Saregama India Ltd: India’s premier music publishing label

NAVNKUMA59 · July 23, 2017, 7:06pm

Saregama India Ltd. is an Indian music label and content producer for Indian television.
Its music catalogue consists of more than 117,000 songs in 14 languages built over a period of more than 100 years. It has daily and weekly TV shows currently on air with television networks[in India.
Saregama’s head office is located in Mumbai, with other offices in Kolkata, Delhi and Chennai.
It is listed on the NSE and BSE.
The company was founded in 1901. It produced the first song recorded in India and later moved into the production of cinema and television content, digital retailing, aggregation, radio programming and events.

History:

EMI
In 1901, operations started as the first overseas branch of Electrical & Musical Industries Limited, EMI London.
The company was incorporated on 13 August 1946 with the name of ‘The Gramophone Co. (India) Limited’. The name of the Company was subsequently changed to ‘The Gramophone Co. of India Limited’ effective 1 April 1956. It was converted into a public company on 28 October 1968 and consequently the name of the company was changed to ‘The Gramophone Company of India Limited’.
RPG Group took over the company in 1985 from EMI.
The name of the company was then changed from “The Gramophone Company of India Limited” to ‘Saregama India Limited’ on November 3, 2000
In 2005, the remaining EMI stake was sold off to the parent company.
HMV
The Gramophone Company is better known as HMV (His Master’s Voice) in India. RPG Group has been using the brand under license from the former parent company, EMI.
On 3 November 2000, RPG Group changed the company’s name to Saregama India Limited, and introduced a music label of the same name.
Dum Dum Recording Studio
The Recording Studio and the entire Dum Dum establishment of Saregama India Limited was built in 1928. It is one of the oldest studios in Southeast Asia. Nobel Laureate Rabindranath Tagore had recorded his songs and poems in his own voice at this studio. Rebel poet Kazi Nazrul Islam’s voice was also recorded here.
Artistes who have recorded at this studio include K.C.Dey, Hemanta Mukherjee, Sandhya Mukherjee, Manna Dey, Suchitra Mitra, Ustad Bade Ghulam Ali Khan, Pandit Ravi Shankar, and Ustad Bismillah Khan. Film director Satyajit Ray preferred to record his musical scores for his films at Dum Dum studio.
Television shows such as Dadagiri, Didi No. 1, Dance Bangla Dance and Saregamapa Lil Champs have been shot at the studio.

Operations:
Music audio
Saregama provides music repertoire across several genres and languages, including music of the first film made in Bollywood ‘Alaam Ara’ (1931) and artistes such as K. L. Saigal, Lata Mangeshkar, Madan Mohan, Shamshad Begum, Asha Bhosle, Mohd. Rafi, and Kishore Kumar.
In April 2014, Saregama entered into a partnership with an international digital distribution company, Believe Digital, for digital distribution of the entire music catalogue to the international market, especially to the Indian diaspora.
In March 2015, Saregama relaunched its online music store, consisting of more than 117,000 downloadable songs in 15 languages in lossless WAV format. It has four main sections – Hindi, Devotional, Regional & Languages in 35 sub categories with an added feature called ‘Experience 360’ which provides the users with information regarding the song, artists, artist biography and videos along with related songs.
Saregama has also established relationships with iTunes, OTT services (Gaana, Hungama, Wynk Music, Eros, Saavn, Biscoot & Guvera) TV channels[which?] and radio stations[which?]. Additional focus areas include direct-to-customer retail business via its website and applications, physical distribution, YouTube, and sales from reinterpretation projects, new Indian language television software.
Saregama Carvaan
Continuing with its mission of offering music in both digital and physical formats, Saregama is launched a global first, a portable digital audio player with in-built stereo speakers and 5000 evergreen Hindi songs inside. Branded as Carvaan, this audio player combines the best of digital technology with the convenience and ease of use of a physical form factor. These 5000 songs available on Carvaan have been handpicked using big data and categorised based on singers, lyricists, music composers, moods etc. Each category can be selected by turning a jog-dial. With a simple turn of a knob, one can switch from Kishore Kumar classics, to R.D Burman’s pulsating hits, to timeless love songs or to soulful Sufi tracks – all in their original versions, back-to-back without any ads. Carvaan’s music collection also includes the entire Ameen Sayani’s Geetmala countdown collection spanning 50 years. With the option to tune into FM Radio, Carvaan doubles up as a home radio too. It’s possible to enjoy one’s personal collection of songs by plugging in a USB drive or streaming songs from a phone to Carvaan via Bluetooth. It works on a rechargeable battery that lasts up to 5 hours. The product is backed by an all India service network, providing 1-year doorstep warranty support.

