06th March, 2017

Tuned for growth...

Music Broadcast Limited (MBL) is engaged in the business of operating private FM radio stations through the brand „Radio City‟ promoted by Jagran Prakashan Ltd. Advertisements contributes ~99% of its revenues. Radio City is the first private FM radio broadcaster in India. MBL has expanded its presence with radio stations from 4 cities in 2001 to 37 cities as on February 2017 and additional two stations are expected to be operationalised by April 2017. MBL is present in 12 out of the top 15 cities in India by population. As on March, 2016 it has over 4.96cr listeners. MBL has reported a robust revenue and EBITDA growth of 19% and 32% CAGR respectively with a healthy average EBITDA margin of 31% over FY13-FY16. Going forward, newly added 11 stations will contribute incremental growth. Additionally, MBL intends to pay ~Rs298cr out of the IPO proceeds for debt reduction which will strengthen its profitability. Radio industry is expected to grow at a CAGR of 16.9% over CY15-20 period to ~Rs43bn due to increasing trend in listenership, rising acceptance of radio as a medium of advertisement, commencement of the new radio stations under Phase III. At upper price band of Rs333, MBL is valued at a P/E of 32x on TTM (Sept 2016) basis which is at a discount to its peer. Given the high growth & high margin business and the expected improvement in earnings due to debt reduction and attractive valuation we recommend “Subscribe” to the issue.

Purpose of IPO At upper price band, total issue size is Rs488.5cr. The issue consists of a fresh issue of equity shares aggregating Rs400cr and an offer for sale (worth Rs88.5cr) by existing shareholders. The company intends to utilise Rs298.2cr from the IPO proceeds for the redemption of NCDs and the balance for general corporate purposes.

Key Risks...

Any reduction in ad-spend by advertisers or a reduction in advertising rates due to market forces.

Any decrease in listenership.

Slow growth in new stations.

Any alteration to or termination of current licensing agreements.

Government‟s policy on cross media ownership could have adverse implications.

Company

Sales (Rs.cr) MCap(Rs.cr) EBITDA % P/E

EPS

FY16 FY16 FY15 FY16 TTM* FY15 FY16 TTM* Entertainment Network (India) Ltd 492 3,958 29 37.4 40.0 55.0 22.3 21.0 15.1 Music Broadcast Ltd 232 1,900 34 40 45.0 32.0 8 7.4 10.4

Source: Geojit Research, Bloomberg; Note: Valuations of MBL are based on upper end of the price band;FY16 adjusted for IPO dilution.

*TTM as on sep2016

RETAIL EQUITY RESEARCH

Music Broadcast Ltd

Sensex: 28,832

Price Range Rs324-Rs333 Nifty: 8,898

Issue Details

Date of Opening 06th Mar 2017

Date of Closing 08thMar 2017

Total no. of Shares offered 1.47

Post Issue No. of shares (cr) 5.71

Price Band Rs324-333

Face Value Rs 10

Bid Lot Multiples of 45 shares

Listing BSE & NSE

Lead Manager ICICI Securities Ltd

Registrars Karvy Computershare (P)

Ltd

Issue size (at upper price) Rs. Cr

OFS 88.5

Fresh Issue 400

Total Issue 488.5

Shareholding (%) Pre Issue Post Issue

Promoters 96.5 71.6

Others 3.5 28.4

Total 100.0 100.0

Issue structure Allocation % Size Rs.cr

(at upper band)

