COMPANY REPORT India 16 th April 2012 Reliance Broadcast Network Rs 53.45 Sector: Media At an inflection point Four-S reports are available on BLOOMBERG, Reuters and Thomson Publishers Reliance Broadcast Network (RBN) is rapidly building a strong presence in the Indian M&E industry. Within 6 years, BIG FM, with 45 stations, is largest by scale, second largest by revenues and EBIT positive. RBN has a 5 channel broadcasting portfolio within 18 months of first channel launch. RBN is a potent play of TV + Radio that offers local audiences as well as scale for national advertisers. Content initiatives BIG Productions and Live are creating a repute of their own besides in-house competencies. A high growth media play: Indian M&E industry is set for high growth of 15% over 2011-16, with Radio at 21% and television at 17% (FICCI-KPMG report 2012). RBN’s FY11 revenues grew 36% YoY, higher than industry and at par with leaders to reach Rs 2.4bn. Radio had 71% share. In 9mFY12, RBN’s revenues grew 30% to reach Rs 2.3bn. Radio was 67% and Production and TV began with 15% and 4% shares. RBN’s total revenues are set to grow at 51% over FY11-15 as it becomes 100-150 FM network and ~ 9 channel broadcasters by FY15. Business game changers ahead in both radio and TV: Phase-III will increase radio reach ~3x to over 300 cities. Radio would be a national media like TV, with improved ability to deliver targeted local reach. Radio’s share in media ad-pie to increase from 3.8% presently to 5% by 2016. Digitalisation of cable TV will improve business economics for broadcasters. RBN well positioned to ride the change and turn profitable by FY14 RBN will be a 100-150 station network post Phase III with presence in key cities missing in its portfolio. BIG FM is already EBIT positive. In TV, RBN will establish as a strong focused play in English GEC and targeted regional belts with ~ 9 channel portfolio plus language and HD feeds. Content will be a mix of cutting edge international, dubbed and local through BIG Productions. TV to break-even by FY14. RBN trades at a P/E of 7.4x and EV/EBITDA of 4.7x of our projected FY14 numbers, at a significant discount to industry’s ttm PE of 18x and EV/EBITDA of 11x. With FM Phase III process to start in a few weeks time, RBN is an attractive investment opportunity currently. FY10* FY11 FY12p FY13e FY14e FY15e Revenue (Rs. Mn) 1,807 2,454 3,134 5,045 8,936 12,807 EBITDA (Rs. Mn) -162 -64 -451 192 1,544 3,929 PAT (Rs. Mn) -761 -537 -1,018 -318 940 3,166 EBITDA margin (%) -9% -3% -14% 4% 17% 31% ROaE (%) NA NA NA NA 22% 49% P/E Ratio (x) NA NA NA NA 7.4 2.2 EV/Sales (x) 3.3 2.9 1.9 1.2 0.8 0.5 EV/EBITDA (x) NA NA NA 32.0 4.6 1.8 P/BV (x) NA 2.9 4.1 1.9 1.5 0.9 D/E (x) NA 0.5 1.4 0.1 0.1 0.0 * standalone BSE Sensex 17,151 Nifty 5,226 52 week high (Rs) 99.25 52 week low (Rs) 40.20 NSE RBN BSE 533143 Equity Shares (mn) 79.45 Face Value (Rs) 5 Market Cap (Rs mn) 4,239 Share Price Performance (%) RBN Sensex 1 week -4.1 -0.4 1 month -3.3 -1.8 3 month -3.5 5.9 6 month -22.0 2.2 1 year -35.1 -11.5 Shareholding Pattern (Dec’11) Promoters 65.2% FIIs/FVCIs 1.3% MF/Banks 1.3% Body Corporates 13.7% Others 18.5%
48
Embed
Company report reliance broadcast network 17th april 2012
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
C O M P A N Y R E P O R T
India
16th April 2012 Reliance Broadcast Network Rs 53.45
Sector: Media At an inf lect ion point
Four-S reports are available on BLOOMBERG, Reuters and Thomson Publishers
Reliance Broadcast Network (RBN) is rapidly building a strong presence in
the Indian M&E industry. Within 6 years, BIG FM, with 45 stations, is
largest by scale, second largest by revenues and EBIT positive. RBN has a
5 channel broadcasting portfolio within 18 months of first channel launch.
RBN is a potent play of TV + Radio that offers local audiences as well as
scale for national advertisers. Content initiatives BIG Productions and Live
are creating a repute of their own besides in-house competencies.
A high growth media play:
Indian M&E industry is set for high growth of 15% over 2011-16, with
Radio at 21% and television at 17% (FICCI-KPMG report 2012).
RBN’s FY11 revenues grew 36% YoY, higher than industry and at par
with leaders to reach Rs 2.4bn. Radio had 71% share.
In 9mFY12, RBN’s revenues grew 30% to reach Rs 2.3bn. Radio was
67% and Production and TV began with 15% and 4% shares.
RBN’s total revenues are set to grow at 51% over FY11-15 as it
becomes 100-150 FM network and ~ 9 channel broadcasters by FY15.
Business game changers ahead in both radio and TV:
Phase-III will increase radio reach ~3x to over 300 cities. Radio would
be a national media like TV, with improved ability to deliver targeted
local reach. Radio’s share in media ad-pie to increase from 3.8%
presently to 5% by 2016.
Digitalisation of cable TV will improve business economics for
broadcasters.
RBN well positioned to ride the change and turn profitable by FY14
RBN will be a 100-150 station network post Phase III with presence in
key cities missing in its portfolio. BIG FM is already EBIT positive.
