@Vivek_6954 Topline growth is good and inline with festive sales but operating margins have deteriorated so the results are not great. profits YoY are phenomenal but that was on expected lines. How they perform from here on is more important as they will be performing on a higher base. Lets see what the management says in the concall today.
Disc: No holdings
Bit strange that the operator did not hand over the call to the mgmt for final closing comments. He kept saying they would announce new product launches/new initiatives etc. It ended abruptly but the outlook looks great to me. So many avenues to make free cash like music society payments/streaming etc. I am slightly disappointed that their marketing costs continue to remain elevated.
Disc: Invested
Gross margin has declined by a bit, although Carvaan margins are up QoQ, so I presume this reduction is driven by TV/Films. EBITDA margins have only slightly deteriorated QoQ, at this stage I wouldn’t read too much into it. But I am quite comfortable on the margin front.
What worries me is that come Q2/Q3, the revenue base effect is going to start kicking in and growth is probably going to stagnate, unless they manage to sell more and more Carvaans. Carvaan accounts for about roughly 2/3rd of the total top line (3 Lakhs unit sold at roughly about Rs.3000 per unit is around Rs.90 crores which is 2/3rds of Rs.150 crores Q3 revenue).
One of two things could happen
The company might continue to push sales of Carvaan through aggressive marketing - ad costs will go up, OPM will go down resulting in bottomless growth.
The company might continue to introduce new variants - which is happening now. They are going to introduce Caravaan Go. Now I strongly believe that for a product company to be able to thrive, they have to continuously introduce products to suit various customer tastes. The automobile industry, technology industry are good examples to this. However in all those cases a repeat purchase is warranted. This is a key missing element for me in Carvaan. So in essence this cycle could lead to slowing top line growth and a deteriorating margin profile due to high SKUs.
Growth triggers in the short to mid term are missing and that is going to be a worry. Yoodle films is doing well, but it will take years and plenty of investment before it can effectively fill the Carvaan gap. OTC, YouTube and online streaming hold great potential, but monetisation issues continue to plague the industry as a whole.
Interesting times ahead, but I am only going to be a spectator watching on the sidelines.
i dont have subscription. Can you please post screenshots of the full story… I hope it is not against group policy
He is saying the same thing as he did on ET now. Nothing new except a new product called Caravan Go i.e. a new mobile type device for the younger generation and aggressive plans for films and perhaps OTT series later on.
Carvaan has also got approval from CSD Channel for sale of flagship Carvaan to be sold through army canteen channel .This will have some positive impact on their sales next financial year .
Lots retired defence guys will love to purchase this as it would be available at substantial discount to market price and also this will result into additional revenue stream .Besides payment is secured .
Hi All,
I had a cursory look at the co. and here is observation followed by some questions.
Saregama is into following business,
B2C is Carvaan and B2B consists streaming of music on OTT platforms (Gaana, Saavn, etc. In total 45 platforms, 9 in India.), Youtube, Licensing (TV, Radio, etc).
A movie production unit that goes by the name of Yoodlee films. The target is to create content for digital mediums. All the movies to be produced in the budget of 4-5 crores, story is the main hero in the film and not the star cast. 4 movies produced till now and all exclusive rights sold to Netflix for a period of 24-36 months. A couple of others are under various stages of production/post production.
The co. produces TV content for Tamil audiences. It receives ad slots in compensation from the broadcaster.
The co. owns Open magazine which is at present making losses.
From what I could distill after all the reading, the co. is on path to monetise its existing IP in music and use the cash flow to create new IP to stay relevant in future. The co.'s music assets are rich but addressable only to a certain audience with a certain preference for music. Carvaan was a master stroke in that direction but will lose its relevance beyond a point.
The big question to answer is whether the co. can create and monetise IP on a loop (pun intended) and turn this operation into a virtuous cycle. Newer platforms available for monetisation of IP in present day is a big plus and could put content creators on a different orbit.
At the whole, the Saregama wants to re-invest in creating new IP till the point of maintaining a PBT of 13%. (excluding provision for Stock Appreciation Rights).
As far as films are concerned, the co. has decided to continue till the point losses accumulate to 30 crs and not beyond. The co. is well on track and plans to use funds raised from selling movies to make even more movies. The payback period is 5 years but the co. claims to be doing far better as of now.
As far as Music goes, the co. is taking baby steps by buying music of new films.
Questions:
For new music IP that the co. is buying, how does the co. plan to recoup the expenditure beyond the initial phase? By initial phase I mean, the time from release of the music before release of the film to 8-12 months after the release of the film, usually the duration for which music of a film stays relevant. How much percentage of total amount can be recouped in this phase?
Is there a formula to recoup all the investments in new music IP or the co. could also incur losses? What kind of ROI can a music label make on a portfolio level?
How does the co. plan to compete in acquiring new music with biggies with fat wallets like T-Series or Zee? What is the typical amount spent on buying music rights of a new film, just for the sake of reference?
