My rationale on Tips and Saregama (allocation of 6% each). My apologies, I don’t have accurate data for Tips and Saregama for profit % calculations.
Background – I bought Saregama in February 2021 at 100rs and Tips at 40 rs. I kept pyramiding and kept trimming at different levels. My last transaction in Saregama was in July 2023 (sell) around 450 rs while for Tips in August 2023 (sell) was at 324 rs).
First time I was attracted to Saregama was on account of a Varinder Bansal’s (Omkara Capaital) video (I was not able to find link of that video). He talked about the RPSG group and related perception of people around the group and attractiveness of Saregama. I have followed CESC (RPSG group) for years and I know that they did not create wealth for a long time. So I was sceptical for the first few months.
However, I continued to follow Saregama’s results and conference calls. I noted company was growing well on top-line basis while bottom-line was growing at 30-40%. Also in couple of concalls Mr Vikram, CEO, was providing guidance of 20-25% growth of music business for next several years. I liked the fact that he was very clear that he will not put money (marketing and sales) behind carvaan business.
I noted how I am listening to music now, mostly on YouTube. YouTube is on mobile as well as TVs (smart) now. When I used to take public bus everyone was on their phone either watching short videos or listening to music or some content. So everyone was streaming something. Then in June 2021 Bill Ackman bought stake in Universal Music Group (UMG). Everyone who is interested in understanding music story should watch this presentation by Bill Ackman and team: https://www.youtube.com/watch?v=BpeHWiRuu2k . Music is heard when we are eating, sleeping, studying, happy, sad, music keeps running in the background even if we are not listening to it. In the whole value chain content owners (music labels like Saregam/Tips) make most of the money. I doubled my investments in both the companies post Bill Ackman’s rationale for UMG. Saregama and TIPS both combined accounted for 20-25% of my portfolio that time.
I checked US based Warner Music Group company had a market cap of USD17 billion (vs. combined market cap of Tips/Saregama was less than USD1 billion) and it was trading at over 50 PE. Saregama and TIPS both were 20 or less PE. UMG currently trades at 36PE and has a market cap of USD47billion.
I remember we used to pay 100 to 300 rs for one movie songs cassette in 90s and early 2000s. So about 15 to 40 rs per song. Now we can listen to 100s of songs on Spotify with plans in range of 100-179 rs per month. Usage has gone up, cost per stream has gone down (for customer), platforms (distribution), has gone up, you can play on TV, Phone, Alexa etc. If current ad supported listeners move to paid subscription then the per song monetisation for music labels will go up by 50-70% (as per Saregama concalls).
The risk for me in this is consolidation of distribution, ie. If top two or three platforms (like YouTube, Spotify etc.) garner over 90% market share then it will be difficult for Saregama and Tips to negotiate with them. As of now I am seeing a somewhat sensible behaviour where music labels are not minding losing one of the distributors for some time while negotiating. But they have always come back to these music labels.
I want to spend some time on Tips. I was bit sceptical on increasing my allocation in Tips as Mr. Ishmohit (SOIC) was big on Saregama but not so on Tips. I went through Tips concall, they were more bullish than Saregma. I looked at repertoire of Tips and they have best of the 90s songs whereas Saregama was heavy on 60s,70s. I liked Tips’ conservative accounting of 100% content cost write-off within first year, Saregama takes about 6 years to write-off.
I am not able to choose one, Saregama owing to its aggressive new music acquisition will continue to have good pricing however Tips will thrive on 90s songs and its remakes.
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more , exit or partly sell the stock/bonds without any prior intimation.
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