Saregama India Ltd: India’s premier music publishing label

Saregama Press release on Q4FY22 results

SAREGAMA RECORDS ALL-TIME-HIGH REVENUE AND PAT.

The Company’s Operating revenue rose 31% YoY at Rs.5806 Mn in FY22. PAT stood at
Rs.1526 Mn; up 35% YoY .
Total Income stood at Rs 6155 Mn, up 30% YOY. FY22 PBT at Rs.2044 Mn; up 35% YoY from Rs.1519 Mn in FY21. PAT Margin maintained at 26%.
Company’s Operating Income before Content Charge, Interest and Depreciation (OIBCID) rose 54% to Rs.2229 Mn in FY22 from Rs.1451 Mn in FY21.
Company’s Q4 FY22 Revenue from Operations at Rs.1802 Mn registered a 46% growth compared to same quarter last year. Q4 FY22 PBT stood at Rs.643 Mn as against Rs.503 Mn in the corresponding quarter last year (i.e. 28% YoY)
During this quarter, Company has acquired over 1500+ music IP belonging to 280 Telugu films from Mango Music. Company launched music of two big films: Sanjay Leela Bhansali’s Gangubai Kathiawadi and Mahesh Babu’s Sarkaru Vaari Paata. Both albums are super hits. Company released 135 films and non-films songs across Hindi, Bhojpuri, Gujarati, Punjabi, Tamil, Telugu, Malayalam, Marathi and Bengali languages.

In FY22, Company registered 17% growth in Carvaan sales; 4.01 Lakhs units sold in FY22 as against 3.44 Lakhs units in FY21.
In FY22 Films, Web Series and TV serials vertical crossed Rs.1000 Mn Revenue for the very first time.
Company managed to deliver its first digital web series to a leading digital platform. Company also delivered two Marathi films.

Avarna Jain, Vice Chairman Saregama India, said “India’s sustained economic growth and the universal acceleration of digital adoption by users across geographies are the key drivers of change in content consumption habits. This trend is expected to continue for a long time, and Saregama has aligned its content strategy to ride on this digital wave. The strategy includes monetisation of existing content as well as acquiring content through increased investments"
Vikram Mehra, MD Saregama India, said “Saregama is well poised to capture leadership position across Content IP industry. FY22 was a good year for the company, and we expect to continue this trend”

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Audio recording:

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Clarification on the query of has Saregama invested fresh money in RPG group companies from FY22 results conference call

Ankush Agrawal, Analyst: All right. Okay. Sir, one more thing, you know, we raised about INR700 crores in QIP. Out of that we have invested about INR30 crores in group companies as well.

Vikram Mehra, Managing Director: We have not invested in any group company. There are only two investments that have been made right out of that money and we have declared that out. The expense – the expenses for QIP, plus the money that we have spent right now on the acquisition of Mango Music catalog. That’s it. There is no money flowing to a group company.

Ankush Agrawal, Analyst: Not sure about it because if you see the quarterly shareholding pattern, there has been some increase in Saregama as a shareholder in the group companies. So the cash flow shows some INR27 odd crores of no investment in the state subsidiaries.

BL Chandak, Executive Director: Sir, I will explain – let me explain this right now. Let me take this opportunity – what you’re talking about. We people have a company called Calcutta Kolkata Metro Networks which is our own company, which is 100% subsidiary of Saregama, which we’re holding share of CESC, RPSG Ventures and Spencers Retail in there. These companies eventually going to be merged right now into Saregama. So before that we needed to first get the shares held by our 100% subsidiary. We had to buy it within Saregama.

Ankush Agrawal, Analyst: Okay.

BL Chandak, Executive Director: (Multiple Speakers) Saregama, those shares are going to be moved out when we had the demerger is happening and then Kolkata Metro Networks is going to be fully merged into Saregama. And the cash is going to come.

Ankush Agrawal, Analyst: Basically you’ve taken the shares from the subsidiaries, sir. Got it. Got it. That was very helpful. Thank you.

BL Chandak, Executive Director: Where it can go to deemed unit.

Ankush Agrawal, Analyst: Got it. Got it.

**BL Chandak, Executive Director:**So the cash flow was INR21 crore [ph] that you’re seeing right now is sitting as part of a 100% subsidiary. And as the subsidiary gets merged into Saregama that cash has moved from 100% subsidiary back into Saregama.

Ankush Agrawal, Analyst: Yeah, yeah, that clarifies. That clarifies.

