Target: ₹450
CMP: ₹374.80
We initiate coverage on Saregama with a Buy rating and a DCF-based Dec’23 TP of INR 450 (implied FY25E PER of 34x). Saregama is presently the second-largest music label in India and is expected to further consolidate its position driven by sharp increase in its share of new content investments.
During FY18-FY22, it delivered above-industry growth of 26 per cent in its music licensing business by leveraging its large catalogue and re-popularising retro content that offset the lack of investments in new content for nearly 2 decades (2000-2020). We believe if Saregama successfully executes its new content acquisition strategy, its music licensing business can easily deliver about 23 per cent CAGR over FY22-25 (about 1.5x industry growth).
Further upside can come from faster-than-expected adoption of Audio OTT streaming platforms (about 200 million users as of CY21), sharp rise in percentage share of paid subscriber base (1.5 per cent as of CY21) and tuck-in acquisitions (similar to acquisition of Mango Music in Jan’22).
Growing share of the very high-margin music licensing business in the revenue mix, scale benefits, and divestiture of the loss-making publication business should ensure that margins remain at 26-29 per cent in the near term.