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We attended Saregama’s analyst meet (as part of RPSG investor day) where the management reiterated its revenue guidance (excluding Carvaan) of 25- 26% over the next 3 years. The core music licensing should log 23% CAGR with improvement in margins on account of leadership and scale benefits. This will be supported by steady catalog growth and investment of Rs1bn in new content, which also ensures that the company remains relevant over the long term. In the video segment, Saregama is at a relatively nascent stage and should see growth of 25-30% over the next 3 years with margin improvement given a bigger library and scale. PBT growth should be slower in the next 6 quarters as the company ramps up content acquisition and integrates Pocket Aces, after which PBT growth should outpace revenue growth. We maintain our estimates and retain BUY with an unchanged DCF-based TP of Rs580/share.

Music licensing and artist management: Investing for the long term Music licensing remains the backbone of the company. The management is ramping up on new music acquisition to future proof the company for the long term. This will entail investment of Rs10bn over the next 3 years, with payback period of 5 years being maintained. This investment will likely be split equally between Hindi and Regional music with margin profile being slightly better on the regional side. The old catalogue continues to see steady growth of 10-12% with 75-80% margin. Being a pan-India player allows Saregama to monetize its content in a better way. The competitive intensity is not high, with most languages seeing only few players competing for the new music being sold. The company has invested heavily in marketing and analytics which sets it apart from the competitors. It works with all major movie studios. The artist management segment is a byproduct of new music and does not require any upfront investment, while also improving music margins

Video: Strong growth from a low base Saregama has the entire gamut of video offerings – from short clips to web series and movies. In the movies segment, it will continue to only operate in the regional space where the risk is lower. The company ensures that 70% of expenses are recovered before the release of the movie with all charges written off at the time of release. Most of Saregama’s competitors also have their own movie production houses. The movie business has high IRR but low margins. For web series as well, the risk is minimized by securing deals with platforms prior to start of production. Over the next 12-18 months the company is looking at an 8-10% margin for this segment.

Other segments: Focus on margins for Carvaan; events in test mode In the Carvaan segment, the focus is now clearly on generating higher margins as opposed to revenue growth. With the elder generation also now becoming accustomed to streaming, the life cycle of the product has become limited. Live concerts are a low margin and high-IRR segment. It allows the company to develop deeper relationships with the artists. Saregama has already hosted various concerts with Diljit Dosanjh.

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