Shares of Saregama continued its bull run at the bourses on Monday going up over 4% to hit a new 52-week high of ₹499. In the last five sessions, the stock has gone up over 14%, and analysts at Emkay Global think it might have some more steam left.

The Saregama Analyst: Pulkit Chawla for Emkay Global maintained the “buy” rating for the stock raising the target price to ₹550 from ₹465. The target reflects an around 15% upside from the stock’s last closing price of ₹478.35.

The Saregama Thesis: The brokerage firm said that Saregama delivered an impressive 28.8% quarter-on-quarter revenue growth, driven by improved performance in the Music and Video segments, including the acquisition of Pocket Aces. However, the analysts remarked that margins were impacted due to the acquisition of the loss-making Pocket Aces and weak movie performance.

For FY24, music licensing growth was 18.6% (adjusted for one-offs in FY23) but was affected by the transition of select platforms behind a paywall. This impact is expected to normalize from Q2FY25, the analysts said.

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Looking ahead, Saregama’s management aims to gain incremental market share and plans to invest ₹1,000 crore in music content over the next three years. Emkay has reduced its FY25-26E EPS by 5-9% to account for revenue decline in Carvaan, higher content investment, and the integration of loss-making Pocket Aces.

The brokerage house anticipates that Saregama’s margins will improve over the medium term due to several key factors. Firstly, the initial ramp-up in content investment is expected to stabilize, leading to normalized margins. Secondly, the profitability of the recently acquired Pocket Aces is projected to improve, which will contribute positively to overall margins. Lastly, a reduced contribution from the low-margin Carvaan segment will enhance the company’s margin quality.

Price Action: Saregama’s share price was up 2.16% to trade at ₹488.70 in early trade on Monday.

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