CARE updates on ratings of Saregama India Ltd

CARE Ratings Limited has revised its ratings for the bank facilities of Saregama India Limited ("the Company") and assigned as follows:

Long-term bank facilities - Rs. 65.00 crores - CARE AA-; Stable (Double A Minus; Outlook: Stable)

Short-term bank facilities - Rs. 10.00 crores - CARE A1+ (A One Plus)

The revision in the long-term rating assigned to the bank facilities of Saregama India Limited (SIL) factors the significant improvement in its profitability during FY22 (refers to the period from April 1 to March 31), along with its robust capital structure and debt coverage indicators which have been sustained since FY21. The revision in rating also takes note of the significant amount of funds (about ₹750 crore) raised by the company by way of a qualified institutional placement (QIP) in FY22 to fund its future organic and inorganic growth.

The improvement in its profitability has been driven by the increase in share of high-margin licensing income from the music division and profits generated in the films and TV serials division. The company continues to have a strong brand positioning in the Indian music industry, with a rich library of retro music, contributing to around 60% of its licensing revenue. Digital penetration is increasing on the back of tie-ups with over-the-top (OTT) applications, whose popularity has been accelerated with increased usage of smartphones and the availability of cheaper internet.

Furthermore, with a significant amount of capital raised by the company, which is planned to be utilised for the acquisition of music content over the next two to three years, the scale of operations of SIL is expected to increase, going forward. With an increasing contribution of licensing income, the profitability margins are also expected to remain healthy. The improved cash accruals with negligible debt repayment obligations have led to a build-up of healthy surplus funds, which, together with internal generations going forward can be utilised by the company for new content creation in the films and TV serials division.

The ratings continue to derive strength from SIL's established track record of operations with an established brand, its diversified revenue profile through licensing revenue, TV/films content and sale of Carvaan and financial flexibility derived from being part of the strong promoter group, RP-Sanjiv Goenka (RPSG).

The ratings are, however, constrained by the obsolescence risk associated with the distribution formats, the threat from piracy / copyright infringement, and the high cost of quality content acquisition.

Previously, CARE Ratings Limited had rated the long-term Bank loan facilities as CARE A+; Positive (Single A Plus; Outlook: Positive) and re-affirmed the short-term bank facilities as CARE A1+ (A One Plus).

Source : Equity Bulls

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