Music Broadcast Ltd (MUSBRO) 383

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1 Initiating Coverage Rating Matrix Rating : Buy Target : 45 Target Period : 12 months Potential Upside : 18% Key Financials Crore FY17 FY18E FY19E FY2E Net Sales EBITDA Net Profit EPS ( ) Valuation Summary FY17 FY18E FY19E FY2E P/E Target P/E EV / EBITDA P/BV RoNW RoCE Stock Data Particular Amount Market Capitalization ( Crore) Crore Total Debt (FY17) Crore Cash & Liquid Investments(FY17) Crore EV ( Crore) Crore 52 week H/L 444 / 337 Equity capital 57.1 Face value 1. MF Holding (%) 8. FII Holding (%) 5.3 Price movement 12, 11, 1, 9, 8, 7, 6, 5, 4, 3, 2, Jun-17 *Listed since March, 217 Research Analysts Sep-17 Price (R.H.S) Bhupendra Tiwary bhupendra.tiwary@icicisecurities.com Sameer Pardikar sameer.pardikar@icicisecurities.com Nov-17 Nifty (L.H.S) Feb-18 Growth driven by prudent investments February 27, 218 Music Broadcast Ltd (MUSBRO) 383 Music Broadcast (MBL), one of the leading FM radio players in India, is in a sweet spot to capitalise on the growth of the Indian FM radio sector, aided by expansion into new cities as well as prudent investment approach vis-à-vis its peers. The company is in a leadership position in terms of listenership across India and has been reporting industry leading revenue growth in the past four years. We believe that with major capex (migration fees, acquisition of new licenses) over, the company is set to report robust revenue and EBITDA CAGR of 13.9% and 17%, respectively, in FY17-2E, driven by traction from new stations. The performance is expected to translate into strong RoCEs and RoEs of 21.5% and 13.8% in FY2E vs. 11.3% and 6.7%, respectively, in FY17. We initiate coverage on MBL with a BUY recommendation, valuing the stock at 45/share. Radio industry to thrive on expanding presence The Indian radio industry is poised to embark on a growth path driven by deeper penetration of radio as a medium into Tier II & III cities after the recent auctions. Post Phase III (batch-ii) auction, FM radio has expanded to 47 stations across 113 cities vs. 245 stations across 85 cities in Phase II. Consequently, the industry is expected to report a healthy ~16% revenue CAGR in the next five years, driven by stable yield growth of mature stations and volume uptick in new stations as they ramp up. Wide reach, balanced approach to aid growth The company has reported industry leading revenue growth of 2.7% CAGR in FY We believe it was driven by its balanced approach in volume and pricing, since advertisers are continuously putting more volume into networks that have a greater geographical reach compared to networks with more depth in coverage. The company is also poised to benefit from strong parentage of the Jagran group. Coupled with a prudent approach, MBL has cautiously stayed away from multiple frequency, the success of which is yet to be proven. We expect MBL to report healthy revenue and EBITDA CAGR of 13.9% and 17%, respectively, over FY17-2E, driven by traction from new stations. Robust growth potential; initiate with BUY recommendation MBL is poised to benefit from the expanding reach of the Indian FM industry coupled with its leadership position in terms of listenership, prudent bidding in auctions and strong parental support. Given the robust growth potential (topline and EBITDA CAGR of 13.9% and 17.%, respectively, in FY17-2E), we assign a target price of 45/share, based on triangulated approach (DCF, P/E and EV/EBITDA). We initiate coverage on the company with a BUY recommendation. Exhibit 1: Key Financials Crore FY16 FY17 FY18E FY19E FY2E Net Sales EBITDA Net Profit EPS ( ) P/E EV/EBITDA RoCE (%) RoE (%)

2 Shareholding pattern (Q3FY18) Shareholding pattern Holding (%) Promoters 71.4 Institutional Investors 13.2 Others 15.4 Institutional holding trend (%) (%) Q4FY17 Q1FY18 Q2FY18 Q3FY18 DII FII Company Background Music Broadcast (MBL) is the first private FM broadcaster in India. The company commenced operations of its first radio station in Bangalore in 21 where it is still a leader in terms of market share, as per latest Radio Audience Measurement (RAM) data. The Bangalore launch was followed by launches in Lucknow, Mumbai and Delhi. From four cities in 23, today the company has 39 stations in as many cities in India with a pan- India presence. Out of 39 cities, licenses in 28 cities were won in Phase I & II while 11 stations were acquired in Phase III auctions. MBL has a presence in 12 out of the top 15 cities in India by population. It also has a presence in internet radio space with radiocity.in having 43 radio stations. In terms of advertisement volume split across sectors, government and real estate form approximately one-fourth of total advertisement volumes for the company. The government contributes 16% while the share of real estate is 1%. It is followed by retail, BFSI and e-commerce with 8%, 7% and 6%, respectively. Total ad volumes grew at 15% CAGR in from 48.1 million (mn) seconds to 63.7 mn seconds in top 14 cities. The company has 5.2 crore listeners in 23 cities as per ANZ Research. Exhibit 2: Pan India presence Page 2

