You are assuming unallocated costs will all go to films business which might not be correct.
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When is the demerger due?
Have been hearing about it for months together,but nothing seems to be moving in that direction though
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It is - The latest filing regarding it was that NOC was received from both exchnges.
Maybe those invested have a better idea abt this & can confirm. I was jst tracking it frm demerger arbitrage perspective.
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It will be done by Nov / Dec this year. Mentioned this in the Concall.
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As per latest concall, the process is going taking necessary clearance.
According to Kumar Taurani FY21 topline of Rs91crs can be grown 25-30% and same growth can be maintained for bottomline. Profit in FY21 was Rs43crs. That implies FY22 profits of Rs54crs- Rs56crs. Assuming Rs54crs profit stock trading at 32.5x FY22E P/E
Saregama did Rs113crs in FY21. If I assume it can do 25% growth FY22 profits would be Rs141crs. Stock trading at 51.5x FY22E P/E which is a 60% premium to Tips.
I think this premium will narrow as Tips will trade up. Personally I prefer listening to Tips library of songs v/s Saregama songs (too old generation for my liking). But Saregama is part of larger RPG which gives institutional investors confidence (evident in both MFs and FIIs holding stakes)
There are past issues against Ramesh Taurani in Gulshan Kumar murder case, but he has been acquitted and company has been minority investor friendly. Large promoter holding of almost 75% gives added confidence.
This also does not assume any value unlocking from demerger of films business. All the stocks needs is one large MF, FII or HNI buying a stake in the company and the stock will rerate
Disclosure: Holding Saregama from lower levels. Invested in Tips sometime back
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54-56 cr for FY 21-22 bottomline is extremely conservative. TTM profits are already 52 cr because June 20 and September 20 quarter revenues and profits were half of the next three quarters. Even if there is no growth over the next few quarters from increasing paid subscription or ad revenues for streaming sites, Tips should conservatively do 65-70cr bottomline this FY. If there is growth, it can be higher.
Plus they will demerge the films business so the mustc business margins may rise further.
I think the Saregama premium, in spite of some lower returns businesses, is because of two factors:
- Promotor perception
- The market believes that with the larger song library and cash flows, they have more funds for incremental song aquisition as compared to Tips. And since listenership is generally skewed towards newer songs, listenership of Saregama songs may increase faster than Tips songs.
How Tips does on new song acquisition is the key monitorable for me. If they are able to acquire smart, the premium will definitely narrow.
Disclusure: Invested in Tips.
Full portfolio here The Vineet Jain portfolio
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I agree, also Saregama is diversified in other businesses like Carvaan and some magazine business, which have poor return ratios.
Also, when we copare at the content aquisition cost, I found Tips more savvy, they donât spend on expensive content, instead they aquire decent content at lower cost.
I also see Tips Industries much investor freindly, recently they bought back share, and now they are de-merging films business. This will further improve its return ratios.
Disclosure : Invested at much lower levels
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Agree.Saregama has done much better in content acquisition vs Tips.However,the major differentiator for me is that Tipsâ movie and audio businesses will be separated while Saregama continues to house both.For a business where almost all revenue goes to OCF and continues to be well protected by IP laws & a large content pool,I can only imagine the multiple the audio business can get.This is a cash cow and with content monetization just taking off in India,the runway is huge.Atleast 20% growth with amazing cash flows and minimal cost for that revenue, this is an amazing business that will trade at great multiples.
Disc.: Invested.Views are biased.
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While music biz has all the spotlights focussed on it, the film production division has always been a drag. If the numbers quoted in this article are true, there seems to be a potential of some boost coming in from the production division too. It says that the rights to companyâs latest co-production âBhoot Policeâ have been sold for about 60 Cr. Compared to its budgeted cost of about 40 cr, there seems to be a good upside in the deal. Video streaming rights have been valued at about 45 Cr and satellite broadcast rights at about 15 Cr. Tips music division of course will have a further upside in form of monetisation of music rights separately. Even if we take these numbers with a pinch of salt, this should reflect well in the coming quarter results.
Disc: Invested in both Tips and Saregama from lower levels
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The basic issue as I see in Tips is this, the lack of institutional investors or a famous HNI. It is basically held by retail investors
â 9.86% held by individual investors with holdings < Rs2 lakhs
â 5.91% held by individual investors with holdings > Rs2 lakhs
Almost 75% held by promoters.
Everytime there is a small or mid cap correction, panicky retail investor are coming to sell and in some cases taking it down to lower circuit even though there is no change in solid fundamentals of the company. This can get resolved only if some institutional buyer or famous HNI buys 2-3% of the company which will give the retail investor courage not to panic without rhyme or reason.
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Anyone attended the AGM? If yes, please do share some highlights. Thanks a lot.
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Kumar Taurani reiterated secular growth of 25-30% over several years. Subscriber base for music apps is expanding rapidly. Management is receptive to maintaining payouts to shareholders.
I feel eventually subscribers will be receptive to paying.
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Any update on demerger of music business ?
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Excellent video on the music industry, with some salient information on Saregama and Tips. Must watch for investors in these companies.
