ICICI Direct recommended hold rating on Music Broadcast with a target price of Rs 53 in its research report dated July 30, 2019.
Revenues came in at Rs 69.8 crore (decline of 7.8% YoY), lower than our expectation of 1% YoY growth at Rs 76.5 crore. The underperformance was on account of the company’s emphasis on yield improvement (they reported 4% yield improvement). Subsequently, the company let go a few low cost opportunities, which resulted in ~12% volume decline for the quarter. EBITDA for the quarter came in at Rs 22.4 crore (vs. our expectation of Rs 25.3 crore) on account of negative operating leverage while margins came in at 32.1%, lower than our expectation of 33%. PAT came in at Rs 8.4 crore (vs. our estimate of Rs 14.4 crore), further impacted by adoption of Ind-AS 116, which led to incremental depreciation and interest expenses of Rs 1.63 crore and Rs 0.6 crore for the quarter, respectively.
We believe revenue de-growth for the quarter is a concern, especially in light of possibility of losing volume market share to its peers. The continued strategy of yield improvement may deepen this further. The Big FM acquisition may provide some long term benefits but it hinges on regulatory approvals, which have been a bumpy ride. Therefore, we downgrade the stock from BUY to HOLD with a revised target price of 53. A faster-than-expected revenue recovery is a key risk to our estimates.
