Saregama India Limited (NSE:SAREGAMA): All You Need Is Growth?

Saregama India Limited (NSE:SAREGAMA)'s outlook is one of buoyant sentiment as it continues to post exciting top-line revenue growth. However, my main concerns are around how the company is managing its balance sheet, and whether their current financial status is sustainable. I will touched on some key aspects you should know on a high level, around its financials and growth prospects going forward.

First, a short introduction to the company is in order. Saregama India Limited operates as an entertainment content company in India and internationally. Founded in 1901, it currently operates in India at a market cap of ₹12.24b.

SAREGAMA is exceeding expectations, with top-line rocketing up by 63.20% from last financial year , and a net income growth of 239.16%. In the last five years, revenue has grown 11.55%, concurrent with larger capital expenditure, which most recently reached ₹26.50m.

Investors tend to get swept up by a company's growth prospects and promises, but a key element to always look at is its financial health in order to minimize the downside risk of investing. Alarm bells rang in my head when I saw SAREGAMA's cash generated from its business is less than its outgoing cash expenses. This means that, although debt is relatively minimal (4.13% of equity), it cannot be serviced at all with cash from operations, which makes me uneasy. However, management has been able to reduce debt over the past five years, and it generates enough interest income to cover interest payments. There's room for improvement on the cash management side of things, but its overall debt level and interest coverage somewhat reduces my concerns around the sustainability of the business going forward. SAREGAMA has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. SAREGAMA has managed its cash well at a current level of ₹92.17m. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.

SAREGAMA currently trades at ₹717 per share. With 17.41 million shares, that's a ₹12.24b market cap, which is in-line with its peers based on its industry and adjusted for its asset level. Currently, it's trading at a fair value, with a PB ratio of 3.28x vs. the industry average of 1.5x.

In order to invest in SAREGAMA, you have to believe in its growth story, which is a strong one. However, my main reservation with the company is its financial health, as well as the possibility that it is currently overvalued. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I've taken my data from.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.