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Jayanta Mallick

Kolkata , May 25

IS the market reacting to a turnaround tune that Saregama is presenting? The stock on Wednesday closed down 2.38 per cent at Rs 131.50.

Its 52-week high was at Rs 166.25 on the BSE on March 3.

According to some analysts, though the company is back on a profit trail, the stock seems overvalued, considering the revised equity base after the rights issue and the profit trend thrown up during the first nine months of 2004-05.

The company reported a loss of Rs 21 crore in 2003-04, and in the first three quarters of 2004-05 recorded a net profit Rs 3.97 crore.

Mr G.B. Aayeer, Vice-President (finance) of the company, said the annual results, which would be announced mid-June, would register a strong turnaround.

"The current fiscal would witness further consolidation," he said.

According to a fund manager, on a revised equity of Rs 14.66 crore at Wednesday's price, the stock attracted a P/E of 36.5 on the annualised EPS of nine-month earnings. "The company has to show a fabulous growth in the earnings to justify the current valuation," he said.

According to market sources, a low rights premium of Rs 35 (on a face value of Rs 10) had kept the counter warm, as many took trading calls to take advantage of the price difference. Between April and May, the stock moved between Rs 98.55 and Rs 148.80.

Mr Rajesh Agarwal of CD Equisearch said the company has been changing its business model from being a copyrights-centric to one of revenue sharing.

"In view of widespread piracy and competition from FM and TV channels, the company has shifted focus to newer revenue and earning sources, which are more profitable than the physical aspect of the music business such as cassettes, CDs and VCDs.

New profit generators are ringtones (90 per cent earnings for copy rights), remixes and Internet downloading because of low operational costs," he added.

Mr Aayeer said a growing retail market is replacing the earlier emphasis on wholesale marketing strategy. "Experimenting with premium segment and extension to cheaper rural and semi-urban markets have been proving fruitful."

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