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Robust performance; valuations full after run-up…

About the stock: Saregama India (Saregama) is India’s oldest music label with ~1.3 lakh songs across various languages, which is monetised over various formats such as digitals (streaming, YouTube), physical (Carvaan) and television.

* Apart from music, it is also into TV serials/(Tamil) and creates low budget films for OTT platforms through Yoodlee Films

Q1FY22 Results: Saregama reported robust Q1FY22 results.

* Revenues were up ~37% YoY to | 105 crore, on a benign base (~39% decline in Q1FY21) with growth led by the music segment, which was up 32% YoY. Carvaan sales volumes were up ~200% YoY (down 59% QoQ) to 45,000 units, on a depressed base

* EBITDA grew 95% YoY to | 36.9 crore with margin at 35.1% (up 10.5 percentage points YoY)

* Consequent PAT was at | 27.2 crore (up 72.6% YoY)

What should investors do?

Saregama share price has grown by ~11x over the past five years (from ~| 280 in July 2016 to ~| 3,305 levels in July 2021).

* We like the company but given the sharp run up (up 2.5x in last six months), we maintain our HOLD rating on the stock

Target Price and Valuation: We value Saregama at | 3260 i.e. 35x FY23E P/E.

Key triggers for future price performance:

* Growth trajectory in music licencing, which the management envisages will grow at 20%+ in the medium term

* Recovery in Carvaan, which has been impacted by Covid-19

* Expansion in movies and web series segment

* Performance of new content, which it acquired in the last few quarters

Alternate Stock Idea: Apart from Saregama, in our media coverage we like PVR

* Key beneficiary of economic unlock and quasi play on discretionary spends

* BUY with a target price of | 1540

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