3 Legacy stations: Mumbai, Delhi, Bengaluru, Chennai, Pune, Hyderabad, Ahmedabad, Surat, Nagpur, Lucknow, Jaipur, Baroda, Coimbatore, Vizag, Ahmednagar, Sholapur, Sangli, Nanded, Jalgaon, Akola, Agra, Bareilly, Gorakhpur, Varanasi, Jalandhar, Ranchi, Hisar and Karnal Phase III stations: Kanpur, Patna, Madurai, Nasik, Kolhapur, Udaipur, Ajmer, Kota, Bikaner, Jamshedpur and Patiala Sales alliances: Kolkata & Gwalior Radio City: Journey from acquisition by Jagran to IPO In December 214, Jagran Prakashan acquired a 1% stake in Radio City in an all-cash transaction for a total consideration of ~ 425 crore, investments in 2 radio stations and further paid migration fees to the tune of 221 crore for migration of licenses from Phase II to Phase III. Prior to this acquisition, Jagran Prakashan had its own radio business that was housed under another promoter group company Shri Puran Multimedia Company (SPML). This radio business was operational in eight cities viz. Agra, Bareilly, Gorakhpur, Varanasi, Jalandhar, Ranchi, Hisar and Karnal under brand name called Radio Mantra. On October 9, 215, the board of directors approved the scheme of arrangement wherein the radio business housed in SPML was de-merged and transferred/merged into MBL while MBL allotted 1 equity shares for every 112 equity shares of face value 1 each of SPML. Hence, accordingly, in November 216, MBL allotted 31, 25, equity shares to SPML shareholders. The scheme of arrangement came into effect on November 18, 216. SPML paid 15.8 crore as migration fees for Radio Mantra stations in FY16. Post this, the reach of Radio city extended to 39 stations including acquisition of 11 stations in Phase III auctions. In March, 217, MBL came out with an IPO offering fresh issue of 1,2,12,12 shares, aggregating to 4 crore, and offer for sale by existing shareholders of 26,58,518 shares aggregating to 88.5 crore. The total issue size was crore. Exhibit 3: Some popular shows on Radio City The show based on the theme of relationships and romance, also available 24*7 for listners through Love Guru app The show is synonymous with humour, has been running for more than a decade The show tells about everything about the yesteryears of bollywood along with songs The show is singing talent hunt show on radio, first of its kind It is a live radio concert that features a live multicity simulcast of concert with well knows faces from the industry It is an app where listeners can enjoy jokes Top five cities in terms of revenue contribution are Mumbai, Delhi, Bangalore, Ahmedabad and Pune that contribute roughly half of the revenues. Page 3

4 Exhibit 4: Revenue split across top five cities and others Revenue contribution (%) Others 49% Top 5 51% Exhibit 5: List of stations with peers Date of Sr No City commencement Category Peers 1 Agra Jul-27 B Radio Tadka, Big FM, Fever 14 2 Ahmedabad Jul-27 A MY FM, Radio Mirchi, Radio One,S. FM 3 Ahmednagar Jul-28 C Radio Dhamal, My FM, BIG FM 4 Akola Mar-28 C Abhijt Realtors, My FM 5 Bengaluru Jun-21 A Radio Mirchi,Fever 14, Radio Indigo, S. FM,Radio One, Big FM, Mirchi 95 6 Bareilly Apr-27 C Fever 14, Radio Tadka, Big FM 7 Chennai Jul-26 A+ Radio Mirchi, Hello FM, Chennai Live,Aahaa FM, Radio One, Big FM,Suryana FM 8 Coimbatore Nov-27 B Radio Mirchi, Hello FM, Suryana FM 9 Delhi Apr-23 A+ Hit FM, Red FM,Radio Mirchi,Fever 14, Radio One, Big FM,Radio Meow and Nasha 1 Gorakhpur Jun-27 C Fever 14, Radio Tadka, Big FM 11 Hissar Mar-27 D Radio Dhamal, My FM, Big FM 12 Hyderabad May-26 A Radio Mirchi,Fever 14, S.FM,Big FM 13 Jaipur Sep-26 A My FM, Radio Mirchi, Radio Tadka, S.FM 14 Jalandhar Apr-27 C My FM, Radio Mirchi, Big FM 15 Jalgoan May-28 C Radio Dhamal, MY FM, Radio Tadka 16 Kanpur Oct-216 A Big FM, Radio Mirchi, Fever 14,S FM 17 Karnal Apr-27 D Radio Dhamal, MY FM 18 Lucknow Dec-21 A Radio Mirchi,Fever 14, Big FM,S.FM 19 Mumbai May-22 A+ Red FM, Radio Mirchi, Fever 14,Radio One, Big FM, Radio Meow,Nasha, Redtro 2 Nagpur Oct-27 A My FM, Radio Mirchi, Big FM, S.FM 21 Nanded May-28 C My FM 22 Pune Apr-28 A Radio Mirchi, Radio One, Big FM, S.FM 23 Ranchi Oct-27 C Radio Dhamal,Dhoom FM, Big FM 24 Sangli Feb-28 C My FM, Tomato FM 25 Sholapur Nov-27 C My FM, Radio Tadka, Big FM 26 Surat Aug-27 A My FM, Radio Mirchi, Big FM, S FM 27 Vadodara Jun-27 B Radio Mirchi, Big FM, S.FM 28 Varanasi Jul-27 B Radio Mirchi, Big FM, S.FM 29 Vishakhapatnam Oct-27 B Radio Mirchi, Big FM 3 Ajmer Dec-216 C My-FM, Radio Tadka, BIG FM 31 Jamshedpur Jan-217 B Dhoom FM, Big FM, S.FM 32 Kolhapur Feb-217 C Radio- Mirchi,Tomato FM, Big FM 33 Kota Dec-216 C MY-FM, Radio Tadka, Big FM 34 Nashik Jan-217 C My-FM, Radio Mirchi, S.FM 35 Patiala Dec-216 C Radio- Dhamal, Big FM, Radio Meow 36 Udaipur Dec-216 C My-FM, Radio Tadka, Big FM 37 Madurai Feb-217 B Radio- Mirchi, S.FM, Hello FM 38 Patna Mar-217 B Radio- Mirchi, Big FM, S FM 39 Bikaner Dec-216 C My-FM, Radio Tadka, Big FM Page 4

5 Expanding reach of FM radio in India Phase II Phase III Cities Stations Indian radio industry Radio industry expected to outpace growth in preceding years The radio industry in India, which is a meagre 4% of the overall pie of the advertisement industry (~ 528 crore in CY16), is poised to chart a sustainable growth trajectory as it expands across Tier II, III cities post the completion of Phase III auctions. We note that the reach of radio, post the launch of Phase III, batch-ii stations, is likely to expand to 113 cities with 47 radio stations vs. the 245 radio stations encompassing 85 cities, post Phase II auctions. This makes it an attractive medium, especially for local and national advertising, going ahead. In the last five years, the radio industry grew from 1,27 crore in CY12 to 2,267 crore in CY16, an impressive growth at 14.6% CAGR (next only to digital), owing to a rise in advertising spend by companies across multiple sectors like automobile, banking, financial services, retail. Going ahead, radio industry, albeit on a small base, is also expected to outpace its growth in preceding years. Radio industry ad revenues are expected to grow at 16.1% CAGR in CY17-21 to ~ 4,78 crore. This growth would be largely contributed by new station launches by operators with the focus of the industry on ad yield improvement. We highlight that radio growth over the next five years would remain the second highest, after digital. Exhibit 6: Advertising industry ( 528 crore as on CY16) break-up Digital 15% OOH Radio 5% 4% TV 38% Print 38% Source: FICCI-KPMG, ICICIdirect.com Research Exhibit 7: Radio industry grows at ~14.6% CAGR in CY12-16 Exhibit 8: Expected to grow at 16.1% CAGR in CY16-21 ( crore) ( crore) CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY2 CY21 Source: FICCI-KPMG, ICICIdirect.com Research: Company, ICICIdirect.com, Research Source: FICCI-KPMG, ICICIdirect.com Research: Page 5