Yoodlee Films
While Indian cinema is gradually ﬁnding acceptance from a global audience, funding and support for Independent cinema in India is hard to ﬁnd. Commercial Indian cinema, colloquially known as ‘Bollywood’, does not serve a large swathe of the domestic audience and has limited resonance with the global viewer. Through Yoodlee, Saregama wishes to ﬁll this gap with stories that are driven by strong themes and entail a “no compromise” approach of fearless ﬁlmmaking. Driven by powerful stories and not by stars, the passion of the ﬁlmmaker is the starting point for everything in a Yoodlee film. Yoodlee desires to bring a heightened sense of realism to ﬁlms which are: shot in real locations, with sync sound, on the best camera technology available. Yoodlee wants to take on themes and deal with stories that others may balk at, allowing a whole generation of Indian ﬁlmmakers to ﬁnd their own authentic voice.
Saregama Classical Mobile Application
Saregama India launched a subscription based mobile application in September 2015 which features its catalogue of Indian classical music. The app, named ‘Saregama Classical’ has more than 10,000 musical works of over 400 classical music artistes in three major subgenres of Indian Classical music, i.e. Hindustani, Carnatic and Fusion. It also has a curated list of 50 artiste-based stations.
The app consists of works from artistes such as Pt. Jasraj, Ustad Zakir Hussain, Pt. Ravi Shankar, Begum Parveen Sultana, M S Subbulakshmi, Karaikudi Mani, N. Ramani, and Pt. Bhimsen Joshi. It supports offline listening where the app allows users to download its songs on the phone, so that the user can listen to it later without any data charges.
Saregama Classical is available worldwide on Apple and Android stores. It is a free to download app with a seven-day trial period. Customers then have an option to choose from monthly, semi-annual or annual subscription. The payment can be made either through the iTunes for Apple users or the Google Play store for Android users. Customers can also pay via their telecom operator or through their credit card/net banking/debit card.
Saregama Shakti Mobile Application
Saregama India launched another subscription based mobile application in January 2016. The app is called ‘Saregama Shakti’ and it offers a large collection of devotional music, videos on demand and high quality wallpapers. The bhajans on the app are sung by renowned artistes like Lata Mangeshkar, Anup Jalota, Suresh Wadkar, Jagjit Singh, Asha Bhosle, Anuradha Paudwal and Sadhna Sargam, amongst many others. The app also offers audio recitals of granths like Tulsi Ramayana, Geeta Govinda, Sundar Kand, Satyanarayan Katha, Sai Satcharitra Granth and Krishna Charit Manas etc. Along with the content of various Hindu dietie, the app features the entire content catalogue of Art of Living and offers the largest collection of audio, videos of various techniques of Art of Living like Sahaj Samadhi Meditation, Bhajan & Chanting, Yoga, etc. Along with the teachings of Sri Sri Ravi Shankar, Saregama Shakti recently added the largest collection of content from the Chinmaya Mission.
The app supports offline listening where the app allows users to download its songs on the phone, so that the user can listen to it later without any data charges.
Saregama Shakti is available worldwide on Apple and Android stores. It is a free to download app with a 1-day trial period. Customers then have an option to choose from monthly, semi-annual or annual subscription. The payment can be made either through the iTunes for Apple users or the Google Play store for Android users. Customers can also pay via their telecom operator or through their credit card/net banking/debit card.
Saregama Music Cards
Saregama launched its retail product named ‘Music Cards’ in March 2016. It is a credit-card-shaped 4 GB USB memory stick which is pre-loaded with 150 HD-quality songs of various genres. The genres which were launched in phase one include ‘Legends’ (The best songs of Hindi Cinema from artistes such as Kishore Kumar, Lata Mangeshkar, Mohd. Rafi, etc.), ‘Romance’ (The best romantic songs of the Golden age of Hindi Cinema), ‘Jagjit Singh’ (150 of the best songs, film and non-film, of the Ghazal maestro), ‘Shakti’ (The best devotional songs and bhajans) and M.S. Subbulakshmi (A collection of the best tracks of the iconic Carnatic vocalist).
Music publishing business
Saregama’s works with television channels, advertisers, film producers, radio stations, film and television production houses for use of its content. Collaborations include the song Fifi from Bombay Velvet, Hungama Ho Gaya from Queen and the Mahindra Rise Kisi Se Kam Nahi TV advertisement.
Television software
Saregama produces content for TV channels in Hindi, Tamil, Telugu, Kannada, Malayalam and Bengali.

