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Saregama India Ltd
Earnings Call Analysis
Q2-2025 Analysis
Saregama India Ltd
In Q2 FY '25, Saregama India Limited reported impressive results with operating revenue reaching INR 242 crores, a remarkable 40% increase year-over-year. Despite the retail Carvaan business witnessing a significant 40% decline—a strategic decision by management—the company successfully generated growth from its video and music segments. The video revenue soared from INR 15 crores to INR 72 crores, indicating strong consumer demand for video content, while the music vertical grew 22% to INR 148 crores.
A notable contributor to the yearly revenue increase is Saregama's investment in new content. Management highlighted a higher INR 18 crore allocation towards marketing and content charges aimed at fostering future revenue streams. This initial investment, although resulting in a lower profit before tax (PBT) on a year-over-year basis, reflects a forward-looking strategy where growth is expected to deepen over the upcoming years. They maintain a guidance for FY '25 of a modest increase in PBT, suggesting a sustainable growth strategy.
Management reiterated the importance of the video segment, viewing it not only as a growth driver in its own right but also critical for strengthening relationships within the music vertical. Given the rise in smartphone penetration and affordable data, the video division is poised for further expansion. Saregama expects a minimum annual revenue growth of 30% in this vertical, while they forecast that investment in content will yield returns over the next 3 to 5 years, thereby doubling the PBT.
Saregama's live event business is expanding, with a successful launch of the Yeh Shaam Mastani IP and the much-anticipated Diljit Dosanjh's Dil Luminati tour. These events promise high revenue potential, although they operate on lower margins. Nevertheless, the company's financial management policies are designed to maximize returns from these high internal rate of return (IRR) ventures, which will impact future revenue positively.
Over the next three years, Saregama is set to invest over INR 1,000 crores into new music content, with an expectation that this effort will provide a payback period of five years, contributing to a doubling of PBT over the same term. Furthermore, management is projecting an adjusted EBITDA margin between 32% to 33%, allowing for momentary fluctuations due to large event revenues.
The company's leadership voiced confidence regarding the competitive landscape, particularly with international labels like Warner Music eyeing the Indian market. They believe their deep-rooted relationships and expertise in the Indian music industry will serve as a buffer against competition, aided by a broader strategy focusing on diverse language music and digital platforms. With a projected 30%-40% growth in digital consumption and expansion of subscription services, Saregama is optimistic about its positioning in the marketplace.
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Ladies and gentlemen, welcome to the Q2 FY '25 Results Conference Call of Saregama India Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.
I would now like to hand the conference over to Mr. Pulkit Chawla from Emkay Global Financial Services. Thank you, and over to you, sir.
Thank you, Didi. Good afternoon, everyone, and welcome to the Q2 FY '25 earnings call for Saregama India Limited. From the management, we have with us today, Mr. Vikram Mehra, Managing Director; Mr. Pankaj Chaturvedi, CFO; Mr. Saket Shah, Group Head, Investor Relations and ESG Reporting; and Mr. Pankaj Kedia, Vice President, Investor Relations.
Without any further delay, I shall now hand over the call to the management for the opening remarks. Over to you, Vikram.
Thank you, and a very good afternoon to everyone. Welcome to the earnings call of quarter 2 FY '25 for Saregama. This quarter saw operating revenue of INR 242 crores and a PBT of around INR 59 crores. Our revenue is 40% higher than for the same quarter last year. Our H1 revenue of INR 447 crores is in sync with the guidance of 30% revenue increase in FY '25.
Our adjusted EBITDA increased by 17% and is at 35% of revenue, which again is in sync with our guidance of 32% to 33% adjusted EBITDA. May I once again request all of you guys to please evaluate us on a rolling 12-month basis and not on a quarterly basis. You can take last 12 months or you can take -- evaluate it for the full financial year.
On a full year basis right now, we are confident of meeting all the guidance that we people have given in the past.
Let me start by first telling you the reason behind this massive increase in revenue, which has come, keep in mind, in spite of the retail business which is Carvaan business coming down by 40%. So your Carvaan business, which is a conscious call from our side being scaled down, has gone down by 40%. In spite of that, the overall revenues have gone up by 40%. This growth has primarily come on the back of a very first successful quarter for the video segment. The revenues grew from INR 15 crores to INR 72 crores in this quarter. Remember, video is a high -- strategically important high IRR low-margin business.
The great news about this increase in Video segment revenue is that this has come along with the total amount of assets which are sitting out there on the video segment coming down. So you have less capital of ours getting blocked in video while the revenues have gone up even better. We are very, very confident of our, one, our capital allocation policy, but more important than that, our financial management policy, which will be allowing us to drive better IRR from a video business and majority of other competitors.
