By Karan Taurani @ Elara Capital

United Spirits (UNSP IN) and other IPL men’s franchise teams have bought the Women’s Premier League (WPL) team for INR 9.3 billion. Valuation seems to be at a premium (30x forward EV/sales), given below par monetization opportunity presented by less acceptance and popularity of women’s cricket in India.

We believe this investment can pay rich dividends only in the long term, provided women’s cricket attracts mass following in India.

Magnitude: According to The Board of Control for Cricket in India (BCCI), the auction of five WPL teams (Mumbai, Delhi, Bengaluru, Ahmedabad and Lucknow) generated INR 46.7 billion recently.

On an average, each team was sold for INR 9.3 billion. This value is higher than the eight men’s IPL teams in CY08 when each team was sold at an average of INR 5.0 billion.

However, men’s cricket has always had a high recall and attracted a large audience compared to women’s, which is relatively new (the average reach of women’s cricket in India is a mere 20 million vs. men’s IPL at 500 million).

In terms of recent additions, two new teams (men’s IPL) were added at an average acquisition price of INR 63.6 billion last year, which means WPL teams’ valuation is currently at 15 percent of men’s IPL teams.

In terms of media rights, those of WPL were sold for five years at INR 9.5 billion, which is a mere 5 percent (based on INR 200 billion – assuming fewer matches) of men’s at INR 500 billion, if we were to compare it on a like-to-like basis, as WPL is slated to have less than half the number of matches of men’s IPL.

In terms of per match cost, men’s IPL media rights were sold for INR 1.25 billion, whereas WPL was at INR 47 million (4 percent of men’s), assuming there will be 35-40 matches per season, given fewer number of teams.

We believe the valuation of WPL teams is at a slight premium, as it stands at 15 percent of men’s teams whereas media rights are a mere 5 percent of men’s teams. Lower media rights revenue would limit the team’s revenue potential as the former accounts for 80 percent of a men’s IPL team’s revenue.

Triggers: UNSP already owns RCB, a men’s IPL team franchise, and it has paid INR 9.05 billion to acquire a WPL team. Given media rights account for a lion’s share of IPL teams’ revenue, UNSP WPL team may not have the potential to generate more than INR 0.25-0.3 billion per year (media rights will account for 90 percent of revenue, as endorsements and ticket revenue may be significantly low for WPL initially), assuming the sharing ratio (largely 50:50) with BCCI is same as men’s IPL.

This is well below the men’s IPL team, which was sold for INR 5.1bn in CY08 and able to post a revenue of INR 1 billion in the first year itself.

Hence, we believe UNSP has paid a premium price for acquiring a team in WPL, which has no recall as of now. However, the factors that work in the company’s favor are: 1) wider target audience to market its brands to women and 2) an existing recall for RCB as a franchise, which augurs well for the overall branding for the women’s team.

Given less revenue potential in the next five years, WNSP WPL team may only generate an ROCE of 13 percent (annual investment of INR 0.9 billion & PBT margin assumption of 40 percent).

However, ROCE would improve significantly in the medium to long term only if women’s IPL is accepted in a big way and if media rights revenue has a multiplier impact at the next round of auctions in CY28.

Watch the Diet: We believe this is a good initiative to target a larger audience pool by leveraging on the strength of an existing franchise.

However, the potential of WPL to garner a scalable viewership is an uphill task, in our view, as it also may come around the prime time slot wherein women audience are sticky about fiction-based shows and may move toward WPL, only if women cricketers become bigger stars in terms of name and fame.

We valued men’s IPL teams at an average of INR 85 billion based on 13-14x one-year forward sales. If we were to assign a 30 percent lower valuation multiple for WPL, the fair value would be in the range of INR 2.5-3.0 billion, which would move up in the long term, bolstered by its success and acceptance.

WPL may be the next big thing for advertisers and team owners to target the female audience, However, its success and acceptance is in for the long haul.