Here’s why shares of this music label are JM Financial’s preferred pick

Shares of Tips Music Ltd. have an upside potential of 25% from their previous closing price, as per brokerage firm JM Financial.The brokerage has initiated coverage on the stock with a “buy” rating with a price target of ₹800 per share. The stock ended at ₹639 on Thursday.
JM Financial said the company is one of the leading music labels in India and delivered above-industry growth of 36% over financial year 2021-2025, by expanding its catalogue distribution within India as well as globally.
The brokerage expects Tips Music to continue consolidating 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.JM Financial said that at a time when most music labels are finding it difficult to grow — the market declined 2% in the previous financial year, as per an EY FICCI report — on account of consolidation among music OTTs and the subsequent decision by the top two market leaders to stop doing minimum guarantee deals, the Warner deal ensures topline growth visibility for Tips Music.

Among the two listed music labels in India — Tips Music and Saregama — JM Financial said it has a clear preference for the former. It said the company stands out due to:

• Pure play focus on music content monetisation
• Its catalogue being recent and therefore more monetizable
• Guaranteed access to new music content from Tips Films
• Easy-to understand accounting policies

Given the multi-year annuity nature of the music business and expectations of broadly stable operating cash flows, JM Financial said it values Tips Music using 15-year discounted cash flow (DCF) assuming a weighted average cost of capital (WACC) of 12% and transaction guarantee (Tg) of 5%.The brokerage said key risks for Tips Music include:

• Irrational rise in competitive intensity during new content cost
• Hiccups in distribution partnership with Warner
• Slower-than-expected uptake in paid subscription and digital penetration

Of the seven analysts that have coverage on the stock, six have a “buy” rating and one has a “hold” rating.Tips Music ended 1.2% lower on Thursday at ₹639. The stock has declined 13% this year, so far.

Also Read:  PepsiCo bottling partner shares can continue to see 33% upside despite near-term challenges, HSBC says