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Saregama India Ltd is one of the major recording and publishing firms in India. It was founded in 1901 as a branch of the Electrical & Musical Industries Limited (EMI) in London, before being acquired by the Kolkata-based RP-Sanjiv Goenka Group. The firm has achieved significant milestones in the history of Indian music recording and publishing.
SIL collection includes classical music, and old Hindi cinema soundtracks purchased from reputable film houses. SIL is also active in the television serial segments, particularly in South India.
The company also produces a pre-loaded music player by the brand “Carvaan”.
Financially speaking, Saregama Ltd has seen some healthy growth in its licensing and advertising revenue. Digital growth is really important.
SIL provides a double-digit operating margin of over 29%. Earnings are mainly supported by its high-margin licensing business, reduction in advertisement expenses & low debt level.
SIL is planning to acquire new music content rights across various languages.
The company is earning well. Especially during the past 2 years. The margins are also picking up. Debt is low and it has one of the largest music portfolios to monetize.
With that said, the valuation still feels a bit high for the business prospects.
Technically speaking, the stock is clearly in a strong bearish trend. The stock can show a reversal of trend anywhere by the 4,100 to 4,400 range. Any sooner might be a false signal.
Anyways, based on the valuation. And lack of volume, I would stay away for a few more trading sessions.
SWOT – Risk Analysis:
Opportunity & Strength
High Margin Business
Saregama Ltd has concentrated on its high-margin businesses and was able to make a turnaround in the business. Their licensing business has given a CAGR of 20% in the past 5 years.
The company has low debt, and its ability to service its interest expenses is increasing. The liquidity position is also strong and shows signs of more improvements.
Strong Promoter backing. RP-SG Group is well known and one of the most respected companies. They hold over 59% of Saregama Ltd.
Weakness & Threat
As said earlier, the company did nothing for literally 15 odd years. They lost the market share and all they now have is a good collection of old Hindi songs. Which Btw, I can get access to over the internet anyways.
The music industry is a highly competitive one. There are giants looming around and Saregaman Ltd has no visible moat. No advantage over its peers.
There is a term called, “First comer advantage”, which means that those who come sooner to the business, get all the benefits.
Although Saregama entered the business over a century ago. They had a couple of years doing nothing! They weren’t competitive. I mean, they entered the Film music business just recently in the year 2016. By that time, “T-series” has grown to be a giant in the industry.
Look, the biggest drawback to any business is that they become relaxed. Nokia did, Kodak did it and so does “Saregama Limited”.
It’s not all bad though Company is trying something new. In 2016, they started investing in Music, launched Carvaan, Started Its own Film production house in 2017, and just recently in 2020 they started investing in non-film music too.
Let’s hope they succeed in all their endeavors.
With that said, I’m not investing in the company, I don’t have them on my watchlist and I give a 6/10 rating.
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