(I spoke to a friend working with a competitor of Saregama and got to know that big ticket film music with superstar cast can go for anywhere between 15-20-25 cr. 2-5 cr is the lower range for which film music gets acquired. There are also instances where a film has an old song remixed, as is the trend nowadays and the owner of the old song will invariably get the music rights of the film on favourable terms. It’s not as simple, the deals are not plain vanilla and standard. Some biggie music label co. with great clout that can create buzz for a film could have the music for lesser than a competitor for example. Please validate. No onus.)
As far as films under the Yoodlee banner are concerned, does the co. plan to improve payback or ROI, and how? And does the co. expect better realisations for its movies once the Yoodlee banner is established in the market, given the cost for producing a will remain in the tight range of 4-5 cr per movie?
How much of the 25 mn target audience the co. can reach in 5 year’s time? For how long does the co. expect to sell Carvaan, 10/15/20 years after which the product might become outdated in its current form and existing content (60s-80s)?
I would be grateful if someone could give me pointers on the above and correct me if I’m thinking in the wrong direction.
Thanks.
Disclosure: No Investments
Small But Positive developments
Product description on AMAZON:
No calls. No messages. No internet. Enjoy an uninterrupted music Caravan Go, a personal digital audio player that comes pre-loaded with 3000 evergreen Hindi songs inside. This portable device allows you to enjoy songs of your favourite artistes like Kishore Kumar, Mohd. Rafi, Lata Mangeshkar and many more. The Go has stations designed for every mood such as happy, romance, sad etc.
It also feature 50 specially curated playlists to match any activities you take on like driving, yoga, morning walks and host of others.
You can enjoy local FM/AM stations or even your personal collection of songs on Go by simply inserting a micro SD.
You listen to the songs on GO by plugging in your earphones or by connecting the device to your personal Bluetooth speaker.
This handheld device is light weight and has a long battery life that lasts upto 7 hours. So what are you waiting for? Leave your mobile phone at home and walk, drive, fly with– Carvaan Go.
Any scuttlebutt on how the sales is performing for Go and also of Carvaan conventional transistor model? Views invited as these scuttlebutt really add value to VP.
Attended Saregama concall for Q4FY19. Key points that I noted from the concall are given below:
• Good growth in revenue and PBT
• Combination of things working for us – Caravaan – Number has crossed 900,000 units for FY19. More heartening thing is the typical slowdown post festival season, we were expecting nos to come down. Despite Q4 being a tough quarter, we were able to cross 200,000 units for the quarter. Caravaan somewhere is able to ride the seasonality issues. Thematic Caravan mini being released – rabindra sangeet, telagu, Malayalam etc launched. Its for personal consumption. Gurbani are being promoted outside Gurudwara. Gifting Caravan outside festive season. Continued expanding retail outlets and reach for Caravaan. Combination of consumer durables, mobile outlets, car outlets etc. Launched Caravaan Go in April. Average listening time is 7.50 hours for Caravaan. Caravaan go can be listened when they are flying, driving etc. Comes handy product. It is positioned as a you product and not as a gifting product. Revenue of Caravaan doubled this year compared to last year.
• Other division – licensing grew by 33%. Estimates of 20% for next year. Estimates of 25% for next year. Base will be bigger next year. Great work happening on streaming side. Apps like Gaana going up. Success of Caravaan is making retro songs making a comeback. Lot of remixes of retro music being re-released. This quarter also saw us moving towards music acquisition. Nos of new music acquired is doing pretty well. Start getting more and more aggressive for acquiring and monetising new music.
• 3rd vertical which has done well is the films business – FY19 we want to go back and establish ourselves as a content driven film production. Amazing 5 of our films released on Netflix. Music Teacher released in April. Got order from another digital platform. Got guaranteed order from Hotstar. First film to release in October, 2019. Should be able to get one more output deal soon largely in regional cinema. We can make movies without loosing money. Established ourselves as a serious player here.
• Television vertical – continues being under pressure. Not been able to monetize the content. We make a program and sell it to Sun TV. Sun TV gives us advertisement time. FY19 – not able to sell lot of our advertisement time. Hardly made any profit on it. Inventory sitting with us and we should be able to sell it soon.
• Entire cost for new film music – 75% is content cost and 25% marketing cost. Marketing cost is charged out completely in first year while for content cost 66% of content cost is expensed out in first year of release. Film entirely expensed out.
• Didn’t face any stock out problem despite fire in April last year. Received insurance money but some gap between actual value lost and money received from insurance.
• 32 crore cost being charged out including some amount being written off for last year and for this year.
• Music acquisition for new film music – We are looking at 200 crore of nos to be spent on new music acquisition. Maintain margins in music business - If we are talking of 25% growth is also account of acquiring of new film music. Revenues going up substantially on licensing side – the film may be getting released for FY20. Operating leverage coming in the business – short run will be negated by increase in music acquisition cost. No fixed cost there for music. If we don’t re-invest in it, nos will not grow. We keep on investing in it. We will not be borrowing to acquire new music. Vertical head cannot borrow from other verticals. Huge head room available right now. Piracy seeing a decline big time. Content players like us are in very decent position.
