Tuesday, April 15, 2014

Next Mediaworks Ltd



Background:
The Company was promoted by the Ansari family& was  earlier listed as Mid-Day Multimedia Limited. Pursuant to the Scheme of Arrangement with Jagran Prakashan Limited, the entire print and publishing business of the Company, along with all the related licences, trade marks, logos etc  were transferred to Jagran Prakashan  & the Company’s name was  changed to Next Mediaworks Ltd

The radio business was initially promoted as a wholly-owned subsidiary of the Company which later became a joint venture between Next Mediaworks Ltd.  and BBC Worldwide Holdings B. V. (BBC), Next Radio Limited was among the first private players to venture into private FM broadcasting and presently has established "Radio One" as the premium FM Brand in  7 Indian cities  

Shareholding in Next radio ltd : 

Next Mediaworks Ltd :72.24 %
BBC : 18.19%
Ferrari Investmens & Trading: 7.49%

FM brand :Radio One
Locations present :Mumbai, Delhi, Chennai,Kolkatta, Bangalore, Pune, Ahmedabad
The Company operates under frequency 94.3MHz in all its cities except  Ahmedabad where it operates under the frequency 95 MHz.
Runs International format stations ( English)  in the key markets of Mumbai & Delhi

Financials:
Equity: Rs.58.30 cr
Consolidated debt : approx Rs.28 cr ( as of March 31, 2013).This includes an unsecured loan of about Rs.6.85 cr from promoters.

Key Phase 3 highlights:
1)      Aims to expand private FM services to 313 cities from the current 86.
2)      839 new radio stations to be auctioned.
3)      All cities with population of one lakh & above to be covered
4)      Allows Broadcaster the right to operate Multiple frequencies ( i.e.more than one station in each city). This can have a far reaching impact on the industry and is one of the  most significant proposals in the policy.
5)      Licence period of Phase 3 frequencies to be increased from 10 years to 15 years
6)      Tradability of phase 3 frequency licences to be allowed and holding period reduced from 5 to 3 years.
7)      Networking to be allowed ( i.e. smaller stations can take programming from larger stations with a similar language / programming mix). This will significantly reduce cost of operations in the smaller cities and make the business viable.

Concerns:
1)      Ambiguity of the policy on extension of existing licences which start expiring 2015 onwards.This is a crucial grey area and can have significant negative impact.Clarity on this is expected only after the Phase 3 auctions are over.
2)      Contingent income tax disputed liabilities of approx 18 cr.

Valuation:
At the cmp of approx Rs.3.80, the company is available at a Market Cap of around Rs.22 cr & an EV of Rs.50 cr or so.
In the year ended March 2013,EBIDTA showed a transformational turnaround of Rs.18.42 cr as compared to Rs.0.26 cr in the previous year. Cash generated from operations was Rs.12.70 cr- a first ever for the company.
Performance during the 9-month period ending Dec 31, 2013 continued to be good with a revenue growth of 16% to Rs.43.29 cr ( from Rs.37.37 cr) & an EBIDTA growth of 14% from Rs.11.53 cr to Rs.13.15 cr. At the net level though, the company remained in the red with a loss of Rs.1.08 cr.

Last year, promoters were issued 60 lakh shares at Rs.10 each on a preferential basis against conversion of their Rs.6 cr loan to the company. Currently promoters own 56.08%.
Bennett Coleman & Co Ltd owns 6.20% in the company. Bennett Coleman & Co Ltd is one of the promoters of Entertainment Network India Ltd,which runs the Radio Mirchi FM station.

 The company’s presence in 7 of the top 10 cities in India makes it an attractive takeover candidate for large & serious long term FM broadcasters. I have highlighted the key risks/ concerns visible to me.The current valuations are attractive and the ‘risk premium’ seems priced in.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments. 

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  4. The stock has more than doubled since your recommendation in less than 2 months....Hats off!!

    What you think is it's fair value?

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  5. Thanks for your kind words though this has clearly happened due to the prevailing +ve sentiment.

    Re. FV, i'm unable to determine as this point of time as:

    1) we don't know what would be the outgo for licence renewals post 2015

    2) how this amount'd be funded

    3) what will be the competitive intensity for fresh Phase 3 licences

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