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As the oldest music label in India, Saregama boasts of an enviable catalog of older-generation songs that are nearly impossible to replicate. Company is now putting the pedal to the metal on acquiring new content, to close the gap with the market leader and ensure that it remains relevant even a few decades later. The music licensing industry has flourished, with waning of piracy; Saregama has capitalized on this opportunity, consistently exceeding industry growth. We expect the steady growth to endure, though transition from the ad-supported to the paid-subscriber model for OTTAs might be a temporary speed-breaker. It now has its foot in the door to explore the fast-growing digital media landscape via its recent acquisition of Pocket Aces. Ramping up of non-music segments will offer added growth impetus. Growing digital revenue and ramp-up of paid subscribers ensure a long growth runway. We initiate coverage on Saregama with BUY and DCF-based TP of Rs465/sh (25% upside). Key risks: i) content costs rising, ii) piracy reflaring, iii) non-adoption of the paid subscription model.

Saregama India: Financial Snapshot (Consolidated)

Core Music Licensing to continue growing; potential blip possible

Saregama’s core music licensing has consistently grown by ~23% over FY19-23, aided by industry tailwinds, strong competitive positioning, a dominant catalog and increasing new content acquisition. Bulk (70-75%) of its revenue may be attributed to the digital mode — video and audio streaming as well as short-format apps. Of these, revenue from audio streaming is driven by free subscribers in India (unlike the global scenario), where realization per-song for Saregama (Re0.1 on average) is lower than that contributed by a paid subscriber. A shift in the ecosystem, from free to paid, can result in better realization. This journey, however, is unlikely to be smooth, as Saregama will have to take a revenue hit to support the streaming platforms, and can also see a possible flareup in digital piracy rates. Nevertheless, this move is likely to be positive in the mediumto-long term, supported by sharper growth in subscription revenue.

‘Pocket Aces’ acquisition opens new avenue; non-music segment to scale-up

Saregama recently announced the acquisition of digital entertainment player Pocket Aces Pictures Pvt (Pocket Aces), which provides it an entry into the fast-growing digital media landscape and access to the key demographic of the younger generation. Saregama can extract synergies in multiple areas—artist/influencer management, brand partnerships, content acquisition, marketing, etc. Films and TV serials should also see steady growth, coupled with ramp-up in the events vertical.

Outlook and Valuation: Steady growth on the cards

Saregama has seen a meaningful valuation rerating since Covid, given resilient earnings growth and robust revenue performance. Saregama is well poised to capitalize on the abundant monetization opportunities in the music industry and adjacent categories. We forecast revenue CAGR of 23% over FY23-26E, including ~18% music licensing revenue CAGR and the Pocket Aces acquisition. We expect margins to remain broadly stable, as the integration of Pocket Aces (currently loss-making) and scaling up of the lowermargin, non-music segment will prevent any meaningful upside. The stock’s valuations are at a premium to global peers due to its superior growth trajectory and better margin profile. We initiate coverage on Saregama with a BUY recommendation and TP of Rs465/sh (implying 25% upside) based on DCF methodology (implied PER of 28x FY26E).

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