In TV, RBN will establish as a strong focused play in English GEC and
targeted regional belts with ~ 9 channel portfolio plus language and
HD feeds. Content will be a mix of cutting edge international, dubbed
and local through BIG Productions. TV to break-even by FY14.
RBN trades at a P/E of 7.4x and EV/EBITDA of 4.7x of our
projected FY14 numbers, at a significant discount to industry’s ttm
PE of 18x and EV/EBITDA of 11x.
With FM Phase III process to start in a few weeks time, RBN is an
RBN achieved a turnover of Rs 2,454mn in FY11 with a YoY growth
of 36%. This was at par with industry leaders and higher than peer
average of 27%.
Revenue growth YoY FY11 9mFY12
Peer Average 27% 14%
RBN 36% 30%
Source: Four-S Research
RBN’s total revenues in FY11 were Rs 2,513mn.
Second highest growth in peer group in 9mFY12
RBN repeated the strong revenue performance in 9mFY12 with a YoY
growth of 30% to reach Rs 2,315 in revenues. This included a one-
time royalty write-back of Rs 209mn as other operating income.
Even if we exclude that, RBN’s revenue growth would be 19% YoY,
still second highest in the peer group.
While Radio grew at 21%, entry into new segments of production (Rs
358mn, or 15% share) and TV Broadcasting (Rs 90mn, or 4%
revenue share) resulted in the high growth of overall revenues.
Top play in private FM Radio segment
Number 1 by scale in FM Radio industry
Number 1 in 15
radio markets
RBN has the largest private FM network in India with 45 stations
covering 1,200+ towns and 50,000+ villages reaching 42.6mn
listeners (IRS+RAM).
BIG FM is number 1 in 15 markets and a top 3 player in 15 others by
listenership. As per ADEX data for BIG FM markets, it has a
combined FCT consumption share of 23% in Q3FY12.
Number 2 by revenues in Radio industry
Radio Revenues
hampered by
absence from 7
key markets
RBN has become number 2 by revenues within five years of
operations achieving revenues of Rs 1,750mn in FY11 with a YoY
growth of 16%.
Rs Mn # of stations
1st station launch FY10 FY11
Market Share**
ENIL 32 Oct-2001 2,297 2,722 27% RBN Radio 45 Sep-2006 1,505 1,750 17% HT Radio 4 Oct-2006 431 704 7% DB Corp Radio 17 May-2006 350 469 5%
* Segmental revenues for Radio not available for Sun, Jagran, Radio City (MBPL not listed)
Company Report: RBN 30 Mar’12
Four-S Research 3
**FY11 sales on FICCI-KPMG 2010 Radio Industry revenue of 10bn
RBN can be expected to reduce the revenue gap with the market
leader post Phase III auctions, when it will have presence in all key
cities.
Makes de-risked entry into TV Broadcasting
Enters via JV with
international
broadcasters to
start higher on
learning curve,
content USP and
optimize costs
RBN made a de-risked entry into TV broadcasting by targeting
segments of English GEC and Regional. It avoided the already
cluttered segments of Hindi GEC, Movies, Sports and News.
RBN has a portfolio of 5 channels at present – 3 in English GEC, 1 in
Regional Hindi and 1 in Punjabi. It has optimized its costs by using
the JV route for English channels. RBN also distributes Bloomberg
UTV in its portfolio.
RBN’s TV revenues were Rs 10.6mn in FY11 with four months of TV
broadcasting operations. In 9mFY12, its TV revenues achieved a
turnover of Rs 90mn, accounting for 5% share of RBN’s revenues.
RBN’s Regional play in Hindi Heartland – BIG MAGIC
RBN launched BIG MAGIC in Apr-11 to cater to Hindi heartland of UP,
MP and Bihar. This is RBN’s first play in Regional TV.
Within nine months of operations, the channel accounted for 12% Ad
spend share of the peer set in Dec-11.
Regional Hindi Channels – ADEX for Dec-11
Second largest ad
earner in HSM
within 9 months
of launch
0
100000
200000
300000
400000
500000
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Spend Rs.mn Duration (s)
Source: Company Data – ADEX
Enters English GEC via 50:50 JVs with global leaders
RBN’s strong
International tie-
ups have the
potential to make
RBN has used the JV route to enter the English GEC segment. This
not only optimizes its costs, but gives it preferential right to top and
latest international content in SAARC region.
More importantly, it has entered into JVs with two of the biggest
Company Report: RBN 30 Mar’12
Four-S Research 4
it India’s largest
English GEC
broadcaster
names in global TV broadcasting: CBS, a leader in the US markets;
and RTL Group, part of European media powerhouse Bertelsmann
AG, the largest in Europe, which also owns reality TV content leader
Freemantle Media.
RBN’s BIG-CBS JV
RBN has a 50:50 JV with CBS Studios International, a division of CBS
Corporation USA. The JV is called BIG CBS Networks Pvt. Ltd. CBS
Studios International is the leading supplier of programming to the
international television marketplace.
The JV has rights to and has launched 3 English GEC channels in
Nov’10, Mar’11 and Apr’11 respectively named BIG CBS Prime, BIG
CBS LOVE, and BIG CBS Spark. Through these channels, Indian
audiences will have access to latest international content, a strong
USP against English GEC Peers, which tend to play re-runs. CBS’s
popular shows include Survivor, America’s next top model, Sex and
the City and Ringer.
BIG CBS, # 1 English Entertainment Network in India
BIG CBS has established itself as Number 1 English Entertainment
network in India with a combined relative market share of 51%
(TAM: CS 15-44, SEC A, MF, Wk 40, 2011, 7 Metros All Day).