Hindi
Saregama’s debuted on National TV at prime time with “Prayaschit”, a Crime-based show for Sony. This was followed by “Police Files” season 1&2 and “Pyar Ya Dehshat”, both 100-plus episodes each on BIG channels. Currently Saregama has two shows running on Doordarshan at prime time, “Stree Shakti” and “Jab Jab Bahar Aayi”. Along with TV shows, Saregama also produces vignettes based on the speeches of leaders including Mahatma Gandhi and Jawaharlal Nehru for EPIC TV. Saregama has been a regular producer of Savdhaan India on Life OK, producing over 175 episodes and eight Maha movies. Currently it is producing for the Maharashtra Fights Back series. Other shows includes:
• Savdhan India, Maharashtra Fights Back
• Daffa 420
• Jab Jab Bahar Aayee
• Prayaschit
• Police Files Season 1 & 2
• Pyar Ya Dehshat
• Stree Shakti
• Vignettes

South
The South TV Division of Saregama was started in June 2001 and has since then produced approximately 4,000 hours of TV content which has been telecast on Sun Network. Saregama has produced serials in genres including socio mythology, family soaps, fantasy fiction, and horror, in four South Indian languages.
The serial Athi Pookkal has broadcast over 1000 episodes in the noon band of Sun TV. Saregama has also produced several non-fiction shows where film celebrities such as A.R.Rahman, Vasunthara Das, Shivmani, Lawrence, Mumtaz, Malavika have participated as judges. Saregama currently has eight hours of programming per week on Sun TV out of which two are daily soaps (‘Chandralekha’ and ‘Valli’), one is a horror fiction (‘Bhairavi’), and one is a family game show ‘Chellame Chellam’.
Tamil shows include:
• Muhangal
• My Dear Bhootham
• Pondatti Thevai
• Kuttees Choice
• Athi Pookkal
• Valli
• Pillai Nila
• Chandralekha
• Soolam
• Velan
• Raja Rajeshwari
• Veppalaikari
• Bhairavi
• Mirinda Ooh La La La
• Close Up Super Dancer
• Masthana Masthana
• Rani Maharani
• Chellame Chellam
• Johnsons Baby Kuzhandai Paramarippu
• Jollywood Express
• Pepsodent Kids Khiladees
Telugu shows:
• Iddaru Ammayilu
• Jeevitha Chakram
• Namo Venkatesa
• Super Boy
• Kasi Majililu
• Close Up Super Dancer
• Rexona Evergreen Athithilu
• Jollywood Express
• 7 Up Ooh La La La
• Johnsons Baby Sisu Samrakshana
Kannada shows:
• Rathnagiri Rahasya
• Golmaal Gowramma
• Henne Nee Jaane
Malayalam shows:
• Aayilyam Kaavu
• Rani Maharani
• Jollywood Junction
• Mummy and Me
• Johnsons Baby Sisu Samrakshanam