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Does it mean that CESC, RPSG Ventures & Spencer’s Retail will eventually get merged into Saregama?

A key statement that Vikram Mehra made in the Q4 Con call “The real growth in music streaming business is going to come from subscription and not advertising. The day subscription takes off in India, you will see both the industry in general and Saregama in particular growing at a rate far higher than the rate that we are projecting today. I am personally very bullish on subscription taking off innext 18 months to 24 months. But the 23-25% growth projection we are making for our licensing business is without considering any potential upside coming from subscription”.

If for assumption sake, there is 10% of customers graduating from free streaming to paid subscription, the impact to bottom lines could be significant but the question is “Will paid subscriptions take off”

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The brilliant part of this business is that, Youtube/Spotify/Other Music Apps will work towards changing the customer behaviour so that they pay for subscriptions.
But Saregama will benefit from their costs indirectly.

Already lot of people are happy to pay for an Ad free experience. I do expect it to go up.

Also anyways this development is not captured in the price fully I feel.

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This is a very naive question and not particularly related to this thread. I will delete in after a while.
Sometime back I received my dividends from Saregama as a cheque even though I have my bank account updated in Zerodha. There are other companies with same demat which directly deposits dividends in my bank account.
How it is happening with Saregama only and how can I get it in my bank account directly?
Any help would be much appreciated.
Feel free to flag if it violates VP rules.

When I ask this question in concall about pricing power, I was expecting that instead of 10 paisa/stream, next renewal they charge 11paisa/stream. Though in previous concall, Vikram mentioned they increase minimum guarantee, when contract renew.
Many people have considered growth of paid subscription in investment thesis, however I feel, user are EXTREMELY price sensitive, only way to get them habitual is Jio way, give them so much cheap, they can not resist, bundle with other offerings.
However we do not know app companies will take which route.

Disclosure: Invested.

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Yes users are price sensitive.

I personally don’t think that monetization per view will go up any time soon or even has gone up any time

Number of views even today are compounding at around 40-45% cagr. Revenue at 26% cagr. Why?

Because a lot of the views are free views. So monetization per view (not per ad supported view but per view) goes down.

The only question is, today 300m Indians stream music. Can this secularly rise to 900m in next 5-7 years?

This, along with increasing digital advertising along with increasing migration to subscription can drive revenue growth at 25% for many years.

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" In 2021, YouTube’s user base in India amounts to approximately 459.23 million users. The number of YouTube users in India is projected to reach 833.03 million users by 2025."

900m maybe not but double of today’s number is likely.

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I have been struggling to justify the valuations here for a while. My high level assumptions were:

Lets assume in FY30:
-800 mn total music streamers (There are about 200 mn today based on various reports, this is 20% CAGR growth)
-10% paid subscribers (from <1% today) with ARPU of Rs 500/per year (Gaana annual plan today is Rs 299)

  • Free subscriber ARPU: Rs 100 (25% of paid ARPU: complete assumption, based on the fact that VIkram says streaming subscriber rev/stream is 3-5x of free)
    -Then in FY30: total revenue to the streaming platforms would be: Rs 11200 cr
  • Lets assume Music labels get 50% of this (global peers get similar): Rs 5600 cr revenue from audio streaming for music labels
  • Lets add 25% for Youtube: 1400 cr
  • Lets add another 10% for other digital (Netflix, TikTok, FB, etc): 560 cr
  • Lets add another 15% for others (sync, TV, perf. ,etc): 840 cr
  • Lets be generous and give another 500 cr for optionalities (connected cars, smart speakers)
  • Total Music label revenues comes to 8900 cr in FY30
  • Assume Saregama market share: 25% (from 10-12% today): 2225 cr revenue
  • Assume Saregama EBITDA margin: 30% (new music will be margin dilutive): 668 cr
  • FY30 EV/EBITDA multiple: 30x so FY30 EV: ~20k cr
  • FY22 EV: ~8k cr
  • Expected IRR: 12%

Broadly I would say these are very very optimistic assumptions. Despite that, expected return coming to 12% and that too after a nearly 30% correction. Where is the margin of safety?

Disc: Invested

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Hope there is a small population like me. Was so annoyed with the ads in YT given I listen mostly while driving and wanted an ad free experience. Ended up subscribing to YT premium but you bring a fair point - ad revenue growth will surely take off but paid subscriptions of reasonable volume in a price sensitive country is always a challenge

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