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Second wave pushes recovery further away…

Music Broadcast (MBL) reported a subdued set of numbers for Q4FY21. Revenues dipped 7.4% YoY to | 42.5 crore due to continued erosion in yields. The company reported 11% YoY growth in volumes in Q4FY21, with yields lower in major stations by 20-25%. Industry volume increased 4% YoY in the quarter. Reported EBITDA was at | 2.9 crore for the quarter while EBITDA margin was 6.2%, down 300 bps YoY compared to adjusted EBITDA margins for Q4FY20 (EBITDA margin for the base quarter was 9.1% adjusted to one off expenses of | 9.5 crore). Consequently, the company reported PAT loss of | 3.9 crore vs. adjusted profit of | 60 lakh in the base quarter.

Second wave delays realisation recovery

The impact of the second wave of the pandemic is likely to be seen in coming quarters, especially in H1FY22. We believe realisation recovery has now been pushed further, albeit volumes are expected to grow in FY22 as fill rates improve. The company will continue to offer bundling deals in FY22, which would keep realisation in check. We understand that in the radio industry realisations may take longer time to return to original levels, with pandemic tail being a key catalyst. We expect realisations to be stable or start moving from FY23 onwards provided the vaccination drive accelerates in the next six months. We bake in 24.3% CAGR in revenues in FY21-23E on a depressed base of ~49% revenue decline in FY21.

Cost savings a solace

The management, in earlier calls, said that annual cost saving is likely to be | 50-55 crore, out of which half of cost saving would be permanent in nature while the remaining half is expected to return with recovery in revenues. As we expect some recovery in revenues (albeit on depressed base), we expect some variable costs to catch up in FY22. Since revenue recovery would be gradual in nature, we are not building in any material increase in costs. Hence, we expect margins to be back to double digits. We bake in 20%, 29% EBITDA margins for FY22, FY23E, respectively, but well below pre-Covid levels of ~35%.

Valuation & Outlook

Radio remains the worst hit media segment during Covid-19 induced lockdowns in the first and second wave. While ad volume growth of 11% YoY is a positive sign, ad realisation is still lower sharply. We believe ad yield backed full revenue recovery has been pushed further and perhaps the second wave has exacerbated it. Strong liquidity position and reduced opex remains the only solace. We assign HOLD (vs. BUY earlier) recommendation with a target price of | 23/share (earlier | 27/share). We value the stock at an average of 7x FY23E EV/EBITDA and 20x FY23E EPS. The downgrade is largely owing to a delayed recovery and subsequent earnings cut.

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