Management
Mr. Vikram Mehra has been the Managing Director of Saregama India Limited at RP-SANJIV GOENKA GROUP PRIVATE LIMITED since October 27, 2014. Before joining Saregama, Mr. Mehra served as Chief Marketing Officer and Chief Commercial Officer at Tata Sky Limited until October 2014. In his decade-long stint at Tata Sky, he was responsible for subscription revenue management, brand marketing, new product development, customer analytics, interactive service operations, consumer research and PR. Mr. Mehra has a wealth of experience in handling the ever developing digital platforms. His deep understanding of various aspects and facets of digital media spearheads the growth momentum at Saregama of transforming and expanding the music label into a digital business. He started his career with Tata Consultancy Services as Senior Systems Analyst. After spending two years there, he moved to Tata Administrative Services as a Manager. He has also worked with Tata Motors during his seven year stint with Tata Group. Prior to joining Tata Sky, he was with News Corp owned STAR TV from 2000 to 2004 as Vice President, where he led its foray into DTH and cable services in India. He has been a Director at Saregama India Limited since October 27, 2014. Mr. Mehra holds MBA from IIM Lucknow and a B.Tech in Computer Science from IIT Roorkie

Scuttlebutt
Have gone to meet some of the dealers in Punjab to have an insight on the success of the product: CARVAAN (Launched on 4th May 2017)
Got to know, that the dealers pay advance to the company to get the product and they have got bookings done in advance till Diwali which is a good sign from working capital point of view on the part of Saregama Limited.

Some more positives
Promoter holding decent at 59.14%
Mr. Vallabh Roopchand Bhansali holds 1.48% (From the data available it seems he bought in quarter ending March 2016)
Company is paying regular dividends since 2013
Debt on Balance Sheet is NIL

Disclosure
Invested 7% of my portfolio recently.

KC1986 · July 24, 2017, 2:37am

Any points on the growth trigger at this point ? Future growth prospect for the years to come ?

NAVNKUMA59 · July 24, 2017, 4:06am

The management has started monetising the content that they have by launching the products that are B2C like recently launched Carvaan, Music Cards. Shall look at the management commentary in the AGM at 28th July to figure out the numbers they expect from these products

NAVNKUMA59 · November 9, 2017, 5:34am

The story of hardware “Caravaan” seems playing good:

lavpatel · November 14, 2017, 7:29pm

Agree. And as per management commentary, there is a decent runway ahead for Carvaan with 25 million potential target customers. Other interesting thing is that Carvaan is contributing 40+ Cr to the top line every quarter (and potentially even more considering they launched just 6 months ago), when their quarterly revenues last year were averaging around 50-55 Cr. So Carvaan is a big impact product for Saregama in terms of Revenue & Profit. And of course over-reliance on a single product is a double edged sword, so we will have to watch out for that.

I am impressed with the management and their team to come up with such a good product that is having a big impact on the top line and bottom line straight away. I am hoping they will be able to diversify the revenue a bit in few years.

I feel the valuations are on the higher side for the stock.

Would love to hear what senior members think about the opportunity at play here? @desaidhwanil @dd1474 @bheeshma @hitesh2710

Discl: Long Saregama India

dd1474 · November 16, 2017, 6:03am

@lavpatel

Saragama has undisputed market leadership when it come to music rights of golden era which is great. I like the company catalogue and it is great to see it encashed in excellent way with “Carvan”. However, real call would be managment ability in idea innovation to milk their excellent music rights. Carvan is first of such successful endvours. However, at given valuataion, one must except repeated successes of management to come with such unique ideas.

Further, the business of serial production and new music rights have its own dynamic. One need to evaluate all this factors, risks and opprotunities while taking decision on investment in the company. At current valuation, market is anticipating very high growth in profit and limited scope for missing that in my opinion (with PE of > 100 times and ROE less than 5% for TTM profit (7% of 10 year average).

Please do your own due diligence as my view may be biased due to my investment in Shemaroo. I have no holding in Saragama.

AmitContrarian · December 17, 2017, 11:51am

Any idea how they came up with this number ?
As per this blog , the urban middle class in india are just 2% of the population that is 27 million but not all speack Hindi and only a family going to own one, then numbers he came up is 18 lacs.
I am not sure how good is that analysis but worth reading.

Thanks,
Amit.

lavpatel · December 18, 2017, 7:57pm

I am not sure how they came up with the 25 million potential target customers. But they have already launched Carvaan Hindi and Carvaan Tamil (http://www.saregama.com/carvaan/tamil), and have plans to launch Carvaan with other languages. So the assumption in the article about Carvaan being only for hindi speaking customers is not accurate. And I agree that valuations are a bit stretched here but it is an interesting transition that the company is going through with Carvaan and Yoodlee films.

