 "'Phase-III radio auction players to see payback period of 7-9 years'")
Radio companies which have invested in the third phase of the recent FM auctions are expected to see a payback period of seven-nine years in metro markets and eight-10 years in Tier-II markets, CRISIL said in its latest sector report. Payback period means the time required for the amount invested in an asset to be repaid by the net cash outflow generated by the asset.
The assessment of payback period, notably in metros, said CRISIL, was based on nearly 11-14 per cent internal rate of return for these markets. "In large ad markets, top radio companies are already operating at peak utilisation and an addition of one or two incremental frequencies would keep their ad inventory utilisation as high as 60-65 per cent in the first year. Moreover, given a low set-up cost for the players with already established operations, any new frequency will be Ebitda (earnings before interest, tax, depreciation and amortisation) positive from the very first year," the report said.
Over Rs 1,100 crore was sunk into the phase-III auctions alone for 97 frequencies, with an additional Rs 2,000 crore coming from migration of 266 frequencies to phase-III from Phase-II. But CRISIL says the government also mopped up another Rs 2,000-2,300 crore from licence fees garnered through revenue sharing and aggregated over 15 years. "In our estimate, the overall bounty to the government was Rs 5,000 crore in phase-III, which is more than what it earned in phase two and three," it said.
While CRISIL said players would double revenues in five years, media analysts say profitability would be under pressure for these companies in the coming years.
The strain is on account of the high bids put in by players in the Phase-III. For instance, Entertainment Network India and HT Media have invested close to Rs 340 crore each for 17 and 10 new frequencies. For a radio market estimated to be Rs 1,600 crore in total size and said to be growing at 15 per cent per annum, this is a high price to pay, sector analysts said. Also cluttered ad markets such as Delhi, Mumbai and Bengaluru attracted high bids per frequency, which will put further strain on profitability, analysts said.
The assessment of payback period, notably in metros, said CRISIL, was based on nearly 11-14 per cent internal rate of return for these markets. "In large ad markets, top radio companies are already operating at peak utilisation and an addition of one or two incremental frequencies would keep their ad inventory utilisation as high as 60-65 per cent in the first year. Moreover, given a low set-up cost for the players with already established operations, any new frequency will be Ebitda (earnings before interest, tax, depreciation and amortisation) positive from the very first year," the report said.
Over Rs 1,100 crore was sunk into the phase-III auctions alone for 97 frequencies, with an additional Rs 2,000 crore coming from migration of 266 frequencies to phase-III from Phase-II. But CRISIL says the government also mopped up another Rs 2,000-2,300 crore from licence fees garnered through revenue sharing and aggregated over 15 years. "In our estimate, the overall bounty to the government was Rs 5,000 crore in phase-III, which is more than what it earned in phase two and three," it said.
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The strain is on account of the high bids put in by players in the Phase-III. For instance, Entertainment Network India and HT Media have invested close to Rs 340 crore each for 17 and 10 new frequencies. For a radio market estimated to be Rs 1,600 crore in total size and said to be growing at 15 per cent per annum, this is a high price to pay, sector analysts said. Also cluttered ad markets such as Delhi, Mumbai and Bengaluru attracted high bids per frequency, which will put further strain on profitability, analysts said.