The second sort of growth in revenue is because of music business. Music business, which primarily means music licensing and artist management business, gives us INR 148 crores this quarter is a 22% increase over the last year, again in sync with our annual guidance. It may also address the other issue, which a question that may be coming in the minds of lot of you people on the issue of PBT coming down on a year-on-year basis. This is purely on account of one factor, which is investment in newer content.
The total charge-offs on account of new content, which includes both marketing and the charge-off of content, is higher by INR 18 crores in this quarter compared to the last quarter. If you certainly add that INR 18 crores back, the numbers all start looking great again. This cost is getting reflected primarily in the advertisement and sales promotion and depreciation and amortization expense rate. As you know, that entire cost of marketing has taken off in the same quarter, that has not amortized over the full 4 quarters. So that's why you keep on seeing these bumps and our lows coming in.
Our belief in new content investment and future-proofing the company remains steady. I have been sharing this over multiple quarters. What we are seeing is just now rollout of that strategy. The positive impact of that is going to be felt not just for a couple of quarters, but to be felt for the next 60 to 80 years.
As committed in quarter 4 financial '24 call and quarter 1 financial '25 call, that on a 12-month basis, FY '25 will be showing a moderate growth in PBT.
Let me get into individual segments at this juncture. Let me start with music licensing. This quarter saw us becoming #1 in Hindi music for the first time with 2 of our albums right now being the top 2 albums of the country. First came Bad Newz whose song Tauba Tauba every possible chart in the country, including Spotify, Instagram, Billboard, Wynk, and Radio. Even on YouTube, it become the #1 song globally right now for over 35 days. The total number of YouTube views of this song has crossed 300 million. The other form of Bad Newz like Janam and Mere Mehboob are also part of the Spotify top 50 charts for weeks.
Following this, in this quarter, was the biggest album of the recent time launched by any labels called Stree-2. It's absolutely a rarity in today's world for all songs of an album hitting Spotify Top 15 within the top 15 of the country. Aaj ki Raat alone has been there. If you today also see the top 3 songs in India on YouTube, we have been controlling that number -- the top 3 positions now. I'm talking about more of October and November, but we have been controlling the position now for weeks. Aaj ki Raat was 45 global #1 for, I think, 2.5 weeks. Today, as I talk to you, Aaj ki Raat has already crossed on out 500 million views, while Aayi Nai, the second song which got 300 million views. Overall, at an album level on YouTube alone on our own channels, we would have crossed 1 billion views. Yes, majority of them would have come right now, a large portion of them has come in quarter 3, but it just tells you that our ability to pick good quality music and market it is now being proved to be unparalleled in the market. Our hit rates are far higher than any of our direct competitor.
The other big album this quarter were Ram Charan Game Changer whose song got released in Telugu and Suriya's magnus opus Kanguva” in Tamil, whose song also got released. The company continued to maintain its leadership position in Gujarati and those 3 languages.
Let me once again reiterate the success that you are seeing is all coming out of our management belief that data-driven approach to music's acquisition, use of predictive models is a far superior way to select and use rate than relying on an individual's ability to predict which song is going to work or not work.
Overall, company released 400-plus originals and premium recreations across Hindi, Bhojpuri, Gujarati, Punjabi, Tamil, Telugu, Malayalam, Marathi and Bengali languages.
Our lineup for the next 12 months is all in place. I've shared these names with you in the past. Music of some of the biggest films of the year will continue to coming to us. This includes what has recently been quarter 3 being released is Singham again, which is Rohit Shetty's film; Maddock, who are the guys who were the producers of Stree and Stree-2 and Munjya. There are 2 films that are sitting with us, [indiscernible]. Mammootty's Malayalam Bazooka is with us. Shivakarthikeyan's superhit Tamil film, which got released in quarter 3, a week back, Amaran, whose songs are doing very well. That's also there, which is a quarter 3 to leave with us. Kannada Superstar, Sudeep Kichcha's next film [indiscernible] with us.
As we have been saying from the time we people did a QIP and raised funds, the endeavor of our company is to future-proof this company, to keep on investing in high-quality content so that the company retains leadership position not just today, but in decades to come, and we keep on making money from this content right on not just today, but from the -- for many, many years to come.
This quarter, the charge-off on account of new content has almost doubled because of all the new content that we people have purchased. We are today in a transitional state, where a new content expenses are going up in a steep fashion because this is a step jump. We are growing -- for a company which did not invest in new content for close to 2 decades, has now started investing, and we want to do a quick catch-up and reach the #1 position, which means very high investments or content are going up there. When you increase the expenses in a step-function jump, when 20% to 25% of the expenses are going towards marketing, there is a kind of an unbalance that starts happening. I said it at the last call that it'll take us 6 quarters -- for the next 6 quarters, which -- of which the first quarter is over now, you will see revenue going up in a substantial fashion, EBITDA growing slower than that and PBT will grow at the lowest -- between the 3 at the slower pace.
