Adlabs Films Ltd, the Reliance ADAG promoted firm, is re-crafting its various business verticals. The company has decided to demerge its radio business under a new entity, Reliance Unicom (RUL), and freeze all film production activities.
Adlabs has received a no-objection certificate (NoC) from the I&B Ministry, allowing the promoters to transfer operations of the FM radio licence to RUL, the company informed the Bombay Stock Exchange (BSE).
The move is expected to increase sustainable profit.
Ismail Dabhoya, SVP, finance and commercial, Big FM, said, “Our business, which is currently under Adlabs Films, will be transferred to Reliance Unicom Ltd, post which the company will get listed in the BSE and the NSE. Reliance Unicom will issue shares in the ratio of 1:1, where we will give one share for every share held by the shareholder in Adlabs Films Ltd. The demerger allows for an independent organisation, financial flexibility to independently raise resources for future growth, valuation of the FM business on the stock exchange, implementation of ESOPs for retention of key talent and substantial unlocking of shareholder value to name a few.”
Ashish Tiwari, analyst, SBICAP Securities Research, said, “The new development will improve Adlabs profit margins. Operational losses from the radio business will be removed and the amortisation costs, which is around Rs 16 crore, will not suppress the overall profitability of the company.”
The radio business contributed Rs 141.61 crore (20 per cent) to Adlabs top line in first nine months of FY09. However, the business has been in investment mode and suffered losses of Rs 34.74 crore in the period.
The I&B Ministry had in September 2008 allowed demerger of FM business from parent companies, a move that was welcomed by the Indian radio industry. However, Adlabs Films is not the only one to get the approval to demerge its radio business.