6 Exhibit 9: Radio - one of the superior growing segments in CY12-16 CAGR over CY % 28.% 25% 2% 14.6% 15% 11.% 1% 6.3% 5% % TV Print Digital Radio Exhibit 1: Ex-digital, radio to be fastest growing segment in CY17-21 CAGR over CY % 3.8% 3% 25% 2% 14.4% 16.1% 15% 1% 8.% 5% % TV Print Digital Radio Source: FICCI-KPMG, ICICIdirect.com Research: Company, ICICIdirect.com, Research Source: FICCI-KPMG, ICICIdirect.com Research: Radio industry & its transition across various phases of auction The industry witnessed four FM radio auctions in The fundamental difference between first auction that took place in 2 and the auction that was conducted thereafter was the transformation of the industry from high license fee to revenue sharing mechanism. There was a major shift in one of the regulations before the Phase II auctions that had a positive impact on the private FM industry in India, which was bleeding with losses at that time. In Phase II, the government changed the high license fee structure to a revenue sharing arrangement, the journey of which has been explained below: Exhibit 11: Journey of privatisation of radio industry Phase I Phase II Phase III Objective Attract private investment Increase reach of FM radio in major metros and cities Reach 85 per cent of Indian territory License fees terms Annual License fees One time fees + 4% gross revenue every year One time fees + 4% gross revenue every year Type of auction Ascending non-electronic Auctions Single step close bid tenders or 2.5% of one time fees whichever is higher Ascending e-auction Source: FICCI-KPMG, ICICIdirect.com Research Phase I auctions marred by high license fees In 2, for Phase I auction, 18 licenses were auctioned across 4 cities. Licenses were awarded for 1 years. The government received bids for 11 licenses but received actual payment for only 37 frequencies since payment for remaining licenses were defaulted. Out of 37 licenses, only 22 were operational across 12 cities. The failure of the auction can be attributed to high license fees and escalation charges thereafter. e.g. Mumbai, license fees for the city was ~ 9.75 crore for year 1 of license. There was an escalation charge of 15% from the second year till the end of the license period. Hence, cumulatively, payment outflow for operators was north of 195 crore. Also, unlike the telecom sector, where deferred payment option is available, license winners had to make full payment within 15 days from the conclusion of the auction. The following table depicts the challenges that the industry has faced after Phase I auctions. Page 6

7 Exhibit 12: Industry losses because of high license fees Operator /Induatry Year No of stations Revenue Loss License fees License fees as a % of Revenue ENIL FY (4) Radio City FY3 4 2 (37) Radio Industry FY3 48 (118) ENIL FY (29) Radio City FY (36) Radio Industry FY4 116 (122) Source: TRAI, ICICIdirect.com Research replaced by one-time fees +revenue sharing model from Phase II The FM radio industry was running into losses. The government realised that fixed annual license fees and yearly escalation till the end of the license period was unviable. The government in 23 appointed Radio Broadcast Policy Committee under the chairmanship of Dr Amit Mitra to provide recommendations on Phase II auctions and various other issues including license fees structure. Accordingly, the committee recommended that the license fee structure should be replaced by an entry fee +revenue share model. The committee also recommended that the entry fee would be decided by a competitive bidding process to determine true value of a frequency. Successful bidders in the auction process would have to share 4% of gross revenue with the government. Exhibit 13: Industry wise payout in Phase II Company No of cities OTEF* amount ( in crore) DB Corp ENIL HT Media 4 75 Music broadcast Others Sun TV TV Today 7 29 Zee Media Total OTEF Migration fees 25 Total payout (OTEF+Migration) 1145 Source: MIB, ICICIdirect.com Research, *OTEF ( Non-refundable one time entry fees) The government, in recommendations for Phase III license auction, said that once Phase II license period expires, there was no provision of automatic renewal. Instead, operators would have to pay one-time nonrefundable migration fee to migrate their licenses from Phase II to Phase III. The government has collected 3,933 crore as migration fees from all operators for migration of their licenses from Phase II to Phase III. Phase III auction Phase III auctions were conducted in two batches. Batch I of Phase III auctions were costliest in the FM industry history. All operators together paid one-time non-refundable entry fee (NOTEF) of 1,55 crore (that was ~2.5x of the reserve price) along with non-refundable one-time migration fee (NOTMF) payable at 3,933 crore. In Phase III, batch-ii auctions, 66 channels in 48 cities were sold with a cumulative bid price of 2 crore, a mere 6% higher than cumulative reserve prices. After Phase III, batch-ii results, ENIL became the leading FM player in India operating 73 stations (they did not renew the license for their Goa operations) followed by the Sun Group, Big FM 68 and 59 operational stations. MBL currently has 39 stations. It strategically stayed away from Phase III batch-ii auctions. Page 7

8 Exhibit 14: Phase III batch-i results Company No of stations Payout ( crore) DB Corp ENIL HT Media 1 34 Music Broadcast Others Zee Media Grand Total Source: MIB, ICICIdirect.com Research Exhibit 15: Industry transformation from fixed fee to revenue sharing Offered - 92 cities,266 frequencies Bought 48 cities, 66 frequencies Offered - 69 cities,135 frequencies Bought 54 cities, 97 frequencies Offered - 91 cities,338 frequencies Bought 86 cities, 245 frequencies Offered - 4 cities,18 frequencies Bought 12 cities, 21 frequencies Phase I (2) Phase II (25) Phase III, Batch I (215) Phase III, Batch II (216) Fixed License Fees + Escalation charges One time fees + Revenue Sharing Source: Trai, ICICIdirect.com Research Page 8

