Hold Saregama India Ltd For The Target Rs.465 - ICICI Direct
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Healthy performance!
About the stock: Saregama India (Saregama) is India’s oldest music label with ~1.42 lakh songs across various languages, which is monetised over various formats such as digital (streaming, YouTube), physical (Carvaan) and television.
* Apart from music, it is also into TV serials/(Tamil) and creates low budget films as well as web series for OTT platforms through Yoodlee Films
Q1FY23: Saregama reported a healthy set of numbers
* Revenues were up ~61% YoY, at | 169.3 crore, led by TV & films segment, up 223% YoY at | 38.6 crore, on a depressed base. Music segment was up 38.8% YoY led by Carvaan sales volumes, which were up 118% YoY to 98000 units while licencing revenues continued to be robust
* EBITDA grew 39% YoY (flat QoQ) to | 51.4 crore with EBITDA margin at 30.4%, down 485 bps YoY, owing to revenue mix
* Consequent PAT was at | 41.2 crore (up 51.5% YoY). The company has changed the useful life of music rights, which aided the EBITDA by | 1.7 crore. Like to like PAT was at | 39.7 crore, up 46% YoY, down ~18% QoQ
What should investors do? Saregama share price has grown 10x over the past five years (from ~| 41 in July 2017 to ~| 410 levels in August 2022).
* We expect digital monetisation to provide sustained growth. However, given the demanding valuations, we maintain HOLD rating on the stock as we await a better price point to turn buyers
Target Price and Valuation: We value Saregama at a revised target price of | 465, at 38x FY24 P/E.
Key triggers for future price performance:
* Growth trajectory in music licencing, which the management envisages to grow at ~22-25% in the medium term, aided by new content monetisation
* Recovery in Carvaan on the back of economic reopening and expansion in movies and web series segment
Alternate Stock Idea: Besides Saregama, we like Inox Leisure in media coverage.
* Beneficiary of cinemas recovery and merger synergy
* BUY with a target price of | 670
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