StreamGuys platform and have a listenership of 16.94 million. Further, as of January 2017, 33 of the 40 web radio stations are also hosted with NGH.IN platform and have a listenership of 14.24 million. The company's web radio stations offer 24 hours of internet radio along with few live RJ hosted shows. The company also has a Planet Radio City mobile app that plays various stations such as Radio City Freedom, Radio City Electronica, Radio City Metal and Radio City Smaran, in various languages, on mobile and other smart devices. With respect to its online web radio business, the operation, scheduling of music, promotions and advertising is similar to terrestrial FM.

As on February 15, 2017, the company operated 29 radio stations through the Radio City brand, eight radio stations through the Radio Mantra brand and has two sales alliances with ITM Software & Entertainment Private Ltd which operates Suno Lemon in Gwalior and Ananda Offset Private Ltd that operates Friends FM in Kolkata. Further, the company is in the process of re-branding the Radio Mantra Stations as Radio City stations. In this regard, it has made an application dated January 11, 2017, to the Ministry of Information and Broadcasting (MIB) for approval of rebranding the Radio Mantra Stations as Radio City stations.

Out of 37 operating stations, 17 stations are operational for 24 hours while other stations operate for around 18-20 hours every day.

The company's radio content typically comprises of RJ shows and film music. It has also created popular radio shows such as Love Guru and Kal Bhi Aaj Bhi and pre-programming features such as Babber Sher and Joke Studio. Radio City Super Singer, a popular singer talent hunt on radio was launched in 2011 and continues till date. The company has also launched Gig City, a unique initiative broadcasting music concerts simultaneously across multiple radio stations. In its endeavor to recognize independent singers and musicians, it has initiated Radio City Freedom Awards and these have completed three years and in the fourth edition, which is currently underway, involves live performances in six cities, facilitating independent music across genres and languages.

The company also runs the Radio City School of Broadcasting through which conduct training programs to develop talent and train individuals, who are interested to work in the radio industry.

As on January 31, 2017, the company has hired 108 RJs, including three online web radio RJs, to conduct its shows. The company's studios use IP-based studio equipment and consoles which are free from noise pick-ups. It uses linear encoding in its studios to ensure superior quality of audio on-air. For its web radio business, it uses customized software to control the sound quality of the output depending on the internet speed of listener.

The company is coming out with an initial public offering (IPO) amounting to Rs 400 crore at an price band of Rs 324- 333 per share of face value Rs 10 each. Out of Rs 400 crore, the company will spend Rs 200 crore on redemption of the listed NCDs (non-convertible debentures), Rs 98.24 crore for early redemption of the JPL NCDs & repayment/ pre-payment of the JPL ICD (inter-corporate deposits) and rest for general corporate purpose.

Beside the fresh issue of shares, there is also offer for sale of 26.58 lakh equity shares by selling shareholders. The offer for sale size at lower price band of Rs 324 per share works out to Rs 82.84 crore and at higher price band of Rs 333 per share, works out to Rs 85.14 crore.

According to the KPMG-FICCI Report, the radio industry grew at a steady CAGR of 14.5% between calendar years 2011 and 2015 and grew by an estimated 15.1% in calendar year 2015 to reach revenues of Rs 1980 crore. Going forward, the radio industry is targeted to record CAGR of 16.9% between the calendar years 2015 and 2020.

The company is the first and oldest private FM radio broadcaster in India with over 15 years of expertise in the radio industry. During the period from FY 2014 to FY 2016, its revenues from operations grew at a CAGR of 22.76% Amongst the private radio stations, it has consistently been the number one radio station in terms of average listenership share (in percentage) in Bengaluru and Mumbai with 24.17% and 17.10% respectively. It has a pan India presence with radio stations in 37 cities as on February 15, 2017. The New Radio City Stations are primarily located in tier-I, tier-II and tier-III cities. Also, the Existing Radio Stations have a license period of 15 years commencing from April 1, 2015 and their New Radio Stations have a license period of 15 years commencing from the date of their becoming operational. Through Planet Radio City, the company operates 40 web radio stations in 8 languages.

Any reduction in ad-spend by the advertisers or a reduction in effective advertising rates due to market forces, competition, excess inventory, inability to maintain market position or the loss of major advertising customers or inability to attract new advertising customers could have a material adverse effect on the company's financials

The music entertainment space has witnessed various technological developments including the introduction of internet radio and mobile applications for online radio and music. If radio as a medium becomes obsolete and new mediums overtake the radio space, such as online and mobile application based music, it will adversely affect the company's prospects.

Under the Phase III Policy, the company is required to broadcast public interest announcements as may be required by Government for a maximum period of one hour per day. The company's revenues are dependent on the time period of advertisement played on radio stations. Any loss of key time slots for advertisements can affect its performance performance.

The company derives a significant portion of revenue in respect of radio stations in Mumbai, Delhi and Bengaluru. For instance, in FYs 2016, 2015 and 2014, revenues from radio stations in Mumbai, Delhi and Bengaluru together contributed 51.34%, 53.64%, and 51.56%, respectively, of revenues from operations. Any disruption of business in Mumbai, Delhi or Bengaluru or the loss of one or more significant advertisers or advertising agencies or a reduction in their advertisement spend in these markets, could have adverse impact on its performance

The company has successfully bid for the New Radio City Stations under the Phase III Policy. Out of New Radio City Stations, radio stations in Kanpur, Ajmer, Kota, Udaipur, Patiala, Jamshedpur, Nasik, Kolhapur and Madurai have already become operational and the rest are in the process of becoming operational. New Radio City Stations may be required to incur expenses including capital expenditure to set up these stations, borrow debt or assume contingent liabilities, while operating the New Radio City Stations. Operating of New Radio City Stations would also result in an increase in depreciation expenses. Further, setting up of Common Transmission Infrastructure in the cities where the New Radio City Stations will become operational, may take time or get delayed beyond stipulated time for reasons beyond control, which might delay the process of becoming operational. The New Radio City Stations may not attract listenership and advertisement as planned, affecting the growth of revenue. The company also might not achieve expected return on investment for the New Radio City Stations. The business, operations and financial conditions will be affected in the event the company is unable to effectively becoming operational and manage the New Radio City Stations.

The FM radio broadcasting industry is highly competitive

The company's net sales for half year ended September 2016 (H1 of FY 2017) stood at Rs 136.89 crore. The OPM stood at 33.2%. The net profit stood at Rs 29.76 crore

The company's net sales for year ended March 2016 (FY 2016) increased 16% to Rs 232.33 crore. OPM increased by 280 bps to 33.8%. PBT before extra ordinary expenses (EO) rose 19% to Rs 56.08 crore. The net profit has decreased by 10% to Rs 42.51 crore due to EO expenses which is a special incentive given to certain employees.

At the lower price band of Rs 324 per equity share of Rs 10 face value, the P/E works out to 31.2 times the annualized EPS of Rs 10.4(on post-IPO equity) for half year ended September 2016 and the P/E works out to 33.2 times the EPS of Rs 9.8 (on post-IPO equity) for the financial year ended March 2016 . At upper band of Rs 333, P/E works out to 31.9 times the annualized EPS of Rs 10.4 (on post-IPO equity) for half year ended September 2016 and the P/E works out to 33.9 times the EPS of Rs 9.8 (on post-IPO equity) for financial year ended March 2016.

The only comparable listed company Entertainment Network (India) (ENIL) is trading at P/E of 80.97x on the annualized EPS for the half year ended September 2016 and 36.87x on the EPS for financial year ended March 2016.

Given the short-to-medium term prospects, valuations of both ENIL as well as Radio City seem to be high.

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