• Yoodlee films – no of films for which costs have been taken off – costs for Music Teacher taken in FY19 as the money received during FY19 for it. Output deal already done – as and when the revenue gets recognized, the cost is recognized.
• Other income break up – 11.84 – insurance item – 15 crore. Normal interest income for loan given and dividend from our interests.
• How much insurance income received – 32.18 crore received, loss of 5.6 crore is the loss booked for FY19.
• Borrowing of 60.81 crore for CC – Debt is not zero currently. Insurance claim of 31 crore helped in reducing it. Working capital required for the business.
• Spotify – work in future with them? Negotiations happen. Our content is not there in India but its there in Spotify outside India. You don’t fight with them but wait for right valuations from them.
• Mix in Saregama is changing. Mini wasn’t doing well till October, 2018. Mini started moving up due to Gurbani and Spiritual songs.
• Licensing revenue – biggest revenue is streaming for apps – every time a song is played on the platform we gait paid for it. Second revenue stream is TV licensing. Web series. Brands usage, new music getting played and even radio. Societies pay us. Youtube is the 4th largest contributor. Youtube is marketing game for us. Lion share of that over 50% will be audio streaming. Pirated music going down. Gaana just declared 100 million subscribers few days back. Publishing – earlier coming from TV now coming from digital streaming as well.
• Gross margins – will it move up if we move to 1.2 million? Low probability of gross margins improving. Otherwise – 0.9 million to 1.2 million is not a big number. Gross margins – COGS, servicing, royalty, below the line marketing expenses, advertising cost. Not including above the line employee costs.
• FY20 number of outlet target? Pushing a lot in Tier II and Tier III towns – looking at 30K number. Majority of the growth coming from these cities.
• Revenue from music segment – difference of 13 crore. Deals for Caravaan for outside India is done through subsidiaries and that gets accounted there.
• New music released over the past 12 – 18 months, experience for it? Payback target for us is 5 years. However, currently doing better than that. Even before the music is released, we negotiate a fixed fee and minimum guarantee deals. 33% increase in licensing fees is also on account of better negotiations.
• Average realisation for Caravaan for FY19 – 4200 (combined realisation for Caraavan and Mini).
• Will the movie revenue will be lumpy? It used to be lumpy earlier but now improving. More movies will come up outside of output deal as well.
• Lot of hope from societies. Revenue from societies should increase substantially going forward. Telecom ringtone is negligible now.
• Acquisition part – target for 3 years is 200 crore.
• Plan to fund capex for 200 crore for music acquisition. Cash flow was negative this year? Need to pump money initially in a business. Our profitability targets wont get impacted by 200 crore music acquisition cost. Revenue potential from this capex of 200 crore? Various sources we have right now for monetising new music, there is an assumption we have in mind. First year assumptions we have for generating money from each music stream.
• Fair value of investment we have in investments? Investments of 121 crore.
• Getting feelers from other music lables to monetize their catalogue.
• Caravaan targeting only old music. Banking on nostalgia.
• Bullish on FY20. Taking it more to Tier II and Tier III towns. Awareness level should increase there. Combined 3 year revenue from Caravaan is 5 million units. FY20 target is 1.2 million units.
• Margins we will go back to 25% gross margins.
• Licensing – should grow by 25%. Will not get into long term commitments.
• Film business – looking quite stable. It might become the more stable business we have. Revenue is assured. Looking at 30 – 33% margins. FY20 – is for making name and some money. Fy21 – we should be able to negotiate more.
• 4 – 5 triggers – increasing mobile phones, increasing how devices – more and more people will consume more audio and video content, piracy is bound to come down. Premium content owner will be able to monetize more. Keep on inventing our position in new film content also. Should be able to improve our negotiation abilities with content platform.
• There was much lower growth in license revenue for music segment during FY18 visavis FY17 due to significant decline in revenue from telecom revenues which used to contribute 40% of our revenue earlier.
• Given that we are purchasing new content also on music side, our bargaining power with our customers has increased for our catalogue. We normally enter into 2 year contracts with the customers.
Thanks for update…
Thanks for beautiful summary of concall. You have an amazing clarity of thought, memory and Gods gift in writing lucidly. Pl keep up the good work and write more often.
Saregama seems a good buy at CMP ?? MD Vikram Mehra truly is a competent person executing beautifully.
Hello All,
I was comparing cumulative PAT to CFO for the past ten years.
PAT is more than CFO. Is this normal? or am i making mistake? Could any of you help me understand?
Thank you
~5000 evergreen retro songs, access to 15000 additional songs and a host audio stations via WiFi~
Has any VPer gifted Carvaan to ones relatives n friends n how has been their experience? Will they recommend it as a gifting item? Any scuttelbutt on Carvaan sales at local stores like Croma Vijay sales ?
How r other verticals of Saregama including Carvaan in terms of opp size n Roce?
Any concerns on promoter quality?
I have gifted it to an uncle and aunt of mine on their 25th anniversary and they loved it.
As far as I know they use it every evening
I have done scuttlebutt in electronics store in raipur where sales people confirm that usually people buy in bulk(25 units) and sell them in their own small shops .