9 Current industry landscape Indian private FM players can be divided into four categories viz. all-india players, metro focused players, non-metro focused players and niche players. Red FM (owned by Sun TV), Big FM [now owned by Zee Media Corporation, earlier Anil Dhirubhai Ambani Group (ADAG) company], Radio Mirchi (owned by Entertainment Network India, a Times group company), Radio City (owned by Music Broadcast, subsidiary of Jagran Prakashan) and Fever FM (owned by HT Media) are all-india players. Private FM players that are metro focused are Oye FM (owned by TV Today) and Radio One (owned by Next Media Works). Some of the nonmetro focused players are My FM (owned by DB Corp), Radio Tadka (owned by Rajasthan Patrika), Dhamaal (BAG Entertainment) etc. There are some niche radio channels Radio Mango, Nine FM, etc. In the public FM category, All India Radio (AIR) remains the single largest broadcaster with unmatched reach across the length and breadth of the country. AIR currently operates more than 4 radio stations in 23 languages. In June 216, it completed 8 years of operations. In the B&C category cities, private broadcasters depend heavily on AIR for supporting infrastructure. Hence, they have been broadcasting their channel through AIR. Prime Minister Narendra Modi s Mann Ki Baat is one of the most popular shows on AIR. As per a KPMG-Ficci report, this show has been providing strong revenue contribution to AIR since it commands a premium pricing of advertisement rate ( 2 lakh/1 second). Exhibit 16: India FM Industry Landscape Indian FM Industry Private FM Public FM - All India Radio All India Players Metro Focused Non-Metro focused Niche Radio Red FM (Sun TV) Big FM (Zee Media) Radio Mirchi (ENIL) Radio City (Jagran) Fever ( HT Media) Oye FM (TV Today) Radio One (Next Media) My FM (DB Corp) Radio Tadka(Rajasthan Patrika) Dhamaal (BAG) Club FM (Matrubhumi) Radio oolala Hello FM Radio Mango Nine FM Radio Chocolate Others Source: FICCI, ICICIdirect.com Research Page 9

10 Four national players control ~6% of industry revenue in FY17 Currently, as per Trai data, apart from government owned Prasar Bharti, there are 33 operational FM radio operators, operating in 86 cities in India. The top four players i.e. ENIL, MBL, Reliance Broadcast (now acquired by Zee Media) and Sun TV contributed ~6% of the radio industry revenue in FY17, which reflects the advantage of a wider reach. Exhibit 17: Revenues of top four players Exhibit 18: Revenue market share of top four players ( crore) (%) ENIL Reliance Music Broadcast Broadcast Sun TV HT Media DB Corp ENIL Reliance Music Broadcast Broadcast Sun TV HT Media DB Corp e: Company, ICICIdirect.com, Research : Company, ICICIdirect.com, Rese Exhibit 19: Competitive positioning of some key players ENIL Sun Group Big FM MBL 39 Existing Phase III Batch I Phase III Batch II Now Source: FICCI-KPMG, ICICIdirect.com Research Consumer driven segments key spenders on radio The key segments that use radio as a medium for advertisement are real estate, government, FMCG, e-commerce, auto and BFSI. Spending in the real estate sector has come down from 15% to 12% in CY16 because of demonetisation impact. At the same time, telecom players have become aggressive in the market on account of increase in competitive intensity wherein they have started spending aggressively on launch of 4G/LTE as well as launch of bundled offerings on a tie-up with some handset players in the market. This is a reflection of an increase in the pie of the sector. The automobile sector, which was also one of the major contributors for radio advertising, has taken some hit because of demonetisation. The share of the same has come down to 7% from 9% earlier. Page 1

11 Exhibit 2: Sector wise spending in 215 Exhibit 21: Sector wise spending in 216 Others 32% Real estate 15% FMCG 14% Others 37% Real estate 12% FMCG 11% BFSI 8% Auto 9% Telecom 12% E-commerce 1% BFSI 7% Auto 7% Telecom 14% E-commerce 12% Source: FICCI KPMG, ICICIdirect.com Research Source: Company, ICICIdirect.com, Research Source: FICCI KPMG, ICICIdirect.com Research Source: Company, ICICIdirect.com, Research Data suggests home based listenership drives radio Unlike the popular myth of radio primarily being heard outside home, the average listenership at home has been around 78-79% while that of out of home is 2-21%. Kolkata has highest home listenership of around 89% across metros, followed by Bangalore, Mumbai and Delhi with average listenership of 8%, 76% and 72%, respectively. Exhibit 22: Home listenership Exhibit 23: Out of home listenership (%) (%) Mumbai Delhi Bengaluru Kolkata Average Mumbai Delhi Bengaluru Kolkata Average Source: FICCI KPMG, ICICIdirect.com Research CIdirect.com, Research Source: FICCI KPMG, ICICIdirect.com Research Company, ICICIdirect.com, Research Page 11

12 Is threat of mobile/digital real? In order to gauge if mobile/digital has made a dent on radio listenership, we have looked at the UK and US markets and the trends thereon. UK seems to have defied notion Radio reaches 9% of UK population. The average listenership of radio in UK was at 21 hours per week, according to RAJAR. BBC holds 52% of the radio listenership share in UK followed by Global and Bauer with share of 2% and 15%, respectively. Exhibit 24: Overview of UK radio listenership Source: Ofcom, ICICIdirect.com Research Exhibit 25: On account of increase in 4G subscribers We have observed that over the years, there has been significant growth in 4G subscribers in the UK. The 4G subscribers at the end of CY16 reached 52 mn and formed 62% of active subscribers in the UK. On account of such a rise in 4G subscribers, data consumption per user reached 1.3 GB per month per user. However, even after such a spurt in 4G subscribers, radio revenue over the same period has been stable. Exhibit 26: Data consumption per user picks up significantly (million) CY11 CY12 CY13 CY14 CY15 CY (%) Data usage per GB per consumer CY11 CY12 CY13 CY14 CY15 CY16 4G Subscribers % of all active mobile connections (RHS) Source: RAJAR, ICICIdirect.com Research Source: Company, ICICIdirect.com, Source: RAJAR, ICICIdirect.com Research Page 12