Retail 35 171

Non Institutional 15 73

QIB 50 244

Total 100 488.5

Y.E March (Rs mn) FY15 FY16 6mFY17

Sales 201 232 137

Growth (%) * 30.3 16 18

EBITDA 62 78 46

Margin% 31 34 33

PAT Adj 47 43 30

Growth (%) * 93 (10) 40

EPS 8 7.4 5.2

P/E (x)* 40 45 32

EV/EBITDA * 35 28.1 24.2

P/BV (x) 2.6 1.9 1.6

*Annualized for 6MFY17

*adj for IPO dilution

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Company Description Incorporated in 1999, Music broadcast ltd is the 1st private FM radio broadcaster in India promoted by 'Jagran Prakashan Ltd, which operates under the brand “Radio City”. The company has grown their presence from 4 cities in 2001 to 37 cities as on February 2017. These radio stations include the 8 “Radio Mantra Stations” transferred from Shri Puran Multimedia Ltd (“SPML”) pursuant to the Scheme of Arrangement and 9 New Radio City Stations auctioned in Sept 2015. Two more stations are expected to operational by April 2017 out of total 11 stations auctioned.

Leading player in key markets with pan-India presence As per the research conducted by AZ Research in 23 markets, the company has been ranked 1 in each market in which they operate in terms of number of listeners and have a total number of 4.96cr listeners across all the 23 cities, as on March 31, 2016.

Source:RHP, Geojit Research

The company has presence in 12 out of the 15 most populated cities in India. Further, they have also been ranked 1st in Mumbai and Bengaluru and ranked 2nd in Delhi in terms of „top of mind‟ brand recall for the last 12 months period ending August 31, 2016. The company has a pan India presence with radio stations in 37 cities as on February 15, 2017 and they are in the process of operationalising 2 New Radio City Stations namely, Bikaner and Patna, which are expected to be operationalised by April 2017. Also, their 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 operationalisation. Through Planet Radio City, the company operate 40 web radio stations in 8 languages.

Advertisement volume growth beats industry... MBL generates about 99% of its revenue from advertisements. Radio City's advertising volume growth has outperformed industry as well as its peers. Radio city's ad volumes have grown at a CAGR of 12.5% over FY11-16, while Entertainment Network (India) Ltd (ENIL) reported ~9% CAGR and industry reported 10.4% CAGR over the same period due to MBL's higher listenership.

Source:RHP, Geojit Research

Tie-ups with leading media enterprises for content... Music is the primary content on radio stations, especially movie songs and talk shows. The company incurs around 4% of gross revenue towards content licence fee. MBL has entered into licensing agreements with third party entities such as Shemaroo Entertainment Ltd, Triple V Records, Track Musics, Giri Digital Solutions Pvt. Ltd, Ashwini Media Networks and Zee Entertainment Enterprises Ltd to broadcast sound recordings owned by the respective licensor, on the radio stations.

4.96

4.05

2.53 2.29

1.01 0.76

0

2

4

6

Radio City Radio Mirchi Big FM Red FM Fever Radio One

Listenership (Cr)

12.5%

9.0%6.8%

10.9% 10.40%

0.0%

5.0%

10.0%

15.0%

Radio City Radio Mirchi Big FM Red/S FM Industry

5 Year Ad volume CAGR (FY11-16)

Expanding to new market with a focus on profitability... Company‟s expansion strategy under the Phase III Policy was driven by identifying markets after taking into consideration their advertising potential, population density, per capita income and number of existing players. Post the migration of all existing Radio Stations and acquisition of the New Radio City Stations under Phase III, the company's markets would cover 62% of India‟s population having access to FM radio in 302 towns. Its current presence in 37 cities and the proposed expansion to 2 new cities gives an optimum combination of key national, regional and local markets to the company. Going forward, the company intend to take into consideration these parameters before expanding into any new markets. Additionally, As of Sept‟16, MBL has commenced networking stations in 5 cities of Maharashtra, namely, Sangli, Nanded, Jalgaon, Sholapur and Akola from a single hub out of Ahmednagar. It is planning to replicate the similar structure in Rajasthan, Punjab and Jharkhand to integrate radio stations. We believe this would help the company to reduce operating cost and the new stations can reach EBITDA breakeven timely.

