After an astonishing debut at Rs308, shares of Reliance Media World Ltd (RMWL) which houses the radio business of Reliance MediaWorks Ltd closed at around Rs135 each on Friday. The stock touched an intra-day low of Rs50 too.
This is the second stand-alone company in the radio business to be listed on the exchanges after Entertainment Network (India) Ltd (Enil), which trades at Rs211. But RMWL’s present financials far from justify the current market price.
For FY09, RMWL’s revenue was around Rs200 crore compared with Enil’s revenue of Rs430 crore. RMWL with its brand Big 92.7 FM has a large radio network of 45 frequencies with a 20-22% slice of the market. Enil, on the other hand, has Radio Mirchi as its brand and a 40% share of the market.
RMWL is the demerged radio business division of Reliance MediaWorks (formerly called Adlabs Film Ltd), the entertainment company from the R-Adag (Reliance Anil Dhirubhai Ambani Group) stable. One share of RMWL was allotted for every share of Reliance MediaWorks held by its shareholders. The promoters have a 62% holding.
Graphics: Ahmed Raza Khan / Mint
Nearly 80% of RMWL’s business accrues from the radio business alone, which could delay the payback on investment. For one, the radio business has huge licence-fee costs. Besides, several players compete for a predetermined market where even during an uptrend in the economy, any expansion in advertising revenue will be subject to stiff competition among players. This implies a longer break-even period.
Analysts reckon that Enil’s revenue mix is better because it has relatively higher revenues accruing from other businesses such as out-of-home (OOH) advertising and event management. However, the RMWL management perceives that profitability from the radio business is more stable when compared with other segments where the business is more fragmented and subject to stiffer competition.
The industry numbers look interesting. According to industry analysts, radio in India is an Rs830 crore business.
From 2009 to 2013, the industry is expected to grow at around 14%, scaling a business potential of Rs1,600 crore. Radio, which has a 4% share of the total advertising spend of Rs21,600 crore, should also expand this in tandem with increased penetration into the tier II cities.
The government’s announcement of bids for phase III licences across 700 frequencies and 200 cities could also act as a trigger for RMWL’s share price. This phase of growth will include greater presence in the tier II cities. Market expectations are that the company would play the growth trajectory rather aggressively in the next three-five years.
However, the odds are still against a possible earnings expansion in the immediate future. Angel Broking analysts are on record that Rs30 is more like a fair value share price for the company. During FY09, the company posted losses of nearly Rs99 crore. Besides, it has outstanding debt of Rs260 crore. A turnaround at the operational and net profit level is visible only from FY10 and FY11, respectively.
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