Regards,
Lav

AmitContrarian · December 19, 2017, 6:30am

This seems to be a interesting and long term recurring revenue generator too , That too ignored by the article.

pgramle · February 14, 2018, 5:09am

Valid points! my thoughts are what if the top line and profit growth shows significant growth on a continuous basis then PE becomes irrelevant.

Request senior members of the group to share their thoughts!

Disclosure I am not invested in the company.

chikspat · May 11, 2018, 1:41pm

Though there is separate thread for SAREGAMA, I am posting results that declared today. EPS of 12.31 for this quarter… It have more stickier revenue from media like, music and their hit product carvan than tips, which is bet on one film…

Disclosure: invested in Saregama

chikspat · May 11, 2018, 1:44pm

Sorry, by mistake posted here, suppose to post on TIPS forum. Any how it is result update…

kartik.nibjiya · May 12, 2018, 9:01am

There was a major fire which broke out in their Bhiwandi Warehouse on April 1 2018 and almost entire stocks was gutted in fire (although stock insured, but insurance money will take time to comeby). So whatever billing happened in March monthend, got reversal in April 2018, which will get reflected in April 2018 results. Also as a result there was huge shortage in April 2018 as no stocks was there to bill ! Hence June 2018 quarter will again be below par like Dec 2018 quarter !

chikspat · May 14, 2018, 9:09pm

Conference call updates:

Till 5 years no worries for B2C
B2B is bread and butter, Youtube, Ganna, Saavn,Jio etc. total 9 such operators
Travel time increased, in turn increase data consumption
Data rate come down to 5rs/GB
Only focus on high value IP i.e music and films
April fire have no major impact on company.
Gross margin will be in future 24-25%
Indian producer of carvan is ready having capacity of 600k
Carvan mini will have FM station also in future
Films are based on Miramax model
Employee cost will down to single digit in future
Marketing expense will increase substantially to have visibility in smaller towns also
13.PBT margin without SAR will be 14%
More products are ready but will be launched at appropriate time
15.Distribution pays upfront
Open magazine problem: promoters looking for a solution
In US and CANADA launched in amazon, now retailers starting stalking, take baby steps. Same will be UK
Conventional dealership with distributors

phreakv6 · May 15, 2018, 5:27am

I think Q4 performance of Carvaan is quite interesting.

That is a phenomenal growth rate without spending much on advertising. Am not sure if this is because of front-loading of revenues but I quite like what this company has done in terms of innovation. There aren’t many companies here that have created a desirable product and this seems to be one such. Being a gift item, I don’t think the purchase price will be much of a consideration, given its utility value in terms of nostalgia and entertainment.

There seems to be significant network effects at play as well here. There are 1970 reviews on Amazon for a product which has been sold only 400000 in number - 1 in 200 people have written a review roughly and that is assuming all of them bought the product off Amazon. Considering the offline retail selling this and Saregama themselves as well are shipping it, the people talking about it is quite high and that is contributing significantly to network effects.

Quarterly numbers are quite good - Revenue of 357 Cr, EBITDA of 94 Cr and PAT of 22 Cr. I don’t think it would be too far off to assume they can do a 100-120 Cr PAT in FY19 which means they could be trading around 12-14 P/E on FY19E which isn’t too bad for a desirable product with network effects.

Return ratios are improving but there is a good possibility of RoE hitting 20+ levels and RoCE hitting 30+ levels if things go well in FY19.

However, all is not good.

Risks

The product has some 1 star reviews which are highlighted promptly in Amazon and they are mainly about product quality which isn’t very reassuring.
There was a fire in their warehouse in April and there could be some loss in sales in April - Insurance should cover the losses but numbers could be somewhat subdued this quarter.

Now that we have spoken about Carvaan, their Yoodlee Films caught my attention and I watched Ajji on Netflix - I was amazed by the quality of storytelling, quality of cinematography and the audio which seemed to have been recording onsite which made for gritty, grimy feel. This is exactly what Netflix viewers are used to and it fits right in.