Source: Company TAM Data - 15-44, SEC A, MF, Wk 40, 2011, 7 Metros All Day
English GEC channels – ADEX for Dec-11
BIG-CBS Prime, at
par with AXN’s
disc spends
within a year of
launch
0
100000
200000
300000
400000
500000
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Zee Café Star world AXN BIG CBS NW
Spend Rs.mn Duration (s)
Source: Company – ADEX Data
Company Report: RBN 30 Mar’12
Four-S Research 5
BIG CBS Networks has launched three English channels in less than
a year of operations. For the month of December 2011, the
combined ADEX of the BIG CBS NW was ~60% more than AXN. In
terms of Ad Durations, BIG CBS Network is ahead of Zee Café and
AXN and lags only 21% behind Star World.
The first channel of the bouquet, BIG CBS Prime (launched 29th
Nov-11) garnered a Discretionary Spend of Rs 11.86mn in Dec-11,
higher than AXN’s Rs 11.54mn.
Entry into Punjabi Market with Spark Punjabi
Spark Punjabi,
first international
Punjabi channel,
becomes a leader
within a month of
launch
RBN has launched its first dubbed channel out of BIG-CBS JV to
make an entry in the Punjabi market. This is RBN’s second Regional
TV play after BIG MAGIC.
Spark Punjabi, within a month of its launch in Jan’12, became the
leader in the region with relative market share of 32% (TAM India:
CS4+ Males, Punjab 1 Mn+, 7PM – 12AM, Week 10’2012). With BIG
FM reaching 8 cities in the region and BIG Street’s 3000+ ambient
media options across the markets, BIG CBS Spark Punjabi offers
marketers an integrated media opportunity like none other in the
region.
RBN’s RTL Group JV
RBN entered into a 50:50JV with RTL Group SA to launch two theme-
based channels – extreme action genre and the other in reality
genre.
RTL Group is part of Europe’s largest media firm, Bertelsmann AG.
RBN will get access to RTL’s library of content produced by its group
production house, Fremantle Media Ltd, including shows such as The
X Factor, American Idol and America’s Got Talent, and their various
regional franchises.
The first channel is ready to be rolled out in July - August 2012.
Strong programming skills to help TV foray
BIG Productions, more than in-house content USP
Has one of the
most reputed
production house
and largest
portfolio of
televised IPs
RBN has entered content production with an eye on in-house
competency. Its division BIG Productions is a reputed TV production
house in its own right, with two of its shows completing 500 episodes
milestone and a total of 950 hours of programming till date. RBN
acquired BIG Productions from group company Reliance BIG
Entertainment Private Limited effective from 1st of April 2011.
BIG Productions already has 25 shows to its credit in 8 languages. In
9mFY12, the segment had revenues of Rs 358mn and an EBIT of Rs
Company Report: RBN 30 Mar’12
Four-S Research 6
5mn.
BIG LIVE, makes a mark in live TV shows
BIG LIVE gives RBN the largest portfolio of televised IPs in India,
with 23 IPs in FY11. RBN has discontinued its activation business
with intent to turn the segment profitable. BIG LIVE develops
national IPs like BIG Star Entertainment awards, local IPs like
Regional Music industry awards and in-house IPs. RBN is in process
of developing sports IPs.
In 9mFY12, BIG LIVE had revenues of Rs 178mn and an EBIT loss of
Rs 75mn.
Set to turn profitable in FY14
While RBN has made losses in its brief history, this is due to initial
investments in setting up the businesses.
While radio business is now profitable, OOH and TV will take a few
more quarters to breakeven after which RBN should be strongly
profitable.
We expect RBN to have EBITDA margin of 31%, marginally lower
than current peer average EBITDA of 33%. We expect RBN’s PAT
margins to reach 25% by FY15.
Radio achieves turnaround, is EBIT positive
Radio business EBIT positive with 15% margins in 9mFY12
RBN has managed a fast turnaround of FM radio, becoming EBIT
positive in Q3 FY11 – within five years of launch of first station and 3
years of launch of 45th station. In H2FY11, Radio had a positive EBIT
of Rs 23mn, limiting the annual loss to Rs 74mn.
In 9mFY12, Radio posted an EBIT of Rs 238mn with an EBIT Margin
of 15.4% and ROCE of 10%.
EBIT Margins FY10 FY11 9mFY12
ENIL Radio 8% 16% 23%*
RBN Radio -20% -6% 15%
Source: Four-S Research *ENIL does not report quarterly segmental numbers. In 9mFY12, it is in Radio and Events only, having sold its OOH business in FY11, so the margin can be considered a close approximation of Radio margin.
With a healthier FY11 balance-sheet
RBN’s D/E was 0.5 in FY11, having reduced its debt from Rs 3bn in
FY10 to Rs 1.4bn in FY11.
RBN had raised Rs 2,832.5mn of equity by preferential issue of over
33.3mn shares to potential investors and promoters of the company
in Sep-2010 at Rs 85 per share. This was at 25% premium to
preceding 26 weeks average market price. A part of the fund raised
was used to repay Rs 2bn of debt.
Company Report: RBN 30 Mar’12
Four-S Research 7
FY11 BS Ratios D/E Total Asset Turnover
Working Capital Turnover
Peer Set Average 0.2 0.8 3.1 RBN 0.5 0.6 2.4
Source: Four-S Research, Company Data
The entire debt as on March 31, 2011 is ICD from the promoters –
primarily Reliance Capital Limited and Reliance MediaWorks Limited.
RBN, the youngest media company in the peer set, has turnover
ratios only marginally lower than Peer set.
