Saregama India: Q1’FY19 Quarterly Result Analysis

August 1, 201810:45 am

Saregama India came with the Q1’FY19 results on 23rd July’18. Given their continued growing sales of Saregama Carvaan, I was anticipating the result. Let me give my take on the quarterly result numbers.

There was a fire at the Bhiwandi warehouse in the first week of April but the management had notified that everything was covered under insurance & under control.

When I read the numbers & something didn’t seem right. That made me attend the Saregama’s management team’s conference call. Even then I had further queries which I mailed to the company to get the answers. Lets look at the numbers first.

Because the revenue is primarily driven by Saregama Carvaan sales which was launched in 2017 & there wasn’t any advertisement done earlier, it will make more sense to compare Q0Q numbers rather than YoY.

1. There is very small growth in the sales number.

2. Other income grew by a large sum(I will talk about it)

3. Advertisement & Royalties expenses went up significantly

4. Because of the negligible growth in sales but a large increase in expenses led to drop in profit vis-a-vis last quarter. 

Saregama India: Q1’FY19 Quarterly Result

Since the product lost in fire was insured, the company was to be compensated by the insurer. Getting the insurance money is a time taking process with several processes involved. And they actually also didn’t get the claim in this quarter.

 

I will take you through what the management has done. They have assumed the amount that was to be received in the future(insurance claim) as Other income of Rs 34 cr. So, the number on the right side of Fig 1 represent the number given by the company & left side calculated by me excluding the insurance claim that the company hasn’t received.

Few question arises by the treatment of Insurance money which the company hasn’t received yet. The amount of ₹34 cr is added as other income without the company having received it. In the conference call, the MD said they expect the amount to come in Q2 FY19. 

  1. Was the figure of Rs 34 cr added so that the Profit & Loss statement don’t look bad?
  2. Couldn’t they have waited for the actual money to come in?
  3. Ideally, the amount which the company has not received should be in the form of receivables not income.
Fig 1

In my opinion, the only purpose of showing the amount which the company hasn’t received and even the actual amount is not certain, is to put a curtain to cover the bad.  

If this adjustment wasn’t done then the profit after tax figures have gone done from Rs 21.45 cr to Rs -20.09 cr a difference of Rs 41cr.

Now, this is something the investor should be beware of and get away from companies doing such whitewashing. 

Although, it doesn’t make much difference if we look at the numbers 2-3 quarters down the line but it is always better to go with a conservative management team.

I will briefly give you the updates Saregama is planning to do in the coming quarters.

Updates

1.New version of Carvaan to be launched in Sept’18

2. Thinking on the lines of some sort of recurring revenue stream where they can generate subscription fee monthly

3. Focused on increasing the number of dealers(As of now, the number of dealers=12,200)

4. Will further increase the advertisement amount

Further reading:

Should you tune Saregama into your portfolio?

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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