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Ad yield backed recovery awaited…

Music Broadcast (MBL) reported subdued set of numbers for Q3FY21. Revenues dipped sharply by 41.6% YoY to | 40.7 crore on the back of lower ad yield. Reduction in operating costs during the quarter was again a positive. EBITDA was at | 4.2 crore, down 80.7% YoY as operating performance was impacted by lower topline. Consequently, the company reported PAT of | 7.3 lakh, down ~99% YoY.

Ad volume grows YoY; realisation to improve gradually…

MBL’s revenue decline trend continued for a straight seventh quarter owing to reduced ad yield. While surge of 9% YoY in ad volume is encouraging, lower ad yield led to YoY drop in ad revenue. On QoQ basis, ad volume grew 60%. During the quarter, ad inventory utilisation was 60%. At industry level, food & soft drinks (63%), real estate (28%), auto (18%), finance (18%) sectors registered ad growth while ad spend by government was down 10% YoY. The management said discount and schemes were offered to clients during the festive quarter that impacted ad realisations. As the company has started withdrawing discounts, realisations will improve gradually. The management expects ad realisation to normalise from H2FY22 onwards. The management guided that MBL will clock pre-Covid revenues in FY23E in a realistic scenario. We revise our estimates and now build in ~49% revenue decline in FY21 followed by sharp recovery on a lower base. We build in revenue of | 273 crore at CAGR of 3.3% in FY20-23E.

Cost reduction to lift margins

The management said that annual cost saving is likely to be | 50-55 crore. The management expects half of cost saving to be permanent in nature, which will lead to 300 bps gains in margins (FY20 being the base year). License fee, as per latest IPAB order, will increase marginally to 2.4% compared to 2.3% earlier. Impact of royalty cost will be more with smaller stations given the lower topline. MBL has a strong liquidity position with cash and cash equivalents of | 235 crore, which is a positive.

Valuation & Outlook

Radio remains the worst hit media segments during Covid-19 induced lockdown. While ad volumes are back (and above) pre-Covid levels and ad volume growth of 9% YoY is a positive sign, ad realisation is still lower sharply. We believe ad yield backed full revenue recovery is still few quarters away. Strong liquidity position and reduced opex will offer comfort to MBL in near term. Issue of NCRPS is still attractive to shareholders at the CMP (~42% pre-tax yield). We roll over our valuations to FY23E and maintain BUY rating on the stock with a target price of | 27/share (vs. earlier TP of | 25/share). We value the stock at an average of 7x FY23E EV/EBITDA and 17x FY23E EPS.

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