13 Exhibit 27: Did not have any adverse impact on radio industry revenue Exhibit 28: As radio consumption per week largely remained stable Revenue in mn GBP CY11 CY12 CY13 CY14 CY15 CY16 Radio Listenership per week (minutes) CY11 CY12 CY13 CY14 CY15 CY16 Source: RAJAR, ICICIdirect.com Research Source: Company, ICICIdirect.com, Research Source: RAJAR, ICICIdirect.com Research Source: Company, ICICIdirect.com, Research So has US, where radio is still relevant... The radio audience in the US continues to grow despite continuous growth in mobile penetration and increase in usage per user. If we look at the reach of different media, radio still commands a higher reach in the US compared to TV, smartphone and PCs. The radio audience in the US continues to grow.in India, we believe a similar story will play out wherein growth of mobile phone users as well as increase in consumption per user of mobile data is expected to have minimal impact on radio as a medium. Also, on account of Phase III auction investments in new stations, radio as a medium will continue to grow while narrowing the gap between its reach compared to other media like TV. Exhibit 29: Radio reaches more Americans than TV, smart phones P P P Adults Source: Nielsen report, ICICIdirect.com Research Source Radio TV Smartphone We believe, going forward, the radio base will grow rapidly with the launch of stations in new cities by all operators. The growth in radio base will complement digital apps growth, which eventually fuels the expansion in the overall music market. The growth of music streaming apps will have minimal impact on radio listenership and will not act as a deterrent to its growth, in our opinion. Interactive RJ talk, localised feel gives radio edge in India One of the differences between digital/mobile music and radio is the nature of consumption. While the former entails active listening, the latter, be it in households or on the go, is a passive medium. Moreover, various researches indicate the preference for radio is also driven by interactive RJ talk and localised city updates, giving it a personalised edge over other media. Page 13

14 Investment Rationale Leadership amid high competitive intensity Music Broadcast (MBL) is one of the leading FM radio broadcasters in India with a presence across geographies of India. It has a strong presence (in terms of number of stations) in Maharashtra with 11 stations being operational, followed by Uttar Pradesh (UP) where it has been operating seven stations. Apart from these two states, it has a sizable presence in Rajasthan, Gujarat, Tamil Nadu, Haryana, Jharkhand and Punjab with stations ranging from two to five in the cities. MBL has a limited presence in Andhra Pradesh, Karnataka and Telangana where it has been operating one station. It does not have a presence in MP, Chhattisgarh, J&K and north east states, as of now. Exhibit 3: Presence across geographies State Number of Stations Maharashtra 11 UP 7 Rajasthan 5 Gujarat 3 Tamil Nadu 3 Haryana 2 Jharkhand 2 Punjab 2 Andhra Pradesh 1 Delhi 1 Karnataka 1 Telangana 1 Grand Total 39 The company has been facing competition in every city in which it is operating. As per company data, the competitive intensity is highest in metro cities where it has seven to eight competitors while in other cities peers vary from one to four. Exhibit 31: Competitive intensity No.s C A B A+ D Min Competitors Max competitors We note there is no publicly available independent research of listenership data for radio in India. We highlight that MBL has claimed to be in a leadership position across markets as far as listenership is concerned. The company has 52.5 mn listeners as per ANZ report (conducted across 23 Indian markets) followed by Radio Mirchi (ENIL), Big Page 14

15 FM (Zee Media) with listenership base of 42.1 mn, 27.1 mn, respectively. It is also in a leadership position in key metro cities of Mumbai, Delhi and Bangalore with listenership base of 8.4, 9.2 and 4.7 mn, respectively. We note advertiser s spend allocation is a function of reach/penetration that the medium commands. Since Radio City is the leader in terms of radio listenership, it can command premium pricing vs. competitors. Exhibit 32: Leadership across markets (No of Listeners) Exhibit 33: Leadership in Mumbai market (No of Listeners) (mn) Radio city 42.1 Radio Mirchi 27.2 Big FM 22.7 Red FM 15.1 Fever 9.1 Radio One (mn) Radio city Big FM Radio Mirchi Fever Radio One Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 34: Leadership across Delhi (No of Listeners) Exhibit 35: Leadership across Bangalore (No of Listeners) (mn) (mn) Radio city Radio Mirchi Red FM Big FM Fever Radio city Big FM Radio Mirchi Fever Radio One Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research It has also enjoyed a leadership position compared to peers in terms of advertising volumes. According to the company, advertising volume for the company grew at industry leading 12.1% CAGR in FY11-17 to 74.9 mn seconds in FY17. Advertising volumes in FY17 were a notch below market leader ENIL (75.4 mn seconds of advertising volume in FY17). Page 15

16 Exhibit 36: Industry volume growth in FY11-17 & absolute volumes in FY17 (million seconds) Radio Mirchi Radio City Red FM Industry (%) Exhibit 37: Market share for Bangalore Exhibit 38: Market share for Mumbai 3 Market Share (%) YTD 217 Market Share (%) YTD 217 Radio City Big FM Radio Mirchi Feve Radio City Big FM Radio Mirchi Source: RAM, ICICIdirect.com Research Source: RAM, ICICIdirect.com Research Exhibit 39: Prudent bidding in Phase II, Batch 1 auction by MBL Prudent bidding in Phase III auctions; major capex over MBL has acquired 11 stations viz. Kanpur, Patna, Madurai, Nasik, Kolhapur, Udaipur, Ajmer, Kota, Bikaner, Jamshedpur and Patiala in batch I of auctions. It paid 63 crore for acquisition of these stations. In the same auction, ENIL paid 339 crore for 17 stations against reserve price of 155 crore while HT Media paid 34 crore for 1 stations against reserve price of 112 crore. Digital Radio Broadcasting paid 135 crore for three stations. We observe that MBL has been prudent in terms of acquisitions since final successful price to reserve price ratio was ~2x for MBL compared to 3.6x for Digital Radio Broadcasting, 2.2x for ENIL. ( crore) Digital Radio Broadcasting HT Media Reliance Broadcast ENIL DB Corp Music Boradcast (x) Reserve Price Successful bid amount Multiplier ( bid/reserve price) (RHS) Source: MIB, ICICIdirect.com Research Page 16