Due to the explosion of OTT players, currently Content makers are the king and I was of the opinion that other than Silly Monks and Balaji Tele, there weren’t other listed players to play this theme and was surprised to see Saregama was in that space as well and I actually like their content better than the former. Take a look at their youtube channel.

Segment-wise though, their Films/TV business has so far been a drag.

Management commentary is positive though

They also have publications business which has also been a drag.

However their IP monetisation is doing quite well, even other than Carvaan - through OTT players like Saavn, Gaana, iTunes etc. and this should continue to do well.

Carvaan 2 will be out for festival season in FY19. I think this product line could grow into a lot of things. They already have a tamil version but reviews for that don’t seem very positive in terms of collection of content. I think at some point they have to look beyond their IP and see if they can lend the product line and brand to other players. Current devices come with 5000 songs and have bluetooth support. I think a WiFi enabled device should be made in the future that can stream their entire catalog of 120000 songs - This can be priced higher around Rs.9999 and I think will be received well. I hope the management thinks on those lines.

Valuation as I said didn’t appear cheap before the results but after results annualising the numbers FY19E P/E could be considered relatively cheap. I see a viral product here but execution risk and market size needs to be watched.

Disc: Invested post results.

NAVNKUMA59 · May 15, 2018, 11:31am

Great set of numbers yet again…
Invested from much lower levels

vigneshb · June 27, 2018, 7:48pm

Saregama is a classic example of a business in a very promising eco-system

The data explosion/Smartphone usage expansion in India is invariably going to create a lot of wealth for digital media and advertisement companies.
Affluent middle class with disposable income which is showing great willingness to spend on entertainment.
Evolving and increasing clarity on copyright laws and their commercial implications between upstream and downstream media companies.

with multiple growth triggers lined up

Large upside from digital pay-per-play music consumption with the advent and growth of OTT players like Saavn, Gana etc.
A well-liked product like Caravan and the potential evolutions/versions this business can introduce
A rather successful low-budget movie production house, which finally seems to have hit the sweet spot between cost, star-cast, story line and marketing. (Ajji is a massive hit).

And all of this comes on the back of a large retro catalogue which has already been acquired and is waiting to be monetised.

Saregama did about 350 crores in top line and about 30 crores in bottom line in FY18. This business can principally be broken down into 4 aspects

Caravan – 1/3rd of the top line today (400K units sold at a rough price of 3K each = 120 crore topline)
Music publishing and digital B2c/B2B – This is still the biggest contributor to the business and will continue to be so. (Approx 170 crores top line)
Movie and television – 50 odd crores
Magazine – This is a loss making business to the tune of -10crores per year.

Now here is what this business could look like 1-2 years from now.

Caravan – will double in 2018. This is a firm forecast. The business already clocks in 80K-90K units sales every month. (110crores to 220 crores)

Caravan
FY18 Units Sold	0.04	Crores
FY 18 Contract Manuf. Cost	108	Crores Rupees
FY18 Inventory	39	Crores Rupees
FY 18 COGS	69	Crores Rupees
Average cost - Rs/unit	1725	Rupees
Estimate - Warehousing + Other Direct Expense	517.5	Rupees
Total Direct cost - Rs/unit	2242.5	Rupees
Average Price/Unit	2736	Rupees
FY18 Topline contribution	109	Crores Rupees
FY19 Units Sold (Estimate)	0.08	Crores
Topline contribution	219	Crores

Music publishing and digital B2B/B2C – This will grow “smartly”. And by this I presume in the 20% odd range, top line of about 200 crores (this is a conservative, but wild guess. Elsewhere digital businesses are growing at 30-40%)

Movie and television – There is a LOT of talk about this, but not a lot has changed from a revenue perspective for several years on this front. So I will discount it and assume that not a lot will change (50 crores top line)
Straight away, this looks like the business will achieve about 500 crores top line within 1-2 years. At 14% PBT, this business will make about 70 crores in PBT and roughly about 50 crores in bottom line (which is 70% higher than FY18 exit).

However, there are risks and it is impossible to ignore them.

