Tips Industries unlocking values for its shareholders by demerging its Film Division

Tips Industries Limited (TIL) is a listed public limited company and it is engaged in the business of Production and Distribution of Motion pictures (“Film Division”) and acquisition and exploitation of Music Rights (“Music Division”). Classifying music rights based on content, it consists of two main sectors film and non-film music. The company earns revenue from distribution of motion pictures and royalties on music that are played on the radio, mobiles, internet, etc.

Tips Films Limited (TFL) is an unlisted public limited company incorporated in 2009 and has not yet commenced any business operations. It will house Film Division of TIL as a result of the scheme.

Appointed date for the transaction is 1^st April 2021

The Transaction:

Rationale

1. Demerger will enhance efficiencies and will have different business interest into separate corporate entity, resulting in operational synergies, simplification, focused management, streamlining and optimization of the group structure and efficient administration.
2. Listing of Film Division separately.
3. Unlock the value of both businesses and result in shareholder value maximisation.
4. Expansion plans for individual undertakings.

Financials

Segment-wise comparison of the Music and Films Business of TIPS gives an idea that the film business is currently loss-making.

For comparison purposes of the MUSIC BUSINESS Division of TIL, we look at financials for the last five years of MUSIC DIVISION of TIPS and of SAREGAMA Ltd., only other listed competitor in the industry.

EBITDA of Music Division of TIL is higher than the EBITDA of Music Division of Saregama. One reason for that is Saregama also have products in the division. TIL has a library of songs from the 1990s while Saregama’s library is collection has even older songs.

Analysis and way Forward

TIL has a collection of more than 29,000 songs and the catalogue is dominated with music from the 90’s to early 2000’s. Its music right based on copyright law for 60 years and film rights are owned in perpetuity.

Music (Audio/ Video Product) division is a cash cow for the company and Film Distribution is money pit. i.e. cash generated by Music Division is utilised by Film Division. Exploiting of music collections by distribution through new channels through various apps and OTT channels will require different focus and strategy. Exploitation of present collection does not require huge capital but require focus on marketing and tie-ups to extract more out of the rights. Film division is capital guzzling and requires long time to extract revenue after that though in most cases, rights are for perpetuity.

Simple and apparent objective of the scheme is to have two different entities with required focus, capital, management team and infrastructure. it will enhance value of both the businesses as interested investors in respective businesses will be able to give fair price.  

Conclusion

Demerger to create substantial value for all the stakeholders will require concrete steps like create right management team and infrastructure for each business. It may be necessary to invite strategic partner or if the present management is not interested in growing any of the business should sell the business to create real value for the minority shareholders. Both businesses have possibility to grow exponentially if appropriate steps are taken in terms of tie-up, the right management team with industry comparable compensation and strategic partners.