So far, the year has been tough for the Saregama India stock. Shares of the media and entertainment firm are down 29% as of October 11 close this year while the benchmark Sensex is down 2%.
The stock hit its 52-week high of ₹548.70 on December 28, 2021. But it failed to hold gains amid the market turmoil and gradually slipped to its 52-week low of ₹346.55 on September 26, 2022.
Brokerage firm JM Financial is positive on the stock’s prospects. The brokerage firm has initiated coverage on it with a target price of ₹450, implying a nearly 21% upside from the stock’s October 11 close of ₹373.20 on BSE.
“We initiate coverage on Saregama with a ‘buy’ rating and a DCF-based (discounted cash flow-based) December 2023 target price of ₹450 (implied FY25E PER of 34 times),” said JM Financial.
The brokerage firm said that Saregama is presently the second-largest music label in India and is expected to further consolidate its position driven by a sharp increase in its share of new content investments.
“During FY18-FY22, it delivered above-industry growth of about 26% in its music licensing business by leveraging its large catalogue and repopularising retro content that offset the lack of investments in new content for nearly two decades (2000-2020). However, from a sustainable growth perspective, it is imperative that the company invests in new music content as nearly 70% of the total music consumed in a year is less than 18 months old,” JM Financial said.
The brokerage firm, therefore, believes if Saregama successfully executes its new content acquisition strategy, its music licensing business can efficiently deliver about 23% CAGR over FY22-25E (nearly 1.5x industry growth).
Further upside can come from faster-than-expected adoption of audio OTT streaming platforms (nearly 200mn users as of the year 2021), a sharp rise in percentage share of paid subscriber base (almost 1.5% as of the year 2021) and tuck-in acquisitions (similar to the acquisition of Mango Music in January 2022), JM Financial highlighted.
“Growing share of the very high-margin music licensing business in the revenue mix, scale benefits, and divestiture of the loss-making publication business should ensure that margins remain at 26-29% in the near term,” JM Financial said.
An irrational rise in competitive intensity driving new content cost, a substantial increase in investments towards Carvaan, TV and films businesses, and industry consolidation (Zee Music and Sony Music) are the key risks, JM Financial said.
One can buy the stock for the short term also as it is exhibiting bullish momentum on technical charts.
Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers observed that Saregama stock has been consolidating between ₹360-380 on the hourly chart in the recent past and has made a solid base near ₹365.
“On a daily scale, it has formed a bullish AB=CD pattern in the support zone while the daily RSI (relative strength index) has formed multiple impulsive structures, adding more confirmation for an upside in the coming days. One can buy at the current market price with upside till ₹440 with credible support at ₹350,” said Patel.
Disclaimer: The views and recommendations given in this article are of the broking firm. These do not represent the views of MintGenie.