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Groove to the beat! Initiate coverage with BUY

We initiate coverage on TIPS Music with a BUY rating based on the promising growth prospects driven by (I) Strong Industry tailwinds providing better monetization opportunities (ii) Diversified music catalogue (iii) Presence across digital platforms (iv) Prudent content acquisition strategy (v) Improved monetization in non-digital segments. We value TIPS Music at PE of 47x on Sep-26 EPS with TP of INR 1,050.

Indian Music Industry – A Sleeping Giant: Rising adoption of smartphones and data subscriptions has prompted Indian brands to shift towards Digital advertising. As a result, its share now stands at 51% of total Ad-revenues. Further, rising affluence and high proportion of young audience is propelling growth in premium subscriptions. Paid music subscriptions grew from 5mn to 7.5mn in 2023 (+55% YoY), generating INR3 bn in subscription revenues. Further, paid subscriptions are expected to double to 15mn subscribers by 2026 and grow 4-5x to 35-40mn subscribers in five years. These factors are likely to improve monetization of music content. India has large music streaming audience of 185mn subscribers. Thus, Digital is the key revenue driver with 87% share of total Indian music segment revenue. Going forward, growth in free as well as premium subscribers is expected to drive industry growth.

Music catalogue acts as a key moat: One of the strongest assets of TIPS is its rich and evergreen music collection. Being one of the largest music-label in the country, it boasts catalogue of 31,000+ songs spread across all genres and major languages from 90’s classics till now. TIPS Music has more than 104mn subscribers on YouTube across its channels and has received 194bn views in FY24. The Copyright Act, 2012 protects music copyrights for 60 years in India. This is the longest period of protection when compared to any other type of IPR in India. Thus, diversified and evergreen catalogue acts as a key moat to the business, with long shelf life and multiple monetization opportunities. For TIPS, catalogue music is ~85% of the overall revenue mix, which underscores its significance.

Presence across digital platforms: Company has recently signed a new deal with Warner Music - one of the leading global music labels. This deal will ensure presence of TIPS songs across key OTT platforms. Warner Music, being one of the top 3 distribution platforms globally, provides better negotiating power with OTT platforms, which can potentially result in better revenue per stream.

Content Acquisition to pave way for growth: Consistent focus on acquiring new content over the years has led to a strong music catalogue for TIPS. Going forward, we believe, content acquisition will remain the key to drive growth. Mgmt expects 30% of the content to come from self-production, 35% from acquisition in other films and rest to flow in from TIPS Films. Tips Films plans to launch 10-12 movies annually with est 4-5 songs per movie. All these songs are slated for sale to TIPS Music. Direct sale from TIPS Films avoids bidding war with other music labels, ensuring purchase at fair valuation. This results in better monetization and thus, quicker break-even.

Non-digital revenue streams improving: Stringent implementation of licensing laws globally and in India, through various tie-ups is expected to boost publishing and live performance revenues as collection efficiency improves. On the other hand, focus on brand partnerships for advertising campaigns should drive growth in Sync revenues.

Valuation and Outlook: Strong industry tailwinds, prudent content acquisition strategy and better implementation of licensing laws on non-digital side is expected to provide material benefits in the medium term. Over FY24-27E, we expect revenue/EPS CAGR of 38% each, driven by mix of growth in Ad-revenues and premium subscription. Non-digital revenues are also expected to support growth. We remain bullish on the Indian Music industry and initiate coverage on TIPS Music with a BUY rating. We value TIPS Music at Sep’26 EPS of 47x with TP of INR 1,050.

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