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Shares of Saregama India were locked in the 5 per cent upper circuit on Thursday after the company’s Board approved the demerger of its entire distribution division.
Saregama closed at ₹4,828.45 on the BSE, up ₹229.90 or 5 per cent. It had opened at ₹4,800 as against the previous close of ₹4,598.55.
On the NSE, it closed at ₹4,827.25, up ₹229.85 or 5 per cent.
The company had announced the demerger of its entire distribution business relating to the sale of all its physical products, including Carvaan on digital marketplaces alongwith identified non-core assets (including investment(s) in publication business).
The scheme does not involve cash consideration. The existing shareholders would receive two fully paid up equity shares of ₹10 each of the resulting company (Digidrive Distributors Ltd), credited as fully paid up, for every one equity share of ₹10 each of the demerged company (Saregama).
“Online marketplace has considerable potential, and skills acquired by the Demerged Company in the recent past can be utilised to manage end-to-end distribution activity, and with a potential to add many more products. This will also benefit the Demerged Company’s business, as the negotiation strength generated by the distributors by selling a suite of products will help accelerate Carvaan sales too,” the company said.
“Demerged division topline was ₹17.4 crore in FY21 while bottomline (in our view) is miniscule. We highlight that demerger only involves digital distribution arm and Carvaan business stays with Saregama residual entity. As per our understanding, distribution arm enjoys non-exclusive rights of selling Carvaan on e-commerce platform, which will continue,” ICICI Securities said in a note.
As per the note, Saregama’s share price has grown by ~18.7x over the past five years (from ~| 234 in March 2017 to ~| 4,597 levels in March 2022).
“Demerger of non-core activity, especially publication, is a key positive likely to drive a focused approach of management on key business of music. We expect digital monetisation to provide sustained growth,” ICICI Securites said while maintaining a Hold rating on the stock, valuing Saregama at a revised target price of ₹4890 at 40x FY24 P/E.
Key triggers for future price performance include “growth trajectory in music licencing, which the management envisages to grow at over 25-30 per cent in medium term, along with new content performance and recovery in Carvaan on the back of economic reopening and expansion in movies and web series segment,” as per the note.
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