After the end of 6 quarters, you will have profitability which is being driven out of [indiscernible], outpacing the rate at which revenue is going to go back and grow. Because our step jump in content investment is only for these 3 years. After that, we are comfortable at the level at which year 3 investments are going to happen. The content expenses are not going to go up, but the profitability which is going to come out of our investments that we're making today will all start showing up.
With all these new investments, we maintain our guidance of a 5-year payback period with additional 55 to 75 years of profits that we can make from this music.
The second music vertical is artist management. There are artists who have made popular through our IP releases, and then we monetize these artists by booking them for live events, weddings and brand endorsements from which Saregama gets a share.
During this first halfway of the year, 60-plus artists/influencers have been added, making the total count of artists that we are managing to 180 plus, which is a 50% growth over the last year. Between these artists right now, they have got close to 120 million followers and subscribers on Instagram and YouTube. As an investment in new content keeps on going up and most of the investment, we are putting these artists as part of the investment. Many of these artists are actually thinking the songs of a newer movie that we are making or we are releasing non-film form which are all centered around these artists. We believe the money that we'll end up making right now from artist management, as artists become bigger and digital advertising keeps on growing at a 15%, this part of music business is also going to become substantial.
Net-net, with our stated goal of acquiring 25% to 30% of all music released in India, the music vertical should double its music vertical, meaning licensing and artist management should double its revenue over the next 3 to 3.5 years. The new content is going to be funded all through internal accruals under QIP money.
Now let me shift to the video vertical, where we make films under the brand Yoodlee, digital series under the brand Dice or Pocket Aces, short videos under FilterCopy, Nutshell and some TV serials for Sun TV.
The explosion in smartphone ownership and cheap data are the biggest driver for this vertical. We are still at the early stages of building this vertical, but we strategically very strongly believe in the video vertical. First, on its own, we believe in the days to come, video will also become the primary source on which entertainment is -- or the discretionary money is going to be get spent on both through subscription and then advertising is also going to go back and follow it. So people who are owning video IP will be in a very strong position in the days to come.
Secondly, video business is also strategically important for us to maintain a strong hold on the music business. As shared with you people earlier, majority of the music consumed in India is film music, and we want to control the source also from which the music is coming in so that we are never in a position that source is being controlled by a competitor, and we don't have a stronghold there.
Q2 for the release of a Malayalam series Manorathangal on Zee5, with a stellar cast of Kamal Haasan, Mohanlal and Mammootty, the series became very popular on the digital platform. We also released Jeetu Joseph Malayalam film Nunakuzhi in theater during the quarter.
Q2 also for release of Unravel Australia, our branded web series with Australia Tourism. It was released on our channel Gobble on Instagram. Half Love Half Arranged Season 2 and Karate Girls are Dice's creation delivered to Amazon MiniTV.
We, because of the mergers which are on the cards, there is some pressure on the digital series licensing business. We believe this pressure to continue for maybe another couple of quarters. By that time, the merger of some of the leading platforms will go through, and we believe there will be a fresh requirement for content coming in.
Our Pocket Aces with its unique position of being recognized as a #1 content creator for youth in the country will be in a very good position to cater to this massive demand that will be coming in for content targeted at a younger segment.
Video vertical revenue grew from INR 15 crores same quarter last year to INR 72 crores in this quarter. If you see the operational cost line item, it's the increase in the operational cost is primarily on account of the costs which is connected to the increase in the video revenue. As you see, video revenue has gone by some INR 57 crores or odd, and the rise in operational cost is all directly linked to that.
On live events business side, we launched a new IP called Yeh Shaam Mastani with Zeenat Aman. It was even was done right now in Delhi and Bombay. The next quarter will also see Diljit Dosanjh's Dil Luminati tour in India, which is a Q3 business, which has got completely sold out. As shared, even this business is a very high revenue, low margin, but a high IRR business. Our capital allocation unlocking happens right now for a very brief span of time typically on -- and you can see this from a segmental results also if you see the segment assets and liability. Most of the work that we people do is on the basis of the advances we receive from our partners.
The third quarter we'll see the same SKU flowing up. The tour has been that big a success that the revenue numbers will be substantial. We're very happy with our margins we will end up showing out here. But on a margin percentage, the [indiscernible] is further strengthening our relationship with the artist. He was very kind enough to go out there. And because of the relationship, give us a song for one of our movie Jigra which came out in quarter 2.