EBITDA to break-even in FY13, EBIT by FY14
RBN’s Radio business is already EBIT positive. We expect the main
TV channels launched in FY11-12 to break-even by FY14. The
dubbed channels will have a quicker break-even due to lower
operational costs. We expect TV segment to be overall EBIT positive
by FY14.
Radio to achieve EBIT margins of 26% by FY15
Radio to achieve
26% EBIT margins by FY15, driven by increased utilization, higher
rates, reduced royalties. Phase
III stations to have quicker break-evens.
RBN’s Radio has an EBIT margin of 15% in 9mFY12 at blended
utilization of 65% and blended Effective Rate of Rs 8,100 per 10
seconds for 45 stations. India has one of the lowest ad-spends on
Radio, leading to enormous potential for growth.
We expect utilizations of existing stations to improve to ~75%
levels. Post-phase III, radio will become a PAN India Media, hence
we expect the blended ERs to improve from Rs 8,100 per 10 seconds
to Rs 11,200 per 10 seconds for the existing 45 stations. The Phase
III stations have been assumed to generate slightly lower ER of Rs
11,500 per 10 seconds for additional 50-100 stations.
This would be comparable to the ER of market leader which is in the
range of Rs 9 to 10,000 for 32 stations currently.
The recent royalty reduction to 2% of revenues, though still under
contest, will further boost the bottom-line. We have taken, 4% for
our projections, in tune with international standards.
Phase III will allow ownership of multiple frequencies and networking
of operations, which will result in lower operational costs per station.
We expect Radio business to achieve an EBITDA margin of 39% by
FY15 and an EBIT margin of 26%.
Market leader ENIL has already achieved an EBITDA of 41% in
Q3FY11. ENIL had launched its first FM station in 2001.
TV Broadcasting to be EBIT positive in FY14
TV to break-even
by FY14 as existing channels
break-even and broadcasting profitability per se increases driven
by digitization
RBN already has 3 main channels on its portfolio in the cost range of
Rs 250-300mn. The channels will break-even within three years of
operations, driven by increase utilization and ad-rate improvements.
With digitization rollout, broadcasters will gain with increase in
subscription revenue share along-with a decrease in carriage costs
as digital cable will have much higher bandwidths.
Driven by industry and RBN’s operational improvement, we expect
Company Report: RBN 30 Mar’12
Four-S Research 8
TV segment to break-even by FY14. The EBIT margin in FY14 would
be 2%, and will reach 30% in FY15 as more channels break-even.
Production already EBIT positive, BIG LIVE to break-even in
FY13
BIG Productions posted a positive EBIT of Rs 5mn in 9mFY12 in first
year of its operations. It will achieve EBITDA margins of 21% by
FY15.
BIG Live, with improved monetization per IP will break-even in FY13
with an EBITDA margin of 5% that will further improve to 14% by
FY15. RBN has discontinued its activation business in FY12.
OOH, will break-even by FY14 as trading takes traction, will achieve
EBITDA margins of 18% by FY15.
While maintaining a healthy balance-sheet, new growth from equity
RBN will use
equity route for funding TV operations and Radio Phase III auctions
As on Sep-11, RBN’s D/E stood at 1.0x, with Rs 1.7bn of debt on its
books. Out of this, Rs 1.2bn was ICD from promoters.
We expect FY12 Debt level to be similar.
RBN plans to be a low debt company and it will finance its growth –
Phase III auctions and channel launches mainly from equity.
RBN is already in talks with players to raise Rs 3-4bn of fresh equity
without diluting promoter’s stake.
Positive sector triggers ahead
Indian M&E set to grow at CAGR of 15% in 2011-16
Industry growth
drivers – current level of low ad spends, rural media consumption,
Digitization, FM Phase III and Digital media
penetration
India’s advertising to GDP ratio at 0.34% is almost half of the world’s
average of 0.75% and one-third of North America (~1%). Media
reach is also less than developed countries with TV households only
57% of total households.
Under-penetration, low ad-spends coupled with India’s demographics
- rising disposable incomes, youngest population, mobile penetration
position Indian ME industry for good growth ahead.
Indian M&E is expected to grow at CAGR of 15% in 2011-16 to reach
revenues of Rs 1.46tn by 2016. The growth drivers would be
increasing consumption in tier II and tier III cities, Digitization, FM
Phase III and growth of digital media.
Royalty ruling to benefit FM radio industry margins
The royalty ruling at 2% of revenue sharing, as against the earlier
fixed fee model, will result in higher operating margins and hence
quicker break-evens for Phase III stations.
Phase III to transform FM Radio a PAN India media
Phase III will
transform FM into
a mass media option on
FM Phase III will extend industry’s reach to 294 cities and increase
the frequencies 2.4x. The reach will hence increase to more than
90% of population from the 30% at present.
Company Report: RBN 30 Mar’12
Four-S Research 9
advertiser’s media plan
According to FICCI – KPMG report, the ad-spends on radio which are
at 3.8% of media ad spend as of today, will increase to 5% of media
ad-spends by 2016. This will be the key industry growth driver
making Radio grow at 21% till 2016.
RBN has the potential to combine its Broadcasting and FM portfolio
to emerge as the player with maximum reach. RBN also has the
opportunity to create presence on the key 7 cities that create its
revenue differential with ENIL.
Phase III will allow networking of operations, that will lead to
substantial reduction in costs, especially for new stations and result
in faster break-evens.
Digitization, a reality now, to favour Broadcasters
Top-lines to be boosted by higher
ARPU share and bottom-line by reduced carriage costs
The Indian Government is actively pursuing Digitization of Cable and
Satellite with first phase of metros to be implemented by June 2012
and the entire country to be digitized by end of 2014.