One thing that I seek more clarity on, request anyone who knows better to please share your thoughts:
At 36 min 20 sec, Shashank speaks about how Digital service providers share revenues with music labels. While YouTube has a normal revenue sharing model, Facebook has a fixed contract and Saavan, Spotify etc pay a fixed 10 paisa per song heard to the label.
If this is true, then apart from YouTube, how will the increase in premium subscription on other platforms like Spotify, Saavan, Gaana etc help music labels? The music labels get paid per song anyway, which is unaffected by number of people subscribing.
I asked Shashank this in the comments section, and his response was âWhen industry will shift to subscription model that time pay per song wonât be there while subscription revenues will be shared by platforms to labelsâ
Not sure if this is based in some fact or his assessment of where the revenue models will go when subscriptions increase. If anyone has any views on this, Iâd request you to please share. For me, the entire investment thesis hings on increasing paid subscribers driving up total revenues for the platforms, and in turn for the music labels. But if there is no (or lesser) corelation between a paid subscriber and music label revenue, I will have to revisit.
Disclusore: Invested in TIPS. Full portfolio here Vineet Jain portfolio
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There are multiple ways in which the music labels make money. First is as you mentioned 0.1 rs. whenever a song is played. Then they have minimum guarantee clauses as well. They also get a share of advertising revenues and lastly, they do get a share of paid subscriptions which might be very small as of now but chances are it might increase in future as more and more people go for premium subscriptions.
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Hey, I tried to look at relevant companies in the US stock market and came across SONY and Warner Music Group. Sony has other businesses apart from just a music label but I found Warner very much similar to Tips. Now, looking at Warnerâs financial I could see sales growth being very poor with inconsistent EBITDA margin and poor EPS growth trading at a PE of 89.
Is this actually a business model which can grow at a 15% CAGR for the next 10 years? Do SAREGAMA and Tips have any other sources of revenue apart from earning royalty and releasing newer songs? With access to music being more easy people are also getting into international music and a certain mass will never be into the genre where Saregama and Tips are. So how sustainable is this business model.
And itâs not like this is a duopoly, even T series is there.
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You are missing the opportunity size in India. How many of us actually pay for music compared to western countries?
And while Indians are listening to International music, the same is true for other side as well. Rajnikanthâs movie is a bigger hit in Malaysia than in North India. In middle east, when you say you are Indian, ppl say âShahrukh khanâ. Most Indian movies and songs come with english/ spanish subtitles so that International audience can understand it.
Indian movies and music (I have listened to Punjabi songs in German discos) have a much wider reach today. From my perspective, Industry size is even bigger than most of us can imagine today.
Disc- invested in saregama, tracking Tips
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But do you think Indianâs are willing enough to spend on music at the same level that Americanâs do? I have been a heavy metal fan since 15, people around me even though they were interested in the music never actually spent anything on it and its still the same i.e. buying merchandises, attending concerts etc etc. Music labels can earn if people buy merch, attend concerts and mostly in those countries there are different genres which attract a diverse user-base but this is only Bollywood.
Even I am interested in TIPS but I would have been more comfortable if they had other sources of revenue as well.
These are NOT major source of revenue for labels. Major source of revenue is subscription. A paying customer who buys subscription (eg: youtube premium subscription cost is 190 per month for a family of 6. Works out to 30 rupees per person per month & 360 rupees per person per year) gives 22x more revenue to labels like saregama and tips than an ads supported customer.
All across the world, customers have been moving from ad based to subscription based music consumption. Could india end up being an exception? Yes. Is that probable? I donât think so. In india < 1% of music consumers are paid subscribers. There are around 50cr consumers. 2 key triggers lined up:
- Launch of Jio phone 2 & airtels own counter will enable even lowest strata of society to consume 4G data & stream ad supported music and entertainment. That 50cr is likely to go up to 100cr at some point (maybe 3 years, maybe 5, maybe 7)
- Conversion from ad paying to subscribing music consumption. Most of these apps which are ad supported are not able to generate good unit economics without good portion of revenue coming from subscribers. It is in their own self interest to shift most consumers to paying subscribers. Give more perks, more benefits. At around 300-500 rupees every year, even my household help can possibly afford 1 subscription for their household if they really consume lot of music or video content (eg: YouTube). This is a global trend. Most global trends tend to play out in india due to similar human level driving factors : if itâs cheap enough, the convenience far outweights the small cost we pay. For this 1% to go to 50% it might take 20 years but even if 1% goes to 5-10% the topline growth can be materially different due to 20x higher revenue that paying subscribers bring in.
I would encourage you to read industry reports to better understand these and related trends.
Streaming is the far superior unit economics biz which gives high valuations to tips & saregama. Merchandise etc are physical assets & thus very hard to sell at high margins. The profit margins in music streaming (despite 99% of it being ad supported) are insane (50% pbt margins). Imagine what this could look like when market shifts to 5% paid subscribers. That is the opportunity size. That is the reason for high valuations. No capex, your end point of sales (YouTube, wynk, airtel, jio) do most of the marketting, market creation, market expansion, you just sit & enjoy the show. That is the life of a 
label. This is one of best industry structures I have ever seen. Disc: invested in Saregama
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