Let me go to the third part. I've completed music with a licensing and artist management, completed video, live event. I'm sorry, the fourth part, which is the music retail business, where we have rolled out the new retail strategy, under which, we will be selling Carvaan and Carvaan-related products only from e-commerce and modern trade stores. Over the next remaining 6 months, we will completely get out of individual mom-and-pop shops. While the volumes and the top line, which will come from Carvaan will keep shrinking, the profitability margins are going to be improved as we will people go forward because we are controlling all the costs which are connected to physical distribution.
From the last quarter onwards, we have started sharing the Carvaan revenue numbers separately as part of our presentation. This quarter saw the retail revenue of INR 21 crores, which was a drop over the last year, but this is a very planned and expected stuff which is happening because we're out of the retail business.
Over the next 3 years, we will be investing over INR 1,000 crores in new music content. This will contribute not only to the immediate growth but also put the company on a long-term growth path. Overall, at the consolidated company level, we expect revenue, excluding Carvaan, to grow at a CAGR of minimum 30% and PBT to double over the next 3 to 4 years. Both music and video verticals are going to contribute to this.
We maintain our annual adjusted EBITDA guidance of 32% to 33%. There may be quarters where numbers may go here and there if suddenly a big live event revenue is coming in. But on an overall basis, we expect margins to remain at 32% to 33% and music margins to hold steady.
On an annual basis, our PBT will show modest growth compared to last year. This is there only for the next 5 quarters. After which, PBT should start growing right now at a rate, hopefully faster than the revenue growth.
Saregama's growth narrative will continue to be steady in the medium to long term, thanks to the increase in digital consumption, both in terms of new customers joining the market and existing customers consuming that much more content, both in audio and video.
With over 294 million Internet footprint, our cash reserve, the manageable debts that we have in the company and access to some of the biggest sound tracks and an ability to create content at the most financially -- to a more financially tight process at the lowest per minute pricing in the market, we believe that the earnings are going to be guaranteed not just for next 2 to 3 years, but for many, many decades to come. Thank you, and happy to take questions now.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama.
Congrats on good revenue growth. My first question is on the overall competition and the ecosystem. So Warner Music has said that India, along with China, will be their 2 most important focus market and they want to become much bigger. So I wanted to understand how worried are you because you clearly are ramping up significantly for the next 3 years? Is Warner's higher focus on India one of the reasons? So that's one part of the competition question.
Second, Dharma production, 50% got sold to other Poonawalla. How does this impact because your company's name was also coming as one of the bidders? Eventually, that did not happen. So what was the thought process, why we did not go until the final acquisition? You could share your thought process on that and how this impacts buying from Karan Johar's Dharma production in terms of music rights?
See the Warner's statement is a statement we also have been given, and we are very happy to see the statement coming from the Warner Chairman. India is going to be the next biggest growth market. Anybody who is tracking music industry globally understands that subscription service is eventually going to take off in India in a very big fashion. I have been saying this for multiple quarters, and I continue maintaining that position that give it another 12 to 15 months, hopefully, most importantly, once the merger of 2 of the biggest video platforms take over, we believe the next focus is going to be on the music streaming side. There are only 2 platforms today which are still offering free service, Spotify and JioSaavn, and we hope that India also is going to be moving with the help of these 2 people also fully behind the paid side. Once that happened, you are looking at a massive growth coming out of the Indian market, primarily led by subscription.
See competition has always great out there, it also puts a lot of attention. I think what has helped us a lot over the years is the fact that we understand Indian music better than anybody else. This is a company which has been doing this in the space right now for over 123 years now. Our relationships in every particular language right now are very, very deep with the local production houses, which chances are very high if we are going to someone and picking our music from there, and most of them are second or third generation film producers, 99.99% that their father or grandfather or grandmother production houses, films cum music will also sitting there with us. So we are leveraging on that fact a lot.
Second, the fact that we are investing on data unlike any other person, any of the competitors here, I think it's going to hold us in a very, very good position. But yes, I think Warner Chairman's statement has very positively shown lights right now on the Indian market and how everybody globally believes that Indian subscription business is going to go out and take off.
Second, you were asking me about -- let me not comment about an individual production house. As I stated in my opening statement and I've been saying in the past, too, we believe video is a strategically important business for an IP company like Saregama. Both video on its own, which I believe has got a very strong feature as we people go forward.
Remember when disposable incomes go up, all of us have worked on more discretionary money at a disposal. An average, middle, upper middle class in this country has very limited sources in which they can go ahead and entertain their families. Movies, going out to shopping malls, movies and hopefully live events are all going to get a massive benefit out of that.
Regarding the relationships out here, our relationships are very, very strong. Since you spoke about Dharma, what I can share with you is that we have picked up music or multiple fronts from them. And even in future, we have multiple songs, whose music is coming across to us. We share a great relationship with Dharma and with multiple other leading production houses in the country. Thank you.