Phase Deadline
I – 4 metros 30-Jun-12
II – Cities with population> 1mn 31-Mar-13
III – All urban areas 30-Sep-14
IV – Rest of India 31-Dec-14
This move will bring many benefits to the broadcasting industry:
Increase bandwidth as digital signal will be able to carry over
500 channels compared to Analog’s capability of 100+
channels
Correct reporting of subscription base will lead to increase in
subscription revenues
MSOs will gain traction over LCOs leading. The ARPU revenue
share to MSO’s, as well as broadcaster, will increase.
Broadcaster’s revenue share is expected to increase from the
current 10-15% to 30-35%.
As bandwidth increases, carriage cost per channel will go
down, leading to margin improvement for broadcasters.
Essentially, TV channels post-digitization will achieve break-even
faster. FICCI-KPMG estimates share of subscription revenues in TV
industry to increase to 69% by 2016.
As a new broadcaster, RBN stands to gain with quicker break-evens
courtesy top-line increase from subscription and bottom-line increase
from reduced carriage.
Regional Broadcasting gets significant
Regional TV now
accounts for more than half-of TV advertising volumes
Regional Broadcasting has gained traction over past years driven by
increased media consumption in tier II and III cities. According to
industry estimates, Regional advertising grew faster in 2011 at 15%
than national advertising.
Increasing share of Regional TV in Overall ad volumes.
Company Report: RBN 30 Mar’12
Four-S Research 10
Source: ADEX India
Trading at attractive valuations
RBN is trading at a discount of 29% on EV/Sales multiple and 24%
on Price to Book multiple with respect to peer average.
PL = Posted Loss ttm multiples, taken on quarter ending 31st Dec 2011, CMP 30th Mar 2012, NSE Prices
RBN is also trading lower than its historical multiples of EV/Sales and
Price to Book ratios.
31Mar’10 31 Mar’11 30 Mar’12
EV/ Sales (x) 3.3 2.9 1.9
P/B (x) NM 2.7 2.5
NM = Non Meaningful, as Networth was negative. Source: NSE, Four-S Research
Led by professional management team
Board an eclectic mix of Financial and Media veterans
RBN’s board consists of reputed Chartered Account and Finance
Industry’s professionals – Gautam Doshi, Anil Sekhri, Pradeep Shah
and D.J. Kakalia and Media veterans, Rajesh Sawhney and Prasoon
Joshi.
An able management team
Tarun Katial, CEO
RBN is led by Tarun Katial with over 15 years of experience in media
industry, with previous stints at Star TV and SET.
Tarun Katial has led RBN to grow from a pure radio company to a
Company Report: RBN 30 Mar’12
Four-S Research 11
multi-media conglomerate. Tarun is the NewsCorp Achiever for Asia
and another for being included amongst the best in the India Today
30 under 30 list.
Asheesh Chatterjee, CFO
Asheesh Chatterjee is a Chartered Accountant and Cost Accountant
with 15+ years of experience including stints at Moser Baer, Sony
Entertainment Television, ICICI Prudential Asset Management &
Ernst & Young. He leads the Finance and Legal aspects including
fund raising, M&A and JVs whilst strengthening credibility and
reputation of the Company within the investor community.
Key Business Heads
Rabe Iyer: Business Head, 92.7 BIG FM
15 years+ experience including previous stints at DB, Saatchi
& Saatchi, Zenith Optimedia, Starcom MediaVest.
Anand Chakravarthy: EVP Marketing & Business Head, BIG Magic
12 years+ experience including previous stints at Lowe India
Simmi Karna, Business Head, BIG Productions
15 years+ experience, earlier Chief Revenue Office at Balaji
Telefilms
Praveen Malhotra: Executive VP, Sales
19 years+ experience including previous stints at Star TV,
Times of India, Radio City
Soumen Choudhury: Business Head, Technology
15 years+ experience including previous stints at Radio City
Meenakshi Roy: Sr. VP, HR
20 years+ experience including previous stints at L’Oreal
India, ABP Limited, Ties of India (NIE) & TATA Special Steels
Gururaja Rao: VP (Legal), Company Secretary
12 years+ experience including previous stints at TCIL, UTV,
McDonalds, Glaxo Pharmaceuticals & People Group
RBN, India’s youngest media company has a team with average age
of 27 years.
Company Report: RBN 30 Mar’12
Four-S Research 12
Risk factors
Internal Factors
Delay in launch of channels, expansion
The company plans to expand its broadcasting portfolio with 2 JV
channels with RTL planned for FY13 and also has plans for SAARC
distribution and International distribution for MAGIC channel.
We expect RBN to have at least 9 main channels in its broadcasting
portfolio by FY15, up from the current 5.
Any delay in launch of these initiatives will result in loss of revenue
and profitability.
Mitigant:
RBN, till date, has demonstrated timely execution capabilities. Its
distribution agreement for RTL channels with Reliance Digital TV are
already in place. SAARC distribution has taken off with Sri Lanka.
Music royalties appeal still pending
RBN has stopped provisioning for royalties according to historical
agreements and is accounting on a revenue share basis as per the
recent ruling of Copyright Board. However, appeal filed against the
Copyright Board by PPL and some music Labels is still pending. An
adverse ruling could have negative impact on bottom-line.
Mitigant:
The revenue sharing arrangement for royalties is in line with
international norms. The company is acting in tandem with other
radio broadcasters to solve this issue.