17 At the same time, MBL has stayed away from Phase III, Batch II auctions. ENIL and Sun Group were aggressive in acquiring channels in the Batch II auctions. ENIL acquired 21 channels and paid 51 crore as a nonrefundable one-time entry fees (NOTEF) while the Sun Group has acquired 13 channels and spent 81 crore as a NOTEF. Exhibit 4: Phase III, Batch II Result Radio Mirchi (ENIL) Sun Group Sambhaav Media Others No of channels NOTEF ( Cr) Source: FICCI-KPMG report 217, ICICIdirect.com Research Major capital expenditure in terms of non-refundable one-time migration fees and acquisition cost for 11 news stations is already over for the company. They may have to incur maintenance capex of 4-5 crore on an annual basis. We believe that since the license period is 15 years in phase III, MBL is on the verge of a major revenue increase in new cities. This, coupled with focus on ad yield improvement, would result in robust free cash flow generation for the next few years and is expected to report healthy expansion in operating margin. We expect MBL to post healthy FCF in FY17-2E. Exhibit 41: Major capex is behind the company ( crore) Set up cost License fees for Phase III Migration fees from Phase II to Phase III and Mantra station Page 17

18 Exhibit 42: FCF over FY17-2E 1. ( crore) FY FY18E FY19E FY2E Balanced approach in pricing, volume augur well for MBL The two leading industry players i.e. ENIL & MBL follow different paths as far as strategy on pricing, volume are concerned. The ENIL management has focused on premium pricing since they believe it is difficult to raise prices if there is any correction due to an economic slowdown (referring to 28 economic slowdown & as per management, current pricing has not even reached the peak pricing seen before the slowdown). The ENIL management is also looking to reduce the ad inventory per hour and aiming to bring it down to 1 min/hour from the current min/hour. As per management s internal analysis, higher ad inventory is leading to a deterioration in listener experience and is the rationale behind the strategy of clamping down of inventory. ENIL has also been following multiple frequency strategy wherein they have multiple brands in the same city where they operate. They have been charging premium pricing for its new stations compared to its legacy stations. MBL, on the other hand, follows a balanced approach in volume and pricing wherein they increase prices whenever there is scope for the same else growth is driven by volumes. They also strategically do not follow a multi-frequency approach since they believe second frequencies essentially cannibalise existing ones, rather than adding incrementally. Moreover, the RoCE after steep bidding seems a difficult proposition, especially for second frequencies. As far as new stations are concerned, the management feels the price increase kicks in only when the utilisation of the station hits 6%. We believe this strategy augurs well for MBL, which has shown industry leading growth in revenues and EBITDA in the last four years compared to its peers. Exhibit 43: Revenue growth in last three years Exhibit 44: EBITDA growth in last three years (%) FY15 FY16 FY (%) FY15 FY16 FY Music Broadcast ENIL Reliance Broadcast Source: Companies, ICICIdirect.com Research Source: Company, ICICIdirect.com, Music Broadcast ENIL Reliance Broadcast Source: Companies, ICICIdirect.com Research Source Sourcrect.com, Research Page 18

19 In the last five years, margins of MBL have improved consistently and are now much ahead of market leader ENIL. We note that ENIL also has a non-radio business that contributes ~25% of revenue and is a low margin business for the company, as per management. While we do not have a break-up of margins for radio and non radio margins separately, we still believe that on a like-to-like basis, margins of MBL could be superior. Also, while FY18E is expected to witness some moderation in margins due to new channels launches, we expect margins to picks up from there on account of additional revenues flowing in from new stations. Exhibit 45: EBITDA margin comparison of MBL vs. ENIL 4. (%) FY12 FY13 FY14 FY15 FY16 FY17 Music Broadcast ENIL Source: Companies, ICICIdirect.com Research Even in 9MFY18, the superior margin trajectory for MBL continued as it reported consistently higher margins vis-à-vis ENIL. Exhibit 46: EBITDA margins consistently over 3%; better than ENIL in last few quarters 45. (%) Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Music Broadcast ENIL Source: Companies, ICICIdirect.com Research Show promotion based on content, key man risk relatively lower The content for the radio business largely consists of radio jockey (RJs) shows and film music. RJs play an important part in the radio business. They engage with listeners and keep them tuned to the radio and its associated music. We highlight that RJs play an important part in engaging customers and helping them to tune to radio. There is also a key man risk if shows are being run and become popular in the name of RJs. The exhibit below lists select shows conducted on radio stations of the leading peers of MBL. If we look at some of the shows that are being run on MBL s competitors radio network, they are largely branded in the name of their popular RJs. However, MBL, in this regard, follows a different strategy wherein it does not promote shows in the name of the RJs. Rather, the emphasis is on the quality of content. This shields them from key man risk, to some extent. Page 19

20 Exhibit 47: Some popular shows on radio Owner Brand Name of the show RJs Show time Show days ENIL Radio Mirchi Hi Mumbai with Jeeturaaj RJ JEETURAAJ 7: AM to 12: Noon Monday to Saturday ENIL Radio Mirchi Mirchi Hangout RJ SUREN 15: to 17: Monday to Saturday ENIL Radio Mirchi Mirchi TOP 2 with Suren RJ SUREN 17: to 19: Sunday Sun TV Red FM Morning No 1 with Malishka RJ MALISHKA 7: AM to 12: Noon Monday to Friday Sun TV Red FM Sunday Star Sattack RJ MALISHKA 14: to 17: Sunday Sun TV Red FM Mumbai Local with Rishi Kapoor RJ RISHI KAPOOR 17: to 21: Monday to Saturday HT Media Fever Picture Pandey with Anuraag Pandey RJ ANURAAG PANDEY 11: AM Monday to Friday HT Media Fever Picture Pandey with Anuraag Pandey RJ ANURAAG PANDEY 1: AM Sunday HT Media Fever MAD MORNINGS RJ Rangeeli Ruchi & RJ GLENN 7: AM to 11: AM Monday to Sunday Zee Media Big FM Breakfast show RJ Siddharth Mishra 7: AM to 1: AM Monday to Friday Zee Media Big FM Suhana Safar with Annu Kapoor Annu Kapoor 1:: AM to 12: Noon Monday to Friday Zee Media Big FM SALIM SALIM MERCHANT 2: to 22: Monday to Friday MBL Radio City Kasa Kai Mumbai (Radio ki Mia Biwi) RJ Salil & Archana 7: AM to 11: AM Monday to Sunday MBL Radio City Takatak Mumbai RJ Vir & Harshit 16: to 2: Monday to Friday MBL Radio City Love Guru Name Unknown 23: to 1: AM Monday to Friday Source: Companies, ICICIdirect.com Research Strong parent Jagran Prakashan leading media group Jagran Prakashan, promoters of Music Broadcast (MBL), is one of the largest print media companies in India having a diversified interest across print, digital, activation, OOH, etc. Jagran Prakashan has announced in December 214 that it would foray into the high growth business of radio through acquisition of Music Broadcast Pvt Ltd (MBPL) in an all-cash deal. Radio City, at that point of time, had a presence in 2 cities. The Phase III auction coupled with Radio Mantra consolidation led MBL to consolidate in the key region of Jagran like UP and Punjab. Considering that both companies have a common presence in nine states, we do believe this would help in cross-selling the advertisement inventory across the product portfolio of print, radio and digital services. Exhibit 48: Jagran Group presence across radio and print Page 2