Robust financial performance... MBL has a proven track record of strong financial performance. The company's revenue and EBITDA has grown at a CAGR of 19% and 32% respectively over FY13-16 with a healthy average EBITDA margin of 31%. During the same period, Revenue per stations grew at a healthy pace of 15% CAGR while EBITDA per station grew at 21% CAGR. Also it has a positive cash flow from operations in each of the last five years. Going forward, revenue growth is expected to remain healthy driven by new station additions, increasing trend in listenership, rising acceptance of radio as a medium of advertisement.

Diversifying to an audio entertainment company... MBL is well-positioned to transform from a pure play radio company to an audio entertainment company. The company creates and distributes content across various platforms and devices to transcend the radio and geographic restrictions. They have forayed into web radio, which broadcasts music and other shows through internet, at any time and in any jurisdiction. The company operates 40 web radio stations through 'planetradiocity.com' in eight languages. As of January 2017, 30 of these 40 web radio stations hosted with the StreamGuys platform have a listenership of 16.94mn and 33 of the 40 web radio stations hosted with NGH.IN platform have a listenership of 14.24 million. Additionally, the company have also launched a mobile app to access their web radio content on the go. MBL intend to increase their investment in these digital eco-systems.

Industry Outlook The Indian media and entertainment industry consists of television, print media, films, radio etc. This industry has grown at a CAGR of 12.2% over 2010-15. Digital Advertising and Radio are the fastest growing segments in the industry. The radio industry enjoyed a steady CAGR of 14.5% over 2011-15. Following the new stations licensed in Phase III and consolidation in the industry, radio is transforming from a 'coverage' media to a 'reach' platform. Major radio stations have been operating at high advertisement inventory utilisation levels and this coupled with the growing advertiser interest has enabled increase in advertisement rates. Radio‟s contribution to total advertisement industry increased to 4.2% in CY15 from 3.5% in CY05. As per FICCI, radio industry revenue is likely to grow at a CAGR of 16.9% over CY15-20E to Rs43.3bn, as a result of the Phase-III expansion.

Radio has the potential to provide uniqueness and contextualisation in communication and content differentiation to standout. Sectors like automobile, retail, consumer durables, financial services etc. continue to drive growth in this segment. Falling interest rates have supported promotional activity by real estate companies. Marketers are acknowledging that radio is an integral part of marketing plans. The top three segments by advertising volume in the radio industry are Government and public service advertisement, real estate and e-commerce.

Promoter and promoter group MBL is promoted by 'Jargran Prakashan Ltd (JPL). JPL is one of the leading media and communications group in India with interests spanning across Print, Radio, Digital, out of Home and Brand activations. JPL publishes 8 Newspapers and a magazine in 5 different languages across 13 States in India and has over 400 editions and sub-editions. Pursuant to an initial public offering in 2006, JPL got listed on BSE andNSE. As on the date of filing of this Red Herring Prospectus, the Promoter holds 40,268,517 Equity Shares representing 89.40% of the pre-Offer issued, subscribed and paid-up capital of our Company.

MBL has led by a senior management team with several years of experience in the media industry. The company's operational execution is headed by Mr. Abraham Thomas, Chief Executive Officer, who has over 2 decades of experience in the media and entertainment industry. Apurva Purohit who advises the company as a mentor has significant experience in the media and entertainment industry across organizations and was previously the Chief Executive Officer.

Standalone Financials

Profit & Loss Account

Y.E March (Rs cr) FY14 FY15

FY16 6mFY17

Sales 154 201 232 137

% change* 11.7 30.3 16 18

EBITDA 42 62 79 46

% change* 25.1 47.1 26 40

Depreciation 15 16 17 9

EBIT 27 47 62 36

Interest 6 6 19 8

Other Income 3 7 13 1

PBT 24 47 56 30

% change* 109 93 19 40

Tax 0 0 0 0

Tax Rate (%) - - - -

Reported PAT 24 47 56 30

Adj - - (13) -

Adj PAT 24 47 43 30

% change* 103 93 (10) 40

No. of shares (mn) 4.19 4.19 4.51 5.71

Adj EPS (Rs) 4 8.2 7.4 5.2

% change* 53.6 93.5 (9.7) 40

Cash flow

Y.E March (Rs cr)