External Factors
Regulatory risk
RBN is in a business where operational licenses are issued by the
Government. If for some reason the licenses or contracts are
cancelled, there could be loss of business.
Company’s revenue projections are based on FM Phase III bidding
happening in FY13 and rollouts by FY14. Any delay from Government
in auction of frequencies and/ or providing of infrastructure could
delay the future operations.
Company Report: RBN 30 Mar’12
Four-S Research 13
Advertisement revenues depend on economic factors
RBN’s revenues are Advertisement dependant. Any economic
slowdown or event that causes advertisers to reduce radio spends,
may adversely impact future revenues and profits.
Mitigant:
RBN has started de-risking its broadcasting model through increased
focus on subscription revenues. It gets its revenues out of local
market, which is less prone to recessionary meltdowns. On the other
hand, it is continuously innovating into new inventories and new
markets to keep the top-line growing.
Company Report: RBN 30 Mar’12
Four-S Research 14
Peer Benchmarking
Defining peer set
We have benchmarked RBN with listed Media players classified as
follows:
a) Print/ Radio presence: ENIL, HT, Jagran Prakashan, DB Corp
b) Broadcasting/TV production/ Radio presence: Zee TV, Sun TV
Network, TV 18 Broadcast
RBN has presence
across Broadcasting spectrum
Vertical Broadcasting Production Publishing Radio
Zee N+R N+R
Sun TV NW R R R N
TV 18 Brdcst N+R
DB Corp R R
HT N R
JPL R R
ENIL N
RBN N+R N+R N
N = National, R= Regional
Among the group listed above, Entertainment Network (India)
Limited or (ENIL) and RBN are the only radio-heavy players. For
others, radio is a small portion of their overall business.
By FY15, when RBN is a 100-150 FM network and a ~ 9 channels
broadcaster with a pan-India presence, RBN will be able to match
the overall value proposition of its peers. Its competitive advantage
would derive from being able to offer targeted regional campaigns to
advertisers across India. It will also have a pan-Indian footprint to
appeal to the advertisers for national campaigns.
Growing faster than peers
Above peer average in FY11, encores in 9mFY12
RBN grew at par
with industry leaders in FY11, and grew better in
9mFY12
Youngest media player, RBN is in the high growing segments – Radio
(15% growth in 2011) and TV (10.8% growth in 2011).
Revenue Growth in FY11, 9mFY12
FY11 Revenue YoY 9mFY12 Revenue YoY
Zee 30,136 37% 21,715 -2%
Sun TV NW 20,135 39% 13,304 -9%
DB Corp 12,600 19% 11,032 16%
HT 17,674 25% 15,143 15%
JPL 12,211 30% 9,341 12%
TV 18 7,998 33% 9,107 52%
ENIL 4,542 8% 2,156 *
Peer Average
27% 14%*
RBN 2,454 36% 2,315 30%
Company Report: RBN 30 Mar’12
Four-S Research 15
Note: 1. 9mFY12 average excludes ENIL. 2. Sun TV and Jagran Prakashan’s 9mFY12 figures are standalone
The strategy has paid off with RBN growing at par with industry
leaders in FY11, and second highest in 9mFY12. It has performed
higher than peer average in both the periods.
9mFY12 revenues include a one-time royalty write-back of Rs 209mn
as other operating income. Even if we exclude that, RBN’s revenue
growth would be 19% YoY, still second highest in the peer group.
RBN is number 2 by revenues in Radio industry
RBN is a strong number 2 by revenues as well as listenership.
Annual revenues (Rs mn)
Source: Company reports
9mFY12 revenues (Rs mn)
Note: ENIL’s YTD FY12 revenues are income from operations as ENIL does not disclose segmental numbers. However since, ENIL has sold its outdoor business to BCCL, the revenues comprise mostly of radio operations. YTD FY11 revenues will include OOH revenues hence not comparable to YTD FY12
BIG Productions leaves a mark in its segment
Production revenues are one-
third of listed
leader’s
RBN’s BIG Productions has become one-third of the segment leader
(listed), Balaji Telefilms revenues in 9mFY12.
9m Fy12 Revenues Rs mn
Balaji Telefilms 991
BIG Productions 358
% of BT 36%
Source: Company reports
Company Report: RBN 30 Mar’12
Four-S Research 16
Profitability lower than peers currently, to catch up
RBN currently in losses as it sets up its broadcasting business
Losses mainly on
account of new segment of broadcasting in 9mFY12
RBN’s EBITDA is a negative of Rs 4.6mn in FY11 and Rs 42.4mn in
9mFY12 as it is still setting up operations.
FY10 FY11 9mFY11 9mFY12
EBITDA Margins
Peer Average 32% 33% 35% 34%
RBN -7% 0% 3% -19%
PAT Margins
Peer Average 22% 18% 22% 19%
RBN -42% -22% -19% -36%
Note: Negative margins and TV18Broadcast excluded in average calculations.
FY11 losses reduced as Radio Business turned EBIT positive. 9mFY12
margins were impacted as RBN expanded its broadcasting operations
with new channel launches and increased distribution.
Going forward, TV Broadcasting will break-even by FY14, as
Channels launched in FY11-12 break-even. The new channels will
have relatively lower operational expenses, quicker Go-to-markets
and revenue traction as existing broadcasting set-up moves up the
learning curve. IP breaks-even in its second year of operations led
by increased monetization. OOH will turn EBITDA positive by FY14,
led by trading revenues traction.
Radio and Production are already EBITDA positive, hence we expect,
the company on the whole to be EBITDA positive by FY14.
