Seeing people discussing valuation of Tips Music on PE matrix. In my opinion Tips Music is a pure play music label which cannot be valued by just calculating PE by seeing profit alone. Tips is charging content cost in expenses of P&L account and not capitalising it and the content cost is kind of not a raw material for top line of the same period, it is more like a capital expenditure for future growth. Suppose, if Tips gets an opportunity of buy very good music at good deal and they spent almost all the revenue for the particular year in buying that content then the PE will be very high or in negative but the company will save good amount in taxes apart from ensuring solid growth. Content cost can be a problem if the company is not spending prudently, however, having observed the strategy of Tips for last 4-5 years, I thing they are quite conservative and prudent in buying new music.
If I have to value the Tips of PE matrix alone, I would calculate based on top line and not on profit. For instance, TTM Sales are Rs. 283 crores which results in operating profit of Rs. 268 crores (assuming 95% OPM, ex of content cost). Now, lets assume there is tax rate of 25%, the PAT works out to be Rs. 200 crores. Now calculate the PE, it is less than 60 and not 80-90.
Having said that, I understand if they don’t do content acquisition, the growth will slow down but I feel most of the growth is coming from their legacy content coupled with structural shift of paid customers and ads revenue of music platforms.
Disclaimer: Not invested
| Subscribe To Our Free Newsletter |