Sir, two follow-ups there. One, are you seeing initial signs of Warner Music bidding aggressively? And second, you don't see any change to your ability to bid for Dharma's future music rights, right?
Sir, let me not get into anything an individual. The great part is each of these production houses, we share a very, very old deep relationship going on. So we don't see any impact of that happening.
I don't want to comment on an individual production house at this moment, but all. So since you were talking about Dharma, we have a past slate, Jigra, a movie of theirs, right now has been released by us. Our biggest musical release of this year -- second biggest is Bad Newz, which was Dharma. Last year, Rocky Rani was Dharma. There's -- just on the cards right on next movie coming out there with these people. So we have a deeper relationship. And it's great that the video industry is getting more organized money. The quality of movies will go up and the quality of music going in that movie will also go up.
Regarding with Warner, I think the competition is always there. Warner is looking at India now. Sony and Universal have been there in the market. It's good. The more number of international people coming in, more focus starts going out there on the Indian music industry. But we very strongly bet on our understanding of the Indian music market and the fact our relationships are far, far deeper. That's why we are not focusing on any 1 or 2 languages. We are focusing on every major language of the country.
Understood. Last question is essentially on your strategy of up-front 3 years, very aggressive spending on content. So one is, could you look at option B also where you remain aggressive, but because PBT growth rate will be much lower than the revenue growth, is there an option B available to, in terms of strategy, where you do it a bit more gradually.
Second is on data point. So last 6 months where you have increased aggression, if you could tell us incremental market share in music. T-Series, Sony, We, Warner and You, how is it now in terms of the last 6 months, some data points in terms of market share?
I will rely -- I'm very sure right now, you can go to -- start tracking the YouTube channels of everyone in the market, that will give you a decent enough idea. But if you look at the presentation that we have shared, there's a slide, which is talking about how the numbers in terms of views have changed on YouTube, how the growth rate has been of ours versus all the major competitors in the market. That will give you a flavor that we are growing at a rate which is faster than anybody else. And it's not that difficult right now. If you start tracking out all the recent hits of any of the labels, just checkout which movies will be releasing, it will become very obvious to you. I have already stated right now for the year, we people in Hindi for the first time I've taken the leadership position. We have been leaders in Bhojpuri and Gujarati for a very long time. And the we people were on a full year basis last year for also leaders in Malayalam and Telugu and I'm confident we will end this year also around the same positions.
The languages in which we need more work at this juncture is Tamil where more work needs to happen and Punjabi.
And who will be the leaders there, Tamil and Punjabi?
Again, different people, we are either sitting in a our second position or the third division. We are not #1, and we will not be happy unless we reach the #1 position.
Understood. And on the strategy part, if you could comment gradual versus very aggressive?
Sure. I think we have a stated position of INR 1,000 crores that people want to go back and invest. Remember, you are talking to a company which were close to 2 decades did not have any new music coming in there. We people have coiled and come to the stage after experimenting with newer content now for 5 years or so. We have refined our selection process. We have refined our ability to market it more effectively than anybody else and hence, the monetization is going to be there better than anybody else. So we are betting on that ability of ours.
The next question is from the line of Priyankar Sarkar from Square 64 Capital Advisers.
Sir, one quick question. Why has the other current liabilities moved up to -- close to INR 250 crores versus INR 65 crores in March 24? And what does this exactly pertain to?
Priyankar, it's part of our various contract negotiations. We received cash for the upcoming deals. So under various contracts we received, the cash for which the income is going to accrue in the future. This is accounted for as other current liabilities or income received in advance.
You can see a corresponding increase in the unallocated assets, which is basically the increase in the cash balances. So the 2 will correspond to each other. As we [indiscernible] and this will get unwind.
Got it. But, I mean it was a sharp move, right, from INR 65 crores to INR 250 crores. So why that happened, I guess, in your industry?
[indiscernible] negotiation and this is the result of that.
Give Pankaj [indiscernible] he's been able to negotiate to get large advances out of people, which makes our position again, which makes our position that much better because there's additional money right now. We are not investing our own money then in your content.
The next question is from the line of Pulkit Chawla from Emkay Global Financial Services.
So my first question is on the music licensing side. If you look at the last couple of quarters, I think revenue growth has been slightly subpar. This quarter again, let's say, high single digits only. So if you could dwell slightly deeper into this trajectory, just trying to understand where the weakness is coming from in terms of platforms? So whether it's YouTube or any of the OTTs, which is sort of pulling out this growth.
And second, also the margin side, for the overall music segment, that seems to have declined Y-o-Y even when there's a sharp decline in Carvaan where margins are obviously negligible. So is this decline in margin solely attributable to the higher content investment? Or is there something more here?