In the above scenario, Caravan contributes to 50% of the top line. Unless we are talking about an Apple or Tesla, products are almost never a sustained source of revenue or competitive advantage. So it is to be seen how quickly the digital space grows in order to compensate for the eventual drop in revenue Caravan will bring about.
Content library acquisition – New content library acquisition of copyright music has been anemic at best. This does not make the company future proof.

FY17	1.2 crores
FY16	1.7 crores
FY15	68 lakhs
FY14	3.94 crores
FY13	3.82 crores
FY12	1.75 crores
FY11	4.88 crores
FY10	4.78 crores

There are corporate governance issues which bother me as an individual investor – a) Salaries paid to KMP are WAY OVER the ceiling. b) The business has a 40 crores equity investment in CESC which is a RPG owned company which I find unnecessary.

On valuations front, the business is trading at 39X TTM EPS (which is richly valued). However, this is about 20X FY19/FY20 EPS estimates which provides a small comfort.
The other way to look at this would be this – Say I bought this business at today’s market cap of 1180 crores for a combination of 960 crores in cash and 220 crores in debt. Soon after, I go away and sell the land that is sitting on the balance sheet valued at 180 crores (and lease it back), sell the equity shares of CESC for market value of 40 crores and close the debt. The operating margin will go down marginally, however if I ignore that – the 960 crores invested is getting me a business which will possibly return 50 crores next year (a 5.2% return, but still not too far from the 7% odd FD return).

Note – The 220 crores of non operational assets (land and CESC investment) are also causing ROA and ROE ratios to drop to very small single digits. So it is difficult to do a proper analysis and comparison on the basis of return ratios.

Lastly, this is such an interesting industry. Not a lot of industries I know of have gone through 4-5 technology/product offering changes in the last 10 years. From audio casettes to CDs, MP3 players to caller ring back tones, WAP and other telecom company bundled VAS’ to youtube/digital streaming technologies, home video casettes to online streaming/direct to digital movie releases today – All of this on the back of rampant piracy and a customer base which has remained unwilling to pay for content – All this while.
P.S : This is something I just cant get my head around on tax expense vs. tax paid vs. asset recognition of income tax.

FY	Direct Tax Paid CF	Tax Expense P&L	PBT
FY17	11.5	9.95	14.55
FY16	10.3	5.27	9.11
FY15	8.6	0	5.98
FY14	11.6	6.35	22
FY13	3.8	4.69	7.21
FY12	9.5	4.75	9.61
TOTAL	55.3	31.01	68.46

I was struggling to find where and why there is such a big deviation and then I found this. Could someone help me please understand why a business would keep paying tax inspite of such a massive advance payment asset sitting in the books?

chikspat · July 14, 2018, 12:26pm

Saregama latest AY is out.

sumi00 · July 26, 2018, 5:54pm

Reported Q1 results were certainly great yoy but much below expectations sequentially given the strong results in Q4 FY17. Q4 reports had some one-offs items so annualising Q4 is a mistake few people did.

3.5 cr net loss due to fire and also loss of sales etc
7cr qoq movement in marketing spend and it will remain high in Q2 and Q3 as well
Exiting some low margin non-core biz etc impacted sales.

Problem is Q2 will be slightly weaker too as they plan to charge one movie cost in Q3 while H2 will be quite good for the company. Kew takeaways from the concall : -

Carvaan Sales will still double yoy but could be higher as well. They plan to launch many new variants.
Streaming and other B2B sales could grow 15-20% yoy.
movie business could become self sustaining by the end of the year. This segment looks a lot better compared with what I saw over the last year. They have booked 3.5cr sales from the Movie sales probably in Q4 (reported in AR) by selling time limit license to Netflix. At least it will not suck cash as some had feared.
TV serials will be generate profits from Q3 onwards.

We need to keep in mind that they have 180cr worth of land in Kolkata and approximately ~100-150cr worth of CESC shares and no debt. So effective PE will be quite reasonable if you remove these assets from MCap. I expect them to report 50-60 cr PAT in FY19. I bought one carvaan for my parents and they instantly liked it. This is a simple but very useful product IMO.

Disc -Have taken initial exposure of 4% in PF and plan to add on weakness.

pgramle · July 31, 2018, 4:07pm

Interesting analysis i must say! I couldn’t understand why you said salary is paid way over ceiling.