Radio business turns a strong EBIT positive
RBN’s radio business turned EBIT positive with YTD FY12 margin of
15%, compared to a loss posted in FY10 and FY11, leading to a
positive ROCE of 10%.
EBIT margins of Radio peers
The oldest player, ENIL has margins
of ~23%, RBN Radio profitability will move up the learning curve to the same levels
FY10 FY11 9mFY12
ENIL Radio 8% 16% 23%**
RBN Radio -20% -6% 15% HT Radio -8% 17% -5% DB Corp Radio -5% -7% -2%
* Segmental revenues for Radio not available for Sun, Jagran, Radio City (MBPL not
listed) **ENIL does not disclose quarterly segmental numbers. However, after OOH sale in FY11, the 9mFY12 revenues would predominantly be radio revenues. Hence, total EBIT margin will be a close approximation to radio margin.
The market leader ENIL, is into operations since last 11 years,
having launched its first station in Oct-2001.
RBN and the rest of the peers (listed) launched their first stations
post Phase II in 2006. Being one of the youngest Radio as well as
Media company, being EBIT positive in 9mFY12 is quite
commendable.
Company Report: RBN 30 Mar’12
Four-S Research 17
Balance sheet ratios will improve over FY12-14
Leverage higher than peers
Traditionally M&E sector has very low leverage, being a cash rich
industry. RBN is the youngest peer set company. Presently, its
leverage is higher than peer set.
D/E FY11 Sep-11
Zee 0.0 0.0
Sun TV 0.0 0.1
DB Corp 0.3 0.3
HT 0.2 0.3
JPL* 0.3 0.4
TV18 0.8 1.0
ENIL - -
Average 0.2 0.3
RBN* 0.5 1.0
*FY10 standalone
RBN will use the equity route to raise funding for future initiatives.
RBN’s Board approved issue of equity shares to Qualified
Institutional Buyers upto Rs 10bn in Sep’11.
Turnover ratios
Youngest media
player’s turnover ratios are only marginally lower than peer average
RBN’s average asset turnover ratios are marginally lower than the
peer group. As RBN’s broadcasting business is completely rolled out,
the ratios would improve.
FY11
Average Total Asset
Turnover
Average Working
Cap Turnover
Zee 0.7 1.9
Sun TV Network 0.7 2.7
DB Corp 0.8 3.5
HT 0.8 14.3
JPL* 0.9 5.6
TV 18 0.6 1.4
ENIL 0.9 3.3
Average 0.8 3.1
RBN 0.6 2.4
Publishing players have higher turnover ratios than Broadcasters.
RBN’s TA turnover is comparable to TV18 and slightly lower than Zee
and Sun TV.
RBN’s Working Capital turnover is better than TV18 and Zee and
marginally lower than Sun TV.
Company Report: RBN 30 Mar’12
Four-S Research 18
9mFY’12 peer comparison
Revenue growth higher than industry peers
RBN has grown
second-highest in the peer group.
In losses, as TV operations are being set up.
Revenue Growth EBITDA Margin PAT Margin
9mFY12 YoY 9mFY11 9mFY12 9mFY11 9mFY12
Zee 21,715 -2% 27% 27% 19% 20% Sun TV
NW 13,304 -9% 82% 81% 39% 40%
DB Corp 11,032 16% 34% 25% 23% 14%
HT 15,143 15% 19% 16% 10% 9%
JPL 9,341 12% 33% 26% 20% 15%
TV18 9,107 52% PL PL PL PL
ENIL 2,156 * 18% 31% PL 17%
Average 14% 35% 34% 22% 19%
RBN 2,315 30% 3% PL PL PL
Source: NSE, Company data, Four-S Research
Revenue growth average excludes ENIL, Margins average excludes
SUN TV NW
RBN achieved revenue growth of 30% YoY in nine months ending
Dec-11. RBN’s growth was second highest in peer group.
This includes royalty write-back revenue of Rs 209mn in other
operating income. Excluding that YTD growth is 19% YoY, still second
highest in the peer group.
RBN’s YTD losses were Rs 821mn mainly due to Rs 673mn loss in TV
segment as the company is in the phase of launching new channel
operations.
Its Radio segment had a positive EBIT of Rs 238mn at a margin of
15% and Production has a positive EBIT of Rs 5mn at a margin of
1%.
Company Report: RBN 30 Mar’12
Four-S Research 19
Valuation Comparison
Trading at Attractive Multiples
RBN is trading at
attractive
valuations, on
threshold of new
growth as Phase
III unfolds in few
weeks time
EV/ Sales EV/EBITDA P/E P/BV
Zee Ent 4.0 14.9 19.7 3.7
Sun TV NW 6.4 8.0 16.1 4.5
DB Corp 2.9 11.5 19.9 4.2
HT 1.8 11.2 16.2 2.4
JPL 2.8 11.7 17.8 4.0
TV18 Broadcast 1.5 474.9 PL 1.3
ENIL 3.3 12.5 18.7 2.6
Average 2.7 11.7 18.1 3.2
RBN 1.9 PL PL 2.5
*Valuation is based on TTM financials as of December 2011 and CMP of 30th Mar
2012; Consolidated results taken wherever available. Source: NSE, Company data, Four-S Research
RBN is trading at a discount of 29% on EV/Sales multiple and 24%
on Price to Book multiple with respect to peer average.
RBN is also trading lower than its historical multiples of EV/Sales
and Price to Book ratios.