FY14

FY15

FY16

6mFY17

Net inc. + Depn. 40 63 59 39 Non-cash adj. 4 8 (4) 3 Changes in W.C (8) (5) 11 1 C.F.O 36 65 66 42 Capital exp. (4) (3) (286) (16) Change in inv. 0 0 (54) 0 Sale of investment (2) (2) 56 (6.5) Other invest.CF 1 (197) 215 0 C.F - investing (4) (201) (69) (23) Issue of equity 0 0 0 0 Issue/repay debt (20) 165 (45) (6) Dividends paid - - - - Other finance.CF (6) (5) 17 (8) C.F - Financing (26) 160 (28) (14) Chg. in cash 6 24 (30.7) 5 Closing cash 14 33 (19) 14

Balance Sheet Y.E March (Rs cr) FY14 FY15 FY16 6mFY177

Cash 14 33 (19) 14

Accounts Receivable 63 77 95 114

Inventories - - - -

Other Cur. Assets 33 237 47 26

Investments - - 14 17

Gross Fixed Assets - - - -

Net Fixed Assets 7 7 8 8

CWIP 0 0 66 69

Intangible Assets 24 12 222 214

Def. Tax (Net) - - - -

Other Assets 28 32 53 67

Total Assets 170 398 485 528

Current Liabilities 54 52 117 131

Provisions 3 4 5 6

Debt Funds 103 285 256 250

Other Liabilities 0 0 0 0

Equity Capital 39 39 39 42

Reserves & Surplus (28) 19 68 95

Share capital sus. ac - - 3 3

Shareholder‟s Fund 11 58 104 137

Total Liabilities 170 398 485 528

BVPS (Rs) 3 14 25 24

Ratios

Y.E March FY14 FY15 FY16

6mFY17

Profitab. & Return

EBITDA margin (%) 27.5 31.0 34.0 33.2

EBIT margin (%) 17.4 23.2 27 26.7

Net profit mgn.(%) 15.8 23.4 18.3 21.7

ROE (%) - 138.0 52.5 24.7

ROCE (%) 13.0 20.1 16.2 8.9

W.C & Liquidity

Receivables (days) 150.7 127.2 135.2 278.9

Inventory (days) - - - -

Payables (days) 2,633.1 2,023.4 1,792.4 4,807.9

Current ratio (x) 2.0 6.6 1.2 1.3

Quick ratio (x) 1.4 2.1 0.6 1.0

Turnover &Levg.

Gross asset T.O (x) 20.7 21.2 26.2 29.5

Total asset T.O (x) 0.9 0.7 0.5 0.3

Int. covge. ratio (x) 4.8 7.5 2.5 4.5

Adj. debt/equity (x) 12.1 5.1 2.9 2.2

Valuation ratios

EV/Sales (x)* 13.2 10.9 9.5 8.0

EV/EBITDA (x)* 36.0 35.2 28.1 24.2

P/E (x)* 78.2 40.4 44.7 32

P/BV (x)* 3.1 2.6 1.9 1.6 *Annualized for 6MFY17 Valuations adjusted for IPO dilution

Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap;

Buy - Upside is 10% or more. Hold - Upside or downside is less than 10%. Reduce - Downside is 10% or more.

Buy - Upside is 15% or more. Accumulate* - Upside between 10% - 15%. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute „Accumulate‟ as Buy and „Reduce‟ as Sell.

The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.

General Disclosures and Disclaimers

CERTIFICATION

We, Vincent K Andrews, Thomas V Abraham and Mathew Joseph, authors of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of Geojit Financial Services Limited, hereinafter referred to as Geojit.

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