Name	Reco Date	Reco price	Target	Prospero Rating	Report Date*
Reliance Broadcast Network	16Oct2013	Rs. 52 - Rs. 53	Rs. 59.80 - Rs. 65	7 / 10	16Oct2013

The promoters of Reliance Broadcast Network (RBN) have initiated the delisting procedure for the company in Sep2013. As per the SEBI determined delisting formula, we have determined that the floor price would not be less than 47. We therefore strongly recommend to BUY RBN at Rs 52 - Rs 53 to take the benefit of potential higher price in the delisting.

Past recommendation: We first recommend to BUY Reliance Broadcast Network (RBN Scrip code 533143) at Rs.49 - Rs 49.5 through a report on 19-Sep-2013. It touched the high of Rs 54 – Rs 55 after our recommendation. After booking profits at Rs 54+, we are strongly recommending to BUY RBN again at the current levels of Rs 52-53 band for a period of 6 months. We expect that the stock could give returns of 15-25% as we near the delisting date.

Why will the stock price of RBN rise?

1. Promoter continuously acquiring shares at all prices: The promoter has increased their stake from 61.47% to 74.96% by buying the shares from the market over last 2 years. This indicates the strong willingness of ADAG group to delist the company.

2. Acquisition by promoters at all prices: The promoters in the last 2 years have acquired shares at all prices starting from Rs 85 to Rs 25. In one of the recent transactions, the promoter has increased its stake at Rs 52. This again indicates that the promoter is very clear on getting the company delisted even if at a higher cost.

3. Fragmented shareholding list: 80000 (eighty thousand) shareholders have less than 10000 shares. Together these eighty thousand shareholders hold 11% of the company. This is extremely fragmented shareholding. To lure these fragmented shareholders, there is a very good chance of a higher price of delisting.

4. Greater than 1% holders are very old and may not sell at a lower price: Nearly four names hold a total of ~6% shares since 2011. Having seen higher prices and holding for so long, there is very good possibility they will ask for a higher price.

5. Historically high prices: Though historically high prices are not the reason to buy / sell a stock, a look at the price history can give some behavioral understanding for possible outcomes of delisting.

6. FDI in Radio is now allowed & Approval for 1000 cr QIP already in place: The government of India has recently approved the increase in FDI in FM Radio channel from 29% to 49% on 23/8/2013. This has paved way for all players in the industry to partner with foreign strategic investors and raise money from them for further expansion. With a view of potential expansion, RBN has already taken a shareholder approval and passed a resolution for a 1000 crore QIP to raise funds in next 60 months. This move after FDI being passed in FM radio is pointing towards some strategic financial tie-up.
The plan according to us is to get the company delisted and then go for a QIP at higher valuations from other private equity investors (FDI) and thereby unlock huge value for the promoters. If this is true, the promoters would not mind paying higher than current market price. A very similar recent example is of ChemplastSanmar, that did the delisting at the market cap of 1200 crores. However, in a short span of time, Chemplast is now talking to raise Rs 1200 crores by selling minority stake.

7. RBN’s TV business already has a tie-up: The TV business already has strategic tie-ups with some other investors. There could surely be a possibility of similar case happening in radio business once the delisting is done.

Apart from the above factors, here are some pointers that will help you to understand the business of RBN.

1. RBN is an ADAG Group Company engaged in the business of FM Radio, television broadcasting and content production. The radio business operates through a channel popularly known as 92.7 Big FM Radio.

2. RBN vs ENIL: ENIL (Entertainment Network India Limited) is number one radio channel across the country that runs under the brand 98.3 Radio Mirchi. RBN’s 92.7 FM is at number two position. ENIL has a market cap of 1350 crores, almost 3 times that of RBN’s 450 crore. However, ENILs topline and profits from Radio business are nearly twice that of RBN. As RBN is also at the initial phase of its TV business, the consolidated business shows losses.

3. There are many FM Radio stations which are owned by different media companies.

1) 91.1 FM Radio station owned by IVF HOLDING LTD a PE Fund

2) 92.7 Big FM Radio owned by RBN

3) 93.50 Radio station owned by Sun group

4) 98.30 Radio Mirchi owned by ENIL a Listed company

5) 104 Radio Fever owned by HT Media

6) 104.80 FM Sabse Filmy Owned by TV Today

4. In metros maximum FM channels licenses are already given

5. 70% content for all radio is bollywood music (Full time News channels are not allowed. Focus only on entertainment)

6. As per TRAI rules, there cannot be more than 10 minutes of ads per hour.

7. The royalty rates in India for songs and other content are quite high. However, once the businesses will achieve scale benefits this should reasonably get normalized.
 

Time Horizon: It can take a maximum of 6 months for the entire delisting process to get over. However, we estimate that modest gains can come earlier. (The returns could come much earlier and there could be many trading opportunities over this period)

Delisting Process and estimated timeline:

Floor Price of Delisting: As per our calculation the floor price for the delisting will be not less than Rs.46 - Rs 47. As per some of our management interaction, we think that the floor price could be around Rs 48-49, giving a strong cushion on the down side.

Broadcasting Stations: Currently RBN has 45 FM broadcasting station spread across India

Risk to the recommendation:

1. Delisting offer process getting delayed (very unlikely)

2. The bigger risk comes from that possibility that the promoter fails to delist the company as they do not receive the statutory minimum number of shares as per the delisting guidelines or if the discovered price is not acceptable to promoter. In order to overcome these two risks, we advice all clients to sell the shares in the market before the delisting tendering period is over. This completely eliminates this risk.

*Report Date may sometimes be different from Recommended Date as drafting of reports can take time.

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