Tips Industries Ltd: Strong Guidance

Moneylife Digital Team 22 May 2023

Tips Industries Ltd (TIL) announced its results for Q4FY22-23 on 12 May 2023. We had discussed TIL’s business and the special situation in detail in May 2021 (https://bit.ly/3II5KZ4).

TIL’s net sales increased 52% year-on-year (y-o-y) and 2% quarter-on-quarter (q-o-q) to Rs52 crore and its operating earnings before interest and taxes (EBIT) increased 30% y-o-y and 1% q-o-q due to a compression in its operating EBIT margin y-o-y and q-o-q, largely on account of an increase in content acquisition costs. TIL’s net profit increased 15% y-o-y but declined 9% q-o-q, due to a compression in its net profit margin (NPM).

During Q4FY22-23, TIL released 240 new songs which, for the company, was the second highest number of songs released during any quarter, till date. TIL also signed music licensing deals with Music and JioSaavn, during the quarter. The deal with JioSaavn also includes a minimum guarantee which provides greater revenue predictability to the company. About 50% of TIL’s top-line is contributed by YouTube (YT). In Q4FY22-23, TIL witnessed a 105% y-o-y and 8% q-o-q increase in its YT views to 33.6bn (billion).

Since its inception, TIL has had an excellent record minimising its tax outgo by fully expensing its content costs during the quarter of acquisition itself and relying on stock buybacks over dividends to distribute its earnings to its shareholders. Since 2009, TIL has reduced its number of shares outstanding by 26% -- from 1.73 crore in 2009 to 1.28 crore (before its stock split) in 2023. TIL is, therefore, a prime example of a class of companies that veteran investor Mohnish Pabrai calls ‘uber cannibals.’ Moreover, TIL’s dividend per share has also increased at a compounded annual growth rate (CAGR) of 30% from FY17-18 to FY22-23.

Outlook

TIL’s management has upped its revenue and net profit guidance from the earlier expected growth of 20% to 25% to an expected growth rate of 30% in FY23-24 and it also expects a similar rate of growth for the next two to three years. TIL, therefore, trades at a forward price-to-earnings ratio of 21.67x based on its estimated FY23-24 diluted earnings per share (EPS). Considering TIL’s long runway of growth and its recent track record of returning its earnings to the shareholders, its valuation appears attractive.

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