Free Cash Flow Champions: Tips Music & CDSL’s Strong Financial Play in FY25
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Discover how Tips Music and CDSL are turning profits into strong free cash flow. Learn their growth outlook, risks, and why FCF matters for smart investing.
Why Free Cash Flow Matters More Than Just Profit
In the stock market, profit growth often makes the headlines. But smart investors know the real game starts when those profits translate into Free Cash Flow (FCF) — the cash left after a company has paid for operating expenses and capital expenditures. FCF is a true indicator of a company’s ability to reinvest in growth, pay dividends, or reduce debt without depending on external financing.
Today, we take a closer look at two companies — Tips Music and CDSL — whose free cash flow to sales ratio has consistently stayed strong, making them worth considering in FY25.
1. Tips Music: Pure Play in Digital Music Licensing
Business Overview
Tips Music is one of India’s leading entertainment companies. It creates, acquires, and monetizes music content both in India and globally through licensing deals. With over 34,000 songs in its library across genres and languages, the company monetizes content on multiple platforms.
On YouTube alone, Tips boasts 125.8 million subscribers (as of Q1 FY25). In FY25, 72% of revenue came from digital platforms, with YouTube as the dominant contributor, followed by other platforms, live performances, and offline channels.
Financial Performance and FCF Trend
- FY22 FCF: ₹29 crore
- FY25 FCF: ₹122 crore — almost 4x growth in just three years.
- Operating profit rose 2.4x from ₹87 crore in FY22 to ₹210 crore in FY25.
In FY24, an unusual spike occurred when sales were ₹242 crore but FCF hit ₹236 crore, mainly due to a one-time working capital inflow. The FCF-to-sales ratio was a staggering 98% that year but normalized to 38% in FY25 after the effect faded.
In Q1 FY25:
- Sales: ₹88 crore (+18.9% YoY)
- Expenses: ₹31 crore
- Operating margin: 64.8% (down from 73% last year due to higher content costs)
- 92 new songs added to catalog.
Industry Outlook & Competitive Edge
The Indian music industry (₹3,500–₹4,000 crore) could grow to ₹10,000 crore in 4–5 years. Globally, India’s volume share is high, but value share is just 2%, leaving room for growth, especially as paid subscriptions increase.
Comparison with Saregama:
- Tips focuses solely on music licensing, making it asset-light.
- FY25 growth: Tips +28% in music revenue vs. Saregama –4%.
- Operating margin: Tips 67% vs. Saregama 24% overall.
- ROE & ROCE: Tips 82% & 119% — significantly higher due to its lean model.
Risks:
- Fewer song acquisitions (443 in FY25 vs. 733 in FY24).
- High dependence on hit content.
- Revenue recognition volatility from large deals like Warner Music.
2. CDSL: The Backbone of Indian Capital Markets
Business Overview
Central Depository Services Limited (CDSL) is a key market infrastructure institution enabling dematerialization and settlement of securities in India. It serves stock exchanges, clearing corporations, depository participants, issuers, and investors.
Apart from core services, CDSL also offers e-voting, consolidated account statements, and digital initiatives for insurance policy storage.
Market Leadership and Revenue Mix
In FY25, CDSL’s demat market share rose from 76% to 79%.
- Annual issuer income: 38% of Q1 FY25 revenue (+48.1% YoY).
- Transaction charges: 21% share, down 17.3% due to lower volumes.
- IPO/corporate action income: 18% share.
Financial Performance & FCF
From March 2022 to March 2025:
- Operating cash flow: ₹283 crore → ₹543 crore.
- Operating profit: ₹379 crore → ₹640 crore.
- Free cash flow: ₹313 crore → ₹387 crore (+23% growth).
- Sales: ₹812 crore → ₹1,082 crore (+33.2% growth).
In Q1 FY25:
- Sales flat at ₹259 crore (vs. ₹257 crore last year).
- Data storage revenues fell 37.4% due to sluggish IPO activity and weak delivery volumes.
- Expenses rose 25.2% YoY, driven by tech upgrades and employee costs.
- OPM dropped to 50.2% from 59.9%.
- Net profit fell 24% to ₹112 crore.
Growth Outlook & Competitive Advantage
- Retail equity participation in India remains under 10% of the population — a huge growth runway.
- Expansion into insurance policy digitization with LIC tie-ups.
- Launch of direct securities payout and consolidated account statements for investors.
- Unlisted company market and proxy advisory services as new revenue streams.
Competition:
Compared to NSDL, CDSL enjoys better market cap, ROE, ROCE, and NPM — reflecting stronger profitability and efficiency.
Risks:
- High cost pressures from technology and regulatory compliance.
- Dependence on market activity — slowdowns impact IPO, KYC, and transaction revenues.
Final Words: Cash Flow is King
Both Tips Music and CDSL prove that strong profitability means little without healthy cash flows. While Tips benefits from its asset-light model, high ROE, and growing digital dominance, CDSL leverages its market leadership to generate consistent free cash flow despite cyclical market challenges.
For investors, these companies highlight a crucial lesson: don’t just chase earnings growth — track the Free Cash Flow to Sales ratio to spot businesses that truly generate shareholder value.
Before the next rally or market dip, remember: Cash is not just king, it’s the kingdom.
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