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Revenue mix, one-time royalty impact margins…

About the stock: Saregama India (Saregama) is India’s oldest music label owning ~1.42 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), creates low budget films as well as web series for OTT platforms through Yoodlee Films and has artists and events management business

Q4FY23: Saregama reported mixed bag numbers.

* Revenues were up ~15% YoY at | 207 crore. Music segment was up ~15% YoY at | 146 crore. Carvaan sales volumes were up ~23% YoY to 1.38 lakh units while licencing revenues continued to be robust with ~20%+ growth driven by digital monetisation, as per our understanding. The TV & Films segment revenues were up 10% YoY at | 57.5 crore, aided by release of web series

* EBITDA declined 4.5% YoY to | 49.1 crore with EBITDA margin at 23.7%, down 486 bps YoY, owing to revenue mix (web series were at cost recovery model) and one time royalty

* Consequent PAT was at | 49.3 crore (up 2.2% YoY)

What should investors do? Saregama’s share price has grown at ~32% CAGR over the past five years.

* We expect digital monetisation to provide sustained growth momentum. Accelerated opportunity fructification in new areas like web series, artist management, etc, can provide further growth leg. Another key monitorable would be how the company enhances its catalogue inorganically to drive a higher growth trajectory. We maintain BUY

Target Price and Valuation: We value at | 400, 30x FY25 P/E

Key triggers for future price performance:

* Growth trajectory in music licencing, which the management envisages to grow at ~22-25% in medium term, aided by new content monetisation

* Expansion in movies and web series segment

Alternate Stock Idea: Besides Saregama, we like PVR Inox in media coverage.

* Beneficiary of cinemas recovery & merger synergy

* BUY with a target price of | 1640

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