Saregama Company Analysis - Tune Saregama into your portfolio in 2018?

Should you tune Saregama into your portfolio?

May 25, 201810:08 am

I am sure most of you must have heard about the music recording company Saregama but many of you  might not be aware of the fact that Saregama is listed on the stock exchanges. Here’s my Saregama Company Analysis

   When you think of Saregama, the first & foremost thing that comes to mind is old melodies of Kishore Kumar, Lata mangeshkar et al. But the brand has faded for quite sometime & was out of limelight.

Recently, When I was introduced to the newly launched product “Caravaan”, I was honest to admit it was something interesting. I started digging dipper and got to know that a new CEO/MD has come on the helm of the company since 2014. Vikram Mehra joined the company in 2014 & since then has been experimenting with a lot of things around the Intellectual property(IP) of the company which is a repository of 1.17 lakh songs in 14 languages. In all his interviews, he talks about getting rid of non-IP related business and focus only on those where there is an IP.

Along with working on several ideas, he was also converting the huge music library into digital form & creating meta data around it. This was completed towards end 2016.
Once the songs are digitized, it opens up numerous ways to monetize it.

The company is also getting rid of its business of daily soap production. They have been producing popular Indian show Savdhaan India, Begusarai & for Tamil audience they have been associated with Sun TV for 8 years. But since in Indian TV industry, the broadcaster takes the IP rights of the show and just pays the producer/creator the fee for creating the show, they are gradually moving out of it. They also have shut down their telecom VAS business.

Lets try to understand what all new intitatives have been taken by him since he came to the helm of the company:

  1. Saregama Caravaan– A transistor type device with preloaded 5000 old melodies. It also has FM radio, USB, Bluetooth capability.
  2. Music Cards– Memory cards with preloaded songs
  3. Licensing fee from streaming service provider such as iTunes, Gaana, Amazon, Saavn, Google play, Wynk etc. Was possible only after the music was digitized
  4. Ad revenue from Youtube streaming
  5. Short films– High quality content orient short & low budget movies. The maximum budget allocated for each movie is Rs 5cr. Ajji, one of the first production of their venture “Yoodlee Films” has seen lot of traction.
  6. Caravaan mini- Low budget device with 250 songs
  7. Music videos- Music videos of old songs remixed to new one 
  8. Paid Mobile apps                

The first short movie made under the production house Yoodlee Films called “Ajji” has already received lot of accolades & awards.
For the low budget short movies, the company is clearing all expenses in one year only which was earlier spread over years. Indicates better financial performance in the near future.

Caravaan alone has led the growth of ₹100 cr for the year. 

Let’s understand what makes Saregama Caravaan a hit:
  1. Very simple to use with only a few buttons
  2. No ads which enhances the music listening experience
  3. Lean back experience 
  4. Nostalgia– There is a button for Geetmala. Geetmala was a very popular radio show during 1960s to 1990s hosted by Padma Shri ‘Ameen Sayani’. I gifted it to my dad about a week back and since then the device has playing continuously with my dad citing the memories of those days.
  5. Sound quality– Things would have been different if the sound quality wasn’t as compelling. Sound quality is equally good.
Saregama Company Analysis - Tune Saregama into your portfolio in 2018?
Saregama Caravaan- Although a bit pricey but still desirable

The obvious question should come to one’s mind that how long can the company keep growing riding on a single product. It needs to keep innovating.

These are some of the future initiatives taken by the company:

  1. Have recently launched Saregama Caravaan in Tamil, Bengali & Marathi. Plans to add more regional languages. I shared the link with a bengali friend & in reply she said wanted the product for long but it wasn’t available in bengali. Shows the desperation or willingness of people to have the device
  2. The company also has plans to add a different version of Caravaan during the festive season
  3. In one of the conference call, the CEO hinted towards launching a altogether different device but haven’t given any details for the same: Curiously waiting to see what it would be
  4. The company has been acquiring & adding more songs to the library to build robust IP for the future

In one of the first, the company received an order from 5 Star hotel for placement of the Saregama Caravaan in all their rooms. Since no such similar product exists anywhere around the world, I am sure the company will see growth from places they never have expected. Yesterday, I saw Saregama Carvaan in my office with Viajya Bank logo on it. On inquiring I found out that Vijaya Bank has been distributing the Caravaan as gifts at an event in Bangalore.

Another good step towards streamlining the business, the company has significantly sized down the manufacturing facility at Dum Dum, Kolkata by giving voluntary retirement to employees
& had to spend 9.65 cr towards it in 2016. This reduced the number of employees by 100.

“A product can be quickly outdated but a successful brand is timeless”. The entire theme of the growth is Monetizing on the brand & the IP. Also plans to bring in the factor that “Retro is the new cool”

One interesting thing that I came to know in my research is the concept below.

iPod didnt make money by its selling songs but through the product. Songs are just complement but the money spinner is the product. That is what Saregama Carvaan is doing. The money juggler here is the device.

You can read more on this in HBS professor Bharat Anand’s book: The Content Trap

Saregama Company Analysis - Some more pointers :

Content is something that can be used again and again. Although, other labels might also have a similar or larger collection of songs but none can replace the melodies for the best of the 1900s.

Cash orders– Given the huge inquiries coming from customers & fast clearance of stocks, the distributors make an upfront payment.

One of the concerns I had is of the high salary to employees. For FY17, the company paid total salary for Rs 34 cr to just 210 employee, this takes the average salary per employee to Rs 16 lakh per annum which is exceptionally high. Even if I remove the salary of MD & CFO the average salary comes to Rs 13 lakhs.
The CEO in one of call accepted the high salary but pointed out that the company needed these people but haven’t been able to utilize them efficiently.
For FY18, the total salary as a percentage of sales came to 14%(Down from 18.5% in FY17). For FY19, it is expected to further reduce the percentage to below 10.

One more cause of worry is the magazine business. The industry is already being termed as sunset one. The magazine business is owned by the wholly owned subsidiary of Saregama which is Open Media Network Limited. The subsidiary business generated a revenue of Rs 7.5cr with a loss of Rs 14.33cr for FY18.

Saregama Company Analysis - Tune Saregama into your portfolio in 2018?
Saregama QoQ comparisor(FY18-FY17)

The turnaround because of the initiatives is quite visible with the

  • Annual revenue growing by 66% for FY17-18 and
  • Annual profit growing by almost 300%

While the B2B is growing by 18-20%, the entire growth is driven by B2C. For the last decade, the company has been completely focusing on B2B business. 
So if we look at 2018, around ₹37 cr of growth came from B2B and the remaining ₹100 cr came from B2C side. Given that 2018 was without much advertisement around the product, the company plans to aggressively advertise in FY19 which would see the growth soaring.

Has also launched Caravaan in UK, US & Canada.

Further Reading:

Saregama India: Q1’FY19 Quarterly Result Analysis

By, 

Shekhar Yadav

 

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Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

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