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Tips Music Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤23rd Jan 26

Summary : Tips Music Limited delivered strong Q3 FY26 financial results, driven by its robust legacy catalogue and digital platform growth, with an optimistic outlook and revised PAT guidance.

Management Perspective positive : Management expressed strong confidence in achieving growth targets, revised PAT guidance upwards, and highlighted the robust performance of their content catalogue and digital platforms. Phrases like 'strong momentum,' 'very positive,' 'assuring you that,' and 'very happy about it' indicate a positive outlook.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY26 revenue grew 21% year-over-year to INR 94.29 crores.
  2. Operating EBITDA increased 34% to INR 74.5 crores, with 79% margins.
  3. Profit after tax (PAT) rose 33% to INR 58.7 crores, achieving 62% margins.
  4. Approved a dividend of INR 5 per share, fulfilling 100% PAT payout commitment.
  5. YouTube subscriber base reached 145.3 million, with viral content driving 100X spikes on Instagram.

Future Growth Prospects

  1. Upwardly revised PAT growth guidance to 25% for FY26 from 20% previously.
  2. Maintaining 20% revenue growth guidance for FY26, with 25-28% target for FY27.
  3. Planned release of several Hindi movies and non-film music in FY27.
  4. Spotify subscription growth (50% Y-o-Y) expected to drive 30% growth in 4-6 quarters.
  5. YouTube Shorts monetization anticipated to shift from fixed fee to revenue share model.

Management Insights

  1. Experiencing strong momentum in content usage across all digital platforms.
  2. Committed to returning 100% of last year's PAT to shareholders.
  3. Focused on acquiring quality content cautiously, avoiding hasty or panic buying.
  4. The legacy catalogue is the major driver of current growth and holds significant future potential.
  5. 80-85% of current revenue is generated from the legacy catalogue.

Signs of Skepticism

  1. Analyst questioned achieving 20% full-year growth without major Hindi releases in Q3/Q4.
  2. Concerns raised about maintaining 20% bottom-line growth with higher content acquisition costs next year.
  3. Negative growth in total YouTube views due to YouTube Shorts' low monetization was noted.
  4. Analyst highlighted differences in YouTube view reporting methodology compared to competitors.

Risk Factors

  1. Difficulty in acquiring quality content at the correct price remains a struggle.
  2. Content release schedules can shift, impacting planned content cost expenditure.
  3. YouTube Shorts currently operates on a fixed-fee model, limiting profit contribution.
  4. Intensified competition in the music market could potentially compress margins.

Good To Know

  1. Employee expenses included a one-time impact of INR 96.7 lakhs due to new labor code implementation.
  2. Cash balance as of December end stood at approximately INR 303 crores.
  3. The company has its own film production arm, primarily acquiring music rights.
  4. Revenue market share is around 7-8% and is steadily growing each quarter.
  5. Paid subscriber revenue is growing 40-50% and contributes roughly 10% of total revenue.

Key Drivers

  1. Catalogue content drives strong revenue growth.
  2. YouTube Shorts monetization to shift to revenue share.
  3. Spotify paid subscriptions increasing rapidly.
  4. New film and non-film content pipeline.

Key Analyst Discussions

Competitive Environment

  1. Tips Music, with its own film company, acquires only music rights, not other production houses.
  2. Management stated that a potential stake acquisition by Warner is hypothetical with no current developments.
  3. Market share is measured internally by views and subscribers, with revenue market share at 7-8% and growing.
  4. Tips uses an older YouTube view methodology; a newer method would show higher growth, unlike competitors.

Market Trends & Consumer Behavior

  1. YouTube Shorts currently provides lump sum payments, not profit-sharing, despite high volume.
  2. Spotify subscribers increased over 50% year-over-year, driving strong performance.
  3. The company does not permit commercial use of its songs for product promotion.
  4. Revenue from paid subscribers is growing faster (40-50%) than advertisement revenue.

Financial Highlights

  1. Management is confident in achieving 20% full-year growth despite Q3/Q4 content release timing.
  2. Content cost for FY26 is expected to be around 18%, lower than 25% guidance due to a movie shift.
  3. EBITDA margins are expected to be maintained by focusing on quality content acquisition.
  4. Next year's 20% top-line and bottom-line growth is anticipated, with higher revenue if content releases on schedule.
  5. The company's cash balance at December end was INR 303 crores.

Product Composition

  1. FY27 content plan includes several Hindi movies and numerous non-film music releases.
  2. 80-85% of total revenue is derived from the company's extensive legacy catalogue.
  3. New releases contribute approximately 15% to the total revenue.

Strategic Considerations

  1. Negotiations for YouTube Shorts monetization are due next year.
  2. YouTube Shorts monetization is expected to transition from fixed fee to revenue share in 1-2 years.
  3. The Warner partnership is performing in line with expectations.
  4. The company is actively working to acquire correct content at fair prices.