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Union Cabinet approves radio Phase 3; FDI limit hiked to 26%
The Union Cabinet has approved Phase 3 of FM radio expansion. About 227 cities (>0.1
mn population) will be added under the phase, significantly up from 86 cities that
currently have FM radio coverage. Almost 700 channels are likely to be auctioned. Also,
radio companies can now broadcast AIR news bulletins at an additional cost.
Information pertaining to sporting events, weather, education will be treated as nonnews
and therefore be permissible. We expect this to increase stickiness of listeners.
Jammu & Kashmir, North Eastern States have been excluded from the 15% limit on
ownership of channels allocated to a particular entity. Networking of channels will be
permissible within a private broadcaster’s network across the country. Prasar Bharati
infrastructure is likely to be available at half the lease rentals for similar category cities
in such areas.
Moreover, FDI+FII limit in private FM radio companies has been hiked from 20% to 26%
which will improve radio companies’ prospects in finding strategic foreign partners.
Private operators have been allowed to multiple channels in the same city but not more
than 40% of the total channels in a city subject to a minimum of three different
operators in the city. The radio industry has posted CAGR of 20% for the past few years
and could grow at 25-30% with this latest development. Currently, ad spends for the
radio industry (as a percentage of total ad spends) is at ~4-5% of the total pie and could
rise to 6-7% with the inception of Phase 3. Even this is lesser as compared to many
other countries where radio accounts for 8-9% of the total ad pie.
E-auction by independent agency; unlikely to be very aggressive
The Information and Broadcasting (I&B) Ministry has announced that the radio channel
e-auction will be conducted by an independent agency in phases. This e-auction will be
similar to the 3G and BWA e-auctions. The e-auction might get expensive if players are
unnecessarily aggressive. However, with the current soft ad environment (with cut in
ad spends by FMCG and other sectors) and most of the radio companies bleeding, an
aggressive auction seems unlikely. E-auction will help bidders in decision making in later
stages as prices of competing bidders will be known (unlike last time when players lost
out on important stations for a small amount as prices were not known).
ENIL, RBNL, Next Media: Best plays on phase 3
In our view, companies like ENIL with established operational stations in large cities and
renowned brands are highly profitable and will find themselves at a huge advantage
over other smaller players. Operational costs will be reduced for large players due to
networking. Best plays on phase 3 are ENIL, RBNL, and Next Media, all largely radio
companies. Companies like Sun TV, HT Media, and DB Corp. which operate a radio
business along with their other media business segment will also benefit from Phase 3
auction. Also, with music royalty costs under control, profitability is far more
predictable. We are enthused by the start of long awaited reforms by the govt. and
expect to see reforms in sunset clause and hike in FDI in DTH, cable, retail etc.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Union Cabinet approves radio Phase 3; FDI limit hiked to 26%
The Union Cabinet has approved Phase 3 of FM radio expansion. About 227 cities (>0.1
mn population) will be added under the phase, significantly up from 86 cities that
currently have FM radio coverage. Almost 700 channels are likely to be auctioned. Also,
radio companies can now broadcast AIR news bulletins at an additional cost.
Information pertaining to sporting events, weather, education will be treated as nonnews
and therefore be permissible. We expect this to increase stickiness of listeners.
Jammu & Kashmir, North Eastern States have been excluded from the 15% limit on
ownership of channels allocated to a particular entity. Networking of channels will be
permissible within a private broadcaster’s network across the country. Prasar Bharati
infrastructure is likely to be available at half the lease rentals for similar category cities
in such areas.
Moreover, FDI+FII limit in private FM radio companies has been hiked from 20% to 26%
which will improve radio companies’ prospects in finding strategic foreign partners.
Private operators have been allowed to multiple channels in the same city but not more
than 40% of the total channels in a city subject to a minimum of three different
operators in the city. The radio industry has posted CAGR of 20% for the past few years
and could grow at 25-30% with this latest development. Currently, ad spends for the
radio industry (as a percentage of total ad spends) is at ~4-5% of the total pie and could
rise to 6-7% with the inception of Phase 3. Even this is lesser as compared to many
other countries where radio accounts for 8-9% of the total ad pie.
E-auction by independent agency; unlikely to be very aggressive
The Information and Broadcasting (I&B) Ministry has announced that the radio channel
e-auction will be conducted by an independent agency in phases. This e-auction will be
similar to the 3G and BWA e-auctions. The e-auction might get expensive if players are
unnecessarily aggressive. However, with the current soft ad environment (with cut in
ad spends by FMCG and other sectors) and most of the radio companies bleeding, an
aggressive auction seems unlikely. E-auction will help bidders in decision making in later
stages as prices of competing bidders will be known (unlike last time when players lost
out on important stations for a small amount as prices were not known).
ENIL, RBNL, Next Media: Best plays on phase 3
In our view, companies like ENIL with established operational stations in large cities and
renowned brands are highly profitable and will find themselves at a huge advantage
over other smaller players. Operational costs will be reduced for large players due to
networking. Best plays on phase 3 are ENIL, RBNL, and Next Media, all largely radio
companies. Companies like Sun TV, HT Media, and DB Corp. which operate a radio
business along with their other media business segment will also benefit from Phase 3
auction. Also, with music royalty costs under control, profitability is far more
predictable. We are enthused by the start of long awaited reforms by the govt. and
expect to see reforms in sunset clause and hike in FDI in DTH, cable, retail etc.
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