Hold Saregama India, target price Rs 440: ICICI Direct

ICICI Direct has given a hold rating to Saregama India with a 12-month target price of Rs 440 based on 14 times FY22 P/E. The share price moved up by 0.97 per cent from its previous close of Rs 427.65. The last traded stock price is Rs 431.8.

Saregama India's topline for Q4FY20 declined 14.3% year on year to Rs 108.7 crore as Carvaan sales fell to 74,000 units in Q4FY20 against 214,000 in Q4FY19, mainly due to no corporate buying and lockdown impact in March. EBITDA came in at Rs 21.5 crore, up 32% year on year, due to lower contract manufacturing charges & marketing costs. EBITDA margins at 19.8% were up 690 bps year on year. Consequently, PAT was at Rs 15.8 crore, down 7.1% year on year.

Investment Rationale

According to the brokerage,, the TV segment generated nil revenue in April-May due to lack of original content. TV segment may register revenue de-growth in FY21 but EBITDA levels profits may be maintained on higher margin, says the brokerage. On the web series front, while no deal has been made yet, the management has indicated that they are hopeful of a release in FY21E. They added the film segment has seen breakeven in FY20. The brokerage has baked in 7 per cent CAGR in TV & movies in FY20-22 to Rs 80 crore, with 5 per cent revenue decline in FY21, to be followed by 21 per cent revenue growth in FY22 on a low base.

According to the brokerage, the silver lining is continued traction in B2B driven by growth in OTT platforms and publishing. The movie business also provides sustainable revenue visibility with profitability now in sight. According to the brokerage, the near-term challenges in Carvaan are likely to restrict overall growth in FY21. We would await fructification of product demand growth given its strategy to convert it into a platform for longer visibility.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 108.66 crore, down -16.06 per cent from last quarter sales of Rs 129.45 crore and down -14.27 per cent from last year's same quarter sales of Rs 126.75 crore. The company reported net profit after tax of Rs 14.84 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 59.06per cent stake in the company as of March 31, 2020 while FIIs held 4.21 per cent, DIIs 4.83 per cent and public and others 31.28 per cent.