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Valuations demanding post sharp run-up

Saregama India's revenues for Q4FY21 increased 13.6% YoY to | 123.5 crore with growth led by the TV & films segment, which was up 27.8% YoY. Carvaan sales volumes were up ~49% YoY to 110,000 units in Q4FY21, on a depressed base. EBITDA grew 59.9% YoY (down 14% QoQ) to | 34.4 crore with EBITDA margin at 27.8% (up 806 bps YoY and down 205 bps QoQ, respectively). Cost reduction, mainly in promotion costs for Carvaan and lower other expenses (lack of new content), led to strong growth in operating profit YoY. Subsequently, reported PAT was at | 37 crore, up 134% YoY, also aided by higher other income (| 18.6 crore vs. 3.4 crore in Q4FY20) due to dividends from CESC and interest on IT refund.

Licensing revenues to remain robust

Licensing revenues remained robust with ~20% YoY growth (on adjusted basis) in FY21. The management guided for 22-25% growth in licensing revenue (B2B) also aided by new content acquisition. Saregama reiterated their aim to capture 20-25% share of new music. We estimate 22% CAGR (25% on adjusted basis) in B2B (licensing) music sales in FY21-23E to | 446 crore as monetisation of existing IPs via digital platforms and new music acquisition will drive growth. We build in 0.43 mn and 0.65 mn units in FY22 and FY23, respectively for Carvaan and expect 37.5% CAGR in revenues in FY21-23 to | 163 crore, on a depressed base of FY21. Minimal marketing spends have benefitted the company on margin front. The company guided for low marketing expense for a few more quarters.

TV, films segment to grow on benign base…

Film & TV revenue growth was aided by strong traction in monetisation of inventory both on TV and YouTube. Under Yoodlee Films, the company expects one release during Q1/Q2, while it expects announcements on web series in next few quarter. The management expects Yoodlee Films to clock 100 crore revenues in three to five years. We estimate ~35% CAGR in TV & films in FY21-23E to | 95 crore, with ~26% revenue decline in FY21, followed by 60% revenue growth in FY22 on a low base.

Valuation & Outlook

We underappreciated the monetisation push led by digital consumption via streaming and social media platforms coupled with consistent cost discipline. Thus, we now raise our margins estimates to 27.5%, 27% for FY22, FY23 vs. 24%, 23% earlier, respectively. We, however, believe the sharp run-up in stock price (up 87% in last three months) already factors in all positives and valuation is demanding at 22x FY23 P/E wherein margin may taper with new content cost charge. We raise our target multiple at 21x P/E (vs. 14x, earlier). We maintain HOLD with a revised target price of | 1825 (vs. | 1000, earlier). New music acquisition and its monetisation along with pull of older content will be key monitorables. We will track the strategy of converting Carvaan into a platform and its monetisation ahead.

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