So let me answer the first one. Listen, you need to look at music always as licensing plus artist management. Just because we are splitting the segment, you can't look in 2 different ways. Because, at times, the investments of the artist is sitting in the music while the revenue which is coming from the same artist is siting in the artist management. It's a wrong way to do it.
On a music basis right now, which are licensing and artist management, we are on a 22% growth. And by the time we end the year right now, we will be closer to this 23% to 24% growth net amount on the music segment. So I'm actually not that overtly concerned at this juncture on the music revenue part.
Yes, in the past, as stated until Q1, not in Q2 -- until Q1 of the year, we had the problem of 3 of the platforms going from free to pay. So their fee revenues are sitting in the denominator but not sitting in the numerator, but that impact has completely gone out. We are happy at the rate at which numbers are going up for us on all the major platforms. Yes, obviously, the day subscription takes off, which is a matter of few quarters, the revenue growth is going to be far, far significant. It means you're talking about a time shift and doubling of the revenue that you are doing here.
Second big factor is that day the short format apps in India open themselves up to advertising, they will end up sharing close to 50% of that revenue with the IP owner. So whomsoever is controlling the more popular IP will also end up getting a significant bump in their revenues going directly to the bottom line. These are 2 big things which are on the cards.
And on the margin point?
Margin point, the impact is only on the new additional cost, there's INR 18 crore increase -- INR 18 crores increase right now in the content charge, which is also primarily you can see out of advertising and revenue part.
Got it. Sir, secondly, on the event segment, clearly, there is obviously a great response for the Diljit's concerts that we had in Q3. If you could just explain what are the different sources of revenue that you have here? And how many -- how much revenue, let's say, that you typically would make on a per-event basis? You also alluded to some, let's say, change in strategy last quarter.
So what I can tell you is there are two sources of revenue primarily that comes in live events: ticketing revenue and sponsorship revenue, which is the way the brands come in. These are the 2 primary sources of revenue.
In the quarter, you will be seeing 13 concerts happening in India. And so 12 of such happening in India and 1 concert happening in Middle East. That's what the plan is. These are obviously very highest revenue number because the entire ticketing revenue comes across to you. But it -- even business wise very nature is very high top line, very relatively lower single-digit margin bottom lines, but a very high IRR. And that's what's going to -- you all should expect to see in the quarter 3.
The next question is from the line of Harssh K Shah from Dalal and Broacha Stockbroking Private Limited.
Two questions from my side. Sir, firstly, on the content, the music content that gets released in the industry on a yearly basis. Sir, is it the case that the number of songs are kind of going down, but the cost for each song is going up, and especially in the South Indian languages?
How did you -- there's no such indication at this juncture. So the cost of these songs are typically linked to what kind of the revenue labels keep on making. So if there's a producer who has a track record of giving film albums, which are massive hits, the value of the songs for the future movies, all will end up going up. If there are languages where which have got massive popularity, you will find the music of those languages being a little more expensive. Equally, if a production house gets into a track record of giving albums which [indiscernible], the price of its future album starts falling down and so is the case for languages. It's a dynamic market.
Correct. So why I asked this question is because certain labels in the certain part of this country have kind of said that the cost of acquisition of the song kind of in say 2020 to right now where we are, the cost is going up. So meaning will that impact the payback period for at least that language? Or you don't see that happening?
Thankfully, my answer is in your question only. If you go back and check out my transcripts from 2018 onwards, then we started acquiring newer content. We have been maintaining the 5-year payback period guidance, and we hold on to that.
Okay. Secondly, on the video segment, sir, how should one kind of look at the media vertical in terms of the contribution to my overall revenue? I understand that this segment is kind of lumpy in nature where in 1 quarter, it should be high, another quarter should be low. But on an annual basis, how should one look at this segment in terms of contribution?
Give me -- video segment is still a very, very new segment out there for us. We are trying also going to get our strategy that much more precise and clear here. Give me another couple of quarters, and that's the time I'll go back and tell you. What the two factors I can throw at you at this juncture, which are our guidance that we have shared in the past is, one, that we are expecting broadly 30% growth coming out there in the video vertical of us, annual growth.
Second, the total capital, which is going to be allocated to video and live events vertical at any particular time will not exceed more than 18% of the total capital allocation made by the company. So there are checks and balances that we have put right now on the video business.
Unlike the music business, which we people have been doing for over 120 years, video business is a relatively newer business. That's why we have put enough checks here. Give us another few quarters, and we should be able to share with you much more precise 3-year plan going for the video segment.
Got it. And lastly, on the short format video platform. So here I'm talking specifically about YouTube short. So basically, they are kind of generating massive volumes in terms of views, but the monetization will kind of not to that extent. And considering how YouTube has changed the guidelines in terms of the definition of what a short video is, what sort of indicative time line do you all have in terms of when the monetization can start? I mean if you could give some color on that?