31Mar’10 31 Mar’11 30 Mar’12
EV/ Sales (x) 3.3 2.9 1.9
P/B (x) NM 2.7 2.5 Source: NSE, Four-S Research
Company Report: RBN 30 Mar’12
Four-S Research 20
RBN will get
valuations at par
with industry as it
evolves as 100+
FM stations and
9+ channels
broadcaster and
breaks-even
RBN plans to use equity route for funding to the tune of Rs 3-4bn in
FY13, while maintaining promoter’s stake. RBN will require funds for
launching more channels and Phase III auctions.
We have assumed Shareholder Funds to increase by Rs 3bn, half
from external investment and half from Promoter - ICD conversion
plus additional investment, if any.
We have taken the conversion price of Rs 60 per share, at a nominal
premium to current market price for the equity dilution in FY13. For
a total amount of increase in Shareholder’s funds by Rs 3bn,
outstanding shares will increase from 79.45mn to 129.45mn.
March 2013 target price – Rs 84
Over 50% upside
to the stock price
in next 12 months
Building the above dilution into projects, we arrive at a target price
of Rs 84 by Mar’13. This is based on an EV/sales multiple of 2x, and
FY13 turnover of Rs 3.1bn. We have used the EV/sales metric as till
FY13, EBITDA will still be much below stable values, while PAT would
be negative.
It is possible to apply more valuation metrics based on FY14
projections. The calculation below suggests a target price of Rs 114
for Mar’14.
Method Multiple Price Target
EV/ Sales (x) 2.0 136
EV/EBITDA 11.0 129
P/E 18.0 131 Average Price 132
Source: Four-S Research
Sensitivity to FY13 conversion price of Rs 60 per share
FY13 Conversion Price
60 70 80 85
Price Mar’13 84 89 93 95
Price Mar’14 132 140 146 149
If the conversion happens at the historical allotment price (Sep-
2010) of Rs 85 per share, the price target for Mar’13 would be Rs 95
and for Mar’14 it would be Rs 149 per share.
Valuation and Price Target
Company Report: RBN 30 Mar’12
Four-S Research 21
RBN’s Business
India’s largest private FM network, now adding new verticals
A comprehensive
play in Broadcasting
(Radio, TV) and Content
Part of the Reliance Group, RBN is a emerging as a diversified
entertainment business with play across radio, television, intellectual
properties (IP), out of home (OOH) and television production. RBN’s
media brands are:
92.7 BIG FM – India's largest FM Network with 45 stations,
reaching over 42 mn Indians each week.
BIG CBS – 50:50 joint venture with CBS Studios
International, USA's No.1 TV broadcaster.
BIG MAGIC – India's first entertainment channel for Hindi
Speaking Belt
BIG RTL – 50:50 joint venture with the leading European
entertainment network RTL Group
BIG LIVE –Intellectual Properties
BIG PRODUCTIONS – Television content production house
BIG STREET – OOH properties
One of the fastest growing media companies
Second-highest
revenue growth in peer set
RBN achieved a revenue growth of 36% YoY to reach a turnover of
Rs 2,454mn in FY11.
Revenue FY10 FY11 FY11 Growth 9mFY12 YoY
Zee 21,998 30,136 37% 21,715 -2%
Sun TV NW 14,258 20,134 39% 13,304 -9%
DB Corp 10,578 12,600 19% 11,032 16%
HT 14,129 17,674 25% 15,143 15%
JPL* 9,419 12,211 30% 9,341 12%
TV18 6,035 7,998 33% 9,107 52%
ENIL 4,221 4,542 8% 2,156 **
Average
27% 13%*
RBN* 1,807 2,454 36% 2,315 30%
* FY10 standalone, (Rs Mn)
*Excludes ENIL, as 9m revenues not comparable YoY due to its OOH business sale.
RBN’s revenue growth was higher than peer set average of 27% and
at par with industry leaders Zee Entertainment and Sun Network. In
9mFY12, its growth was higher than the peer average and second
highest in the group.
RBN began its journey in 2006 with BIG FM
RBN started operations in 2006, after successfully bidding for 45
licenses in FM Phase II rollout.
A part of AdLabs, company now known as Reliance Mediaworks, it
demerged in FY09.
BIG FM – the largest private FM network in India
Company Report: RBN 30 Mar’12
Four-S Research 22
RBN is the largest
private FM network in India
with 45 stations in operations.
RBN is the largest private FM player in India with 45 stations. RBN is
number 1 in 15 markets and a top3 player in 15 others. It has a
reach of 42.6mn listeners (IRS+RAM).
Top 5 private FM players
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Radio Mirchi Big FM Red FM Radio City Suryan FM
Source: Listenership in millions, IRS Q4, 2011
RBN’s BIG FM, started operations in 2006, whereas Radio Mirchi
(ENIL),Red FM and Radio City have been in operations 2001-02
onwards, being Phase I entrants.
Moreover, as FM becomes a PAN India medium post Phase III,
measurement vehicles will have an extensive reach in tier II and tier
III cities. This will better reflect BIG FM’s performance. At present,
the measurement vehicles are more oriented towards Metros and
some Key cities.
BIG FM’s performance in key markets
RBN’s absence in
7 key cities has led to revenue gap with market leader, a situation that maybe
rectified with Phase III
RBN is a leader in key markets of Bangalore, Kolkata and in Hindi
Speaking Markets. It has made significant progress in Mumbai
market.
Company # of stations
A+ A B C D Total
ENIL (Radio Mirchi) 4 9 1
1
7 1 32
RBNL (BIG FM) 4 4 1
0
2
4
3 45
The market leader by revenues, ENIL has one-third or 33-35% of
market share by revenues. ENIL, though has lower number of
stations, it has maximum presence in A and A+cities.
RBN is number 1 private FM in 15 cities, which are, Agra, Aligarh,