21 Financials Revenue to grow at 13.9% in FY17-2E The company expects to clock revenue of 41 crore in FY2E, i.e. 13.9% CAGR in FY17-2E, largely driven by revenues coming in from new stations since the company has already commenced operations in all 11 new stations. We expect new stations to post revenues of 44 crore in FY2E. The contribution of revenues from new stations is expected to reach 11% of overall revenues in FY2. Revenue growth in new stations would be volume led. We expect capacity utilisations in new stations to be north of 5% in FY2 vs. sub 1% utilisation in FY17. Legacy stations are expected to post revenue of 357 crore in FY2, i.e. growth at 9.6% CAGR in FY17-2E. Revenue growth in legacy stations would be largely driven by an increase in effective realised rate (ERR). We expect ERR to report 8.7% CAGR in FY17-2E. We expect legacy stations utilisation at ~75% in FY2. Exhibit 49: Revenue growth of 13.9% over FY17-2E ( Crore) FY16 FY17 FY18E FY19E FY2E (%) Revenue YoY (RHS) Exhibit 5: Driven by traction from new stations ( Crore) FY16 FY17 FY18E FY19E FY2E Legacy stations New Stations Page 21

22 ( crore) (%) Margins to expand since cost increase would be inflationary Music Broadcast (MBL) has enjoyed a healthy EBITDA margin profile in the past. EBITDA grew at 28.1% CAGR in FY13-17 while margins improved ~91 bps over the same period. Margins improved on account of consistent revenue growth and cost control. We expect this superior performance to continue in future. We expect MBL to post 36.5% EBITDA margin in FY2, on account of continued revenue growth from legacy, new stations and nominal inflationary cost increase. Exhibit 51: EBITDA and EBITDA margin trends ( crore) (%) 2 3 FY16 FY17 FY18E FY19E FY2E 29 EBITDA EBITDA margins (RHS) Healthy topline, margins expansion to drive earnings growth MBL, which turned into black at the bottomline level in FY13, has witnessed staggering growth in its earnings in FY13-17 at 33.3% CAGR. Going ahead, given the healthy traction in topline and operating leverage emanating thereon, earnings are expected to grow at 35% CAGR in FY17-2E. We highlight that earnings kicker would also be driven by debt repayment and subsequent savings from interest expenses. Exhibit 52: PAT, PAT margins trends FY16 FY17 FY18E FY19E FY2E PAT PAT margins (RHS) Page 22

23 Strong cash flow generation over next three years The major capex cycle is over for the company since it earlier deployed 326 crore, which includes migration fees of 237 crore for migration of licenses from Phase I, Phase II and 63 crore on license acquisition of 11 new cities in Phase III. Going ahead, we expect the company to incur moderate maintenance capex over the next three years, which would result in free cash flow generation of 23 crore for FY18-2E. Exhibit 53: Capex, free cash flows trend ( crore) ( crore). FY16 FY17 FY18E FY19E FY2E -4. Capex Free Cash flows (RHS) Return ratios to improve, expect company to start paying dividend We expect the return on net worth (RoE) and return on capital employed (RoCE) to improve significantly on account of operating leverage and reduction of finance expenses being a net cash company in FY19E. Debtors days are expected to improve further and come down, going forward. The management has attributed the improvement in debtor days to the dedicated focus of the organisation on improvement of the same, which has been fructifying. We highlight that we have built in dividend per share of 5 for FY18E, FY19E and FY2E, as we expect some cash to be utilised for acquisition of stations in cities to fill its coverage gaps. Exhibit 54: Return ratios expected to improve (%) FY17 FY18E FY19E FY2E RoE RoCE Page 23

