Buy Saregama India: SP Tulsian

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Buy Saregama India: SP Tulsian

Buy Saregama India, says SP Tulsian, sptulsian.com.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by SP Tulsian See what other Experts & Brokerages are saying about Saregama India See messages about Saregama India

Buy Saregama India , says SP Tulsian, sptulsian.com.

Tulsian told CNBC-TV18, "Saregama is a very interesting story. We know that they have the music rights of the old films for the last over 60 years. But sometimes the company or management makes mistake. The biggest mistake by the company has been venturing into film making and TV serial production. That has been the drag on the profitability. Whatever company has been earning in the music rights-42% EBIT margin in the music segments-has been going into the drain on making of the films and TV serials. They cannot just abruptly close down that division because there are on going projects."

He further added, "If you see for FY11, the company had a turnover of about Rs 20-21 crore for the film division and they had a similar loss of about Rs 21-22 crore. But for the current year nine-months, they had a turnover of Rs 21 crore but the losses pruned to about Rs 13-14 crore. That means the process of winding up or the process of liquidating the business or reducing the business seems to be there for this division."

"And if that happens, then the music rights held by the company, can really be a money-spinner because the kind of business they are now generating from this FM radios and the telecom companies because of the huge demand for the old songs, old tunes etc, That is a reason for the company posting excellent results again for Q3."

"For nine-months, they had a turnover of Rs 110 crore against Rs 88 crore posted for the similar period last year and their PAT has improved to about Rs 6 crore, which was at Rs 1 crore for similar period in the last year and similar story that Q3 results has been extraordinary on a topline of Rs 40 crore they had a PAT of close to Rs 3.5 crore. This trend is likely to continue."

"Apart from that, if you see the financials, they are very strong. The company has debt of close to about Rs 50 crore but they are holding 15.5 lakh shares in CSE, which is again an RPG Sanjeev Goenka group company, which has a market value of about Rs 40-42 crore and this company has a very strong real estate holdings in the form of offices, lands and the studios and all that, the net present value of that is calculated at close to about Rs 200-250 crore."

"If you see market cap of Rs 130 crore, the debt of the company is at Rs 175-180 crore. As against that, if films and TV serials stops incurring the losses or if that division gets sold the company is capable to post an EPS of close to Rs 9-10 and the music company available at a PE multiple of Rs 7-8 on the forward expected earnings. This makes it a very good buy and one can expect an Rs 100 in next six months or so."