Yes. That on YouTube shorts, our contracts protect us from the new guidelines that have been shared, that's all I'm at liberty to go out there and say. So we are protected. So you are not going to be finding my music on this long-form content, which is going on YouTube shorts.
Yes, just like you, we are also very keenly following both the leading short-format apps of the country, YouTube shorts and Instagram, working closely with them and trying to do this transition from being just a content viewing platform to also one which is getting enough advertising to justify the number of eyeballs that are going in. Like in every other part of the world, solely these guys, once they have formed up their position as a clearcut market leader and are not threatened by the imminent entry of a third platform who is currently not there in India, I think they will start opening up themselves to advertising that much more. And that will be a huge jump that we'll end up getting.
On YouTube shorts specifically, we are, on the nonmusic side, they have started opening themselves to advertising. And the video part of my business has started growing up. Remember, under the company called Pocket Aces, we're also creating content which is a short format content. So along with Instagram, we are also putting on YouTube shorts, and we are seeing the green shoots there of revenue building up.
Correct. So then can we expect that in the next 3 years, maybe within 3 years, we could see the monetization happening?
The thing is I can tell you things which are in my control. It's a little wrong on my part to comment on -- give assurance at the half of the outsiders, but I think my guess is as good as yours that in this time frame, you will see short-format apps, realizing here that getting eyeballs for the sake of eyeballs means nothing. Eyeballs have to be converted into advertising revenue, and all of us are going to benefit.
I am actually -- by better higher on subscription on streaming apps picking up even faster than advertising on short-format apps, but both are bound to happen. There are natural things happening in every other part of the world.
[Operator Instructions] The next question is from the line of Jyoti Singh from Arihant Capital Markets Limited.
Sir, just wanted to focus on the language side. Sir, what is your view on the Bhojpuri songs side, which you mentioned we are getting high traction, which is still 2% for us as per last annual report?
So your question is are we -- if it's on language, yes. We, as a company, for the longest time, have been saying, both on the music and the video side are equally bullish on the major regional languages of the country, whether it's Tamil, Telugu, Kannada Malayalam or Bhojpuri, Gujarati, Marathi. We've just got ourselves into Odiya, Bengali. We don't want to be only a Hindi music or a Punjabi music company.
In the past also, if you look at our history of 120 years odd, we have always had -- we have the biggest catalog in each of these languages, and we want to continue building that down.
The various languages have different monetization contributions. Some of the languages are heavier on YouTube, some languages get a lot of views from outside India, some are bigger on streaming platforms. We always keep that in mind while we do the capital allocation across the languages. But the language you spoke about Bhojpuri or Tamil, Telugu, Kannada, Malayalam or Gujarati, you will continue seeing investments coming from our side.
And we are on like number one, something on the Bhojpuri side or...
Mam, let the year get over. But as of last year, we were #1 in Telugu, Malayalam, Bhojpuri, Gujarati.
Okay. And sir, any focus on working with the brand for the background music and like our competitor working on that side, if you can shed some light on that.
Into, what do you mean by that? I'm not...
Like a lot of label company, they are working with the brand to sometime it uses from the existing library like Bajaj and Marico, they use the music.
See, our presentations over the last, I don't know, 12, 16, 20 quarters, we always share of the multiple brands that we people are working with. Please connect with her. I'll send you the ads of the people.
On the brand side, we are the #1 in the country today. Whether it's a Mahindra or a Pepsi or it's Coke which is getting in, these are just showing you, if I look at this particular quarter, Mahindra Thar had Inteha Ho Gayi Intezar Ki, it's Mahindra Thar has got the biggest opening of the recent times they've ever done in terms of bookings. And there's generally 1 ad and that ad has got our song in it.
Dabar Babool ended up using -- this is quarter 2 I'm talking about. Lux ended up using us, Ponds ended up using us, Reliance Trend has used us, [indiscernible] used us, and this is some of the brands. So we have a very strong vertical wherein we license our music to branch for the advertising in not just Hindi, Hindi, Tamil, Telugu are very strong, even in Malayalam
And sir, if you could guide us on the margin side, how much we make on the brand front?
Those are getting to paid specifics. We have [indiscernible] the most premium catalog of the older forms on the audio side is controlled by us. We have got good realization that all I can state here. But I'm aware and completely with you that in the days to come, you will see a brand was not just happening on music, we are getting more active on getting the brands that are part of a live event, and brands also becoming part of the video content that we are creating for short-format apps.
Great, sir. And sir, just a last question. Like anything we are doing with the Netflix on the movie side?
We have, if I remember my numbers correctly, we have close to 2 dozen movies of ours, which have been licensed to Netflix. In fact, Netflix is our biggest partner. We have some of our content, which has gone on Amazon, Zee5 and Hotstar too. But Netflix is our biggest partner in terms of the destination where our movies end up getting license to.