24 Risk & concerns Risk of digital adoption remains The Indian market offers a variety of apps for music streaming. Most of them offer two variants i.e. free and subscription based. In case of free streaming of songs, advertisement is the source of income. These apps also offer subscription based plans ranging from 99 per month to 999 per year plans for ad free music offering. The music streaming apps have been operational in India since 29/1 (Saavn came in in 29 while Gaana.com came in around 21). The music streaming app is catching up in India (Gaana recently crossed 5 mn mark, Link) but still remains at lower levels compared to the radio reach in India. Sharper adoption though remains a risk for radio as a whole as advertisement pie shift could be seen. Considering the higher reach of TV and digital compared to radio, (albeit they charge a premium compared to radio), there lies a continuous risk of losing advertising share to these two media Exhibit 55: Music streaming apps in India App name Songs on the platform (mn) Type of songs Add on Subscription Gaana 3. Hindi, English & Regional 999/year, 549/6 months, 297/3 months, 99/month for Gaana Plus Saavn 3. Hindi, English & Regional 99/month for Saavn Pro Wynk 3. Hindi, English & Regional 99/month for Android and 12/month for ios Hungama 3.5 Hindi, English & Regional Amazon Prime Music New player Hindi Subsumed into 499/year subscription of Amazon Prime Source: Media articles, ICICIdirect.com Research Recent success of second frequency may be detrimental to MBL We note that most radio industry players have adopted a strategy of Multiple frequency, wherein they have started an additional brand/station in the same city where they are already operational. The second frequency has been conceptualised with some differentiation in terms of music being played on it. E.g. HT Media, who are owners of Fever brand, has created another brand called Radio Nasha. While Fever has been branded for latest Hindi Film songs, Nasha has been branded as a station solely playing Hindi Retro music. Within just a year and a half of launch, Radio Nasha along with Fever have been on the top of the table of the recent RAM ratings in Delhi market. MBL has cautiously stayed away from multiple frequency approach since the management believes the high investment in the same market may not yield expected returns. We believe the success of the second frequency of its peers could potentially create a threat for MBL in terms of loss in advertiser s mindshare. This could, subsequently, result in a loss of market share impacting its financials. Increase in content cost may take away benefits of operating leverage The primary content for radio stations is sound recordings that they broadcast. A majority of these sound recordings are licensed by third parties. The company pays royalties/license fees to these third parties for the right to broadcast them. These agreements are typically for a period of 12 to 36 months and renewal option is with third parties. Any alternation or termination of such contracts could affect content sourcing and subsequently result of operations. In additions to this, there is the risk of the same content being available to competitors, which could result in probability of loss of viewer ship and subsequently revenues. Page 24

25 Valuations Music Broadcast is one of the quasi plays on the expanding reach of radio driven by new stations in Phase III. The company has exhibited industry leading topline and EBITDA CAGR of 17.3% and 28.6%, respectively, over FY12-17, which reflects its efficiency in a highly competitive industry. Another distinguishing factor for MBL has been its balanced approach in terms of avoiding the high priced second frequency bidding in Phase II auctions, which reflects that the company is primarily focused on profitable growth strategy. Moreover, we also highlight that it has been prudent enough to manoeuvre its volume and pricing strategy amid the difficult times vis-à-vis leader ENIL, who seemed to have been adamant on pricing, resulting in relatively lower topline growth for the latter. Going ahead, we expect 13.9% CAGR in topline in FY17-2 driven by growth from new stations on capacity utilisation improvement as well as steady growth from legacy stations on yield improvement. The improved profitability of new stations coupled with operating leverage derived from handsome growth of legacy stations is likely to result in 17% CAGR in EBITDA over FY17-2E, with margins expanding to 36.5% in FY2 vs 33.6% in FY17. MBL has been listed since March 217 on the stock exchanges. Therefore, trading history is limited for the stock. The only pure play listed peer for MBL is ENIL that is largely into FM radio broadcasting (~75% of revenue). Therefore, to evaluate valuations, we have triangulated it on DCF (largely capture new stations driven sustainable growth for five years) along with comparable valuations on P/E and EV/EBITDA. On a DCF basis, we assume revenue CAGR of ~14.3% in FY17-25E, largely driven by Phase II stations ramp up. Furthermore, with terminal growth of 4%, thereon, we arrive at a fair value of 44/ share. Similarly, assigning a P/E and EV/EBITDA multiple of 3x and 15x on FY2E EPS and EBITDA (similar to ENIL) of 15.8 and crore, yields a fair value of 474 and 435, respectively. We assign a similar multiple to MBL despite its smaller size, given the superior growth trajectory, both over the last five years and its potential, going ahead. The average of the above-mentioned three methodologies yields a target price of 45/share. Given the robust growth potential (topline and EBITDA CAGR of 13.9% and 17.%, respectively, in FY17-2E), we initiate coverage on the company with a BUY recommendation. Exhibit 56: DCF Valuation Assumptions Particulars Amount WACC 9.9% Revenue CAGR over FY17 - FY25E 14.3% PV of Cash Flow Till Terminal Year Terminal Growth 4.% Present Value of terminal cash flow 1,679.1 PV of firm 2,224.6 Less: Net Debt Total present value of the Equity 2,511.7 Number of Equity Shares outstanding 5.7 DCF - Target price ( ) 44 Page 25

26 Exhibit 57: Peer Matrix Company M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) ( Cr) FY18E FY19E FY2E FY18E FY19E FY2E FY18E FY19E FY2E FY18E FY19E FY2E FY18E FY19E FY2E MBL 2, ENIL 3, Exhibit 58: One year forward EV/EBITDA 3,3 2,9 2,5 2,1 1,7 1,3 9 5 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 ( crore) Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 24x 2x 16x 12x EV Exhibit 59: One year forward P/E ( ) Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Price 2. X 24 X 28 X 32 X 36 X Exhibit 6: I-direct vs. Consensus Crore Consensus Idirect Variation (%) Revenues FY18E FY19E FY2E EBITDA FY18E FY19E FY2E PAT FY18E FY19E FY2E Source: Bloomberg, ICICIdirect.com Research Page 26

27 Financial Summary Exhibit 61: Income statement (Year-end March) FY17 FY18E FY19E FY2E Total operating Income Growth (%) Production Cost.... License Fee.... Administrative Expenses Employee Expenses Total Operating Expenditure EBITDA Growth (%) Depreciation Interest Other Income Exceptional Items PBT MI/PAT from associates Total Tax PAT Growth (%) EPS ( ) Exhibit 62: Balance sheet (Year-end March) FY17 FY18E FY19E FY2E Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP Total Fixed Assets Investments Deferred tax assets Debtors Loans and Advances Other Current Assets Cash Total Current Assets Creditors Provisions Other Current Liabilities Total Current Liabilities Net Current Assets Application of Funds Page 27

28 Exhibit 63: Cash flow statement (Year-end March) FY17 FY18E FY19E FY2E Profit after Tax Add: Depreciation Add: Interest Paid (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions CF from operating activities (Inc)/dec in Investments (Inc)/dec in Fixed Assets Others CF from investing activities Issue/(Buy back) of Equity Inc/(dec) in loan funds Interest paid Dividend outflow Others CF from financing activities Net Cash flow Opening Cash Closing Cash Exhibit 64: Ratio analysis (Year-end March) FY17 FY18E FY19E FY2E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days.... Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value.... Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio Page 28

29 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/15% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai 4 93 research@icicidirect.com Page 29