Saregama: A brief overview - Views on News from Equitymaster

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Saregama: A brief overview

Jan 13, 2004

Saregama India, (erstwhile The Gramophone Company of India), is a century old music powerhouse belonging to the RPG Group. It boasts of owning nearly 200,000 tracks, one of the largest musical archives owned by any company in the world. It has a presence at all levels of the value chain right from manufacturing to licensing software overseas and retailing of Music Cassettes (MCs) and Compact Discs (CDs). Saregama operates in three segments - music, television software and film production. The company's archives cover 13 languages across eight musical categories including ghazals, devotional and Indipop. The company sells its products under the brand name Saregama (erstwhile HMV). It has a presence in the international markets through its subsidiaries Saregama Plc. and RPG Global Music Ltd.

Rs 100 invested in

The company's fortunes are related to the fate of the Indian film industry, which had faced rough weather for a couple of years prior to 2003. Moreover, piracy in music and film industry further dented the performance of the company. To counter this, the company has reduced the price of its CDs, which affected its operating margins and also extended its music cassettes (MC) titles to CDs. Also, purchasing music rights of films under famed production banners at exorbitant amounts and subsequently the films (and consequently music) not doing well had a big negative impact on the company's financials. For FY03, the company's losses aggravated further on a deteriorating topline (down 25%). The effect of this can be seen in the chart above as the company continues to remain in the red.

However, off late, with hopes of diversifying its fortunes, the company has entered into film production and television software. After acquiring a television software house in Chennai, the company is eying Mumbai for further acquisitions. For film production, the company intends to make low cost films in the region of Rs 50-100 m (up till now the company hasn't tasted success) and has tied with various directors for the same. Moreover, the company last year tied up with Warner Home Video to market and distribute its films e.g. Harry Potter. The company has also transferred its television and film content handling to its 100% subsidiary, Saregama Films. Moreover, recent spate of musical hits like Saathiya, Koi Mil Gaya and Kuch Na Kaho, should help the company recover some lost ground.

The stock has recently run up on the bourses over the last couple of months to the current levels of Rs 97. However, the rise seems more a factor of the buying frenzy being witnessed on the bourses, including media stocks. Going forward, with the film industry, once again, on the recovery path and various stringent measures being adopted against film and music piracy by the industry, the stock could face better times. Further, with the company having learnt from its past mistakes, has been renegotiating contracts and signing new contracts at realistic prices, which tends to provide a lower minimum guarantee (MG) while acquiring music rights. Further, with the television industry on a growth path and with prospects looking bright over the next couple of years, Saregama, which is also into television software production, could stand to gain.

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