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Saragama's strong headline numbers masked the weakness in music licensing revenue. Consolidated revenue grew 40.3% YoY, aided by strong growth in the video segment. Music Licensing revenue growth was soft, up 8% YoY in Q2, despite the impact of select platforms moving to a paid model now being completely factored in. EBITDA margin of 25.2% fell short of our estimate on account of higher growth in the lower-margin video segment and elevated content investments. Despite some softness, mgmt upheld its prior mediumterm revenue and margin guidance. We believe pickup in Music Licensing revenue growth will be the key driver for stock performance – seasonality is biased toward 2H, so a robust performance could cover the 1H weakness. We cut FY25-27E EPS by 3-8%, building in the Q2 performance, slightly lower music segment growth for FY25, and the slower margin trajectory. We roll forward to Sep-26E, retaining BUY and DCF-based TP of Rs580 (implied FY26 PER of 41x).

Results Summary

Saregama’s revenue grew 17.8% QoQ/40.3% YoY to Rs2.4bn, ahead of our estimate of Rs2.2bn. The Music segment (including Licensing and Carvaan) declined 2.6% YoY/grew 7.7% QoQ to Rs1.5bn, slightly lower than our estimate. Carvaan revenue declined 39.8% QoQ to Rs212mn. The Video segment saw strong growth of 54.7% QoQ to Rs720mn with the theatrical release of ‘Nunakuzhi’ and OTT release of ‘Manorathangal’. The Artist management vertical saw growth of 4.2% QoQ, with the company adding >30 artists/ influencers, taking the total number to >180. Reported EBITDA was flat YoY/grew 18.2% QoQ to Rs608mn. Reported EBITDAM was 25.2%, falling short of our estimate of 26.5%. Adjusted EBITDA stood at Rs842mn, with a margin of 34.8%. Overall PAT grew 21.6% QoQ to Rs449mn. In the Music segment, YouTube (YT) views grew 63% QoQ (partly attributed to the YT shorts campaign) to 150bn. Carvaan sales declined, from 142k in Q1 to 108k in Q2. What we liked: Growth in the Video segment What we did not like: Muted performance in Music Licensing, weak margin.

Earnings Call KTAs

1) Music Licensing: Recently acquired music has done well. Songs from movies ‘Bad Nez’ and ‘Stree 2’ have been chartbusters across multiple platforms. Saregama has released over 400 originals across languages, with a strong lineup ahead. Rs10bn will be invested in new content over the next 3 years which should keep the company on a strong longterm growth path. Paid subscription and better monetization of short form content can act as key triggers for higher growth. 2) Video: The Video segment is strategically important for the company, as it is not only growing on its own but also safeguards the company’s music interest. The segment is still in the nascent stage and can see growth of 30%. 3) Events: There are mainly two sources of revenue: ticketing and sponsorship. 13 concerts of Diljit Dosanjh are scheduled in Q3FY25 – 12 in India and 1 in the Middle East. The Events segment is low margin, but IRR business. 4) Carvaan: Over the next 6 months, Carvaan will be completely moved out of mom-and-pop shops, and sold only through e-commerce and modern trade stores. 5) PBT growth for FY25 should be modest vs last year, but should outpace revenue growth after 5-6 quarters.

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