Tips Music Ltd. has received a 'buy' rating from JM Financial as the brokerage initiated coverage on the stock, with a target price of Rs 800. The target implies an FY27E PER of 40 times and PEG of 1.7 times.
The brokerage expects the company to continue to consolidate its market position, primarily aided by expansion of its global distribution deal with Warner Music and commitment to invest 25-30% of its revenue on new content acquisition.
Tips Music has delivered above-industry growth of 36% over fiscals 2021-25, by expanding its catalogue with hits from the 1990s and 2000s and distribution within India, as well as globally.
"In fact, at a time when most music labels are finding it difficult to grow on account of consolidation amongst music OTTs and the subsequent decision by the top two market leaders to stop doing minimum guarantee (MG) deals, the Warner deal ensures topline growth visibility for Tips Music," the brokerage added.
The brokerage has a clear preference for Tips Music over Saregama among the two listed music labels in India. "This is because the former stands out due to— its pure play focus on music content monetisation; its catalogue being recent and therefore more monetisable; guaranteed access to new music content from Tips Films; and easy-to understand accounting policies," it added.
JM Financial values Tips Music using 15-year DCF assuming a Weighted Average Cost of Capital of 12% and long term growth rate of 5%, given the multi-year annuity nature of the music business and expectations of broadly stable operating cash flows.
The key risks include irrational rise in competitive intensity driving new content cost, hiccups in distribution partnership with Warner, and slower-than-expected uptake in paid subscriptions and digital penetration.
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