The next question is from the line of Jayesh Jain from DSP MF.
I wanted to understand that if you adjust for the artist revenue, music licensing revenue has grown by around double digit. And given the spend you have done in the last 1, 2 years is about INR 300 crores [indiscernible] growth has come from the addition of new songs. Has the monetization [indiscernible] has not increased as far as we would have expected?
And following to that question, does your 5-period payback calculation account for the anticipated rise in monetization per stream due to the known factors we all know? Could you just throw light on that? And how should we think about this?
The first one, I'm going to repeat myself. You have to look at music revenue as licensing plus artist management. Artist management is not something which is separate. Some of the big songs that we people have invested in are connected to the artists who is sitting at artist management. So I'm creating the form because I want to make the artist big. So please look at music revenue as a combination of licensing and artist management, which has grown by 22%.
Your second part, our 5-year payback period guidance is done. This is the revenues that we people are making today. Any lift that we will end up getting [indiscernible] subscription taking off in a big fashion or short-format apps getting additional advertising revenue and hence, we're getting a share for it and not been factored in.
Okay. So the 5-year payback period is on the current revenue per stream or broadly?
Yes. Yes.
Okay, cool. And what is -- do you guys have an idea let's the acquisitive cost per song should be around so that IRR doesn't sort of fall below 26%.
So typically, there is no per song part. It's like there word creativity. If a song has been picturized on Ranbir Kapoor, sang by Arijit Singh, music is given by Pritam or Sachin-Jigar, and you have a leading heroine like an Alia or Kriti working on it, the scene is going to be very different versus a smaller artist and a smaller singer. So what we typically do, our approach is not very different from the approach you may be making, which is a portfolio management approach.
We end up taking bets in multiple languages in multiple category of films also on the non-film side. So that, we also know if we are relieving 100 songs, we cannot have 90% hit rates going in. The hit rates are going to be lower than that, but our hit rate has to be higher than anybody else in the market, and those songs should be large enough to not only recover the cost of the songs that have not worked well, but also generate the returns that you're talking about.
Understood. I don't understand there is loss factor in the business, but you would have still some color on, let's say, high-end Hindi songs versus vis-a-vis normal original song?
So this seems -- the equations are very, very different. What we people do hence along with portfolio management, our entire content selection is done using predictive AI. I said this in my opening statement. We are not betting on the years of managing director or the senior management of the company to take calls on which album is going to work or which song is going to work. We rely a lot on our predictive AI and then work with people under the age of 30 in each of the regional language local teams to take a call as to what to go for and what not to go for.
Secondly, everybody who is on the music team, everybody from a content acquisition, marketing, monetization from an executive to the vertical edge. All of them KRAs are completely linked to one factor, which is 5-year payback period. That's one principle with which the entire company lives, breaths rich by.
You wanted to get a color, see different languages behave in a different fashion. So our language like a Hindi may have a relatively longer payback period, but the form has a much longer shelf life compared to, say, a Bhojpuri, which has got a much shorter payback period, but the shelf life of those forms is also relatively shorter. So we keep on -- when we are doing our capital allocation which was done at the beginning of the year and then we look at it right now on every quarter basis. It's done keeping in mind that on an overall level, we manage our gold shop of 5-year payback period while also ensuring that we manage our market share and there is a revenue growth number coming in.
Understood. So there is an implication of weighted average of songs and we could average the IRR of regions?
You're right, sir. That's why you will find at times we people taking twice getting into a particular language or not investing in that language. So as an outsider, you may think that a lot of people are listening to that language, unless we are convinced that it will fit into the overall weighted average and then it should not go back and push my PO, payback period over 5 years, and we are not going to get into it.
We are in the business of making money from IP. We are not in the business of just making IP.
The next question is from the line of Govindarajan Chellappa from CSIM.
I have just one question. You've, in the past, mentioned and you reiterated today that you will limit the capital employed to film, series and events to 18% of the total capital employed. I mean this more or less implies that you were never keen to buy a large production house that was being speculated, and you don't have the intention to do that in the future. Is that a correct interpretation?
At this juncture, if there is any change in this, we will come back to you and share what the plans are. But at the same time, I'm going to repeat to you, we believe video is strategically extremely important to us. We don't want to be in a situation where all my competitors who are in the space from music also have a video arm in their companies. We don't know in a situation where it becomes difficult for source music.
In the same breath, we also understand that what is in our DNA, what Saregama is very, very good at is functional management. I understand how to make the last penny work harder and not just spend money for the sake of spending money. That's our strength, but making massive large budgeted films is not in the DNA. So if we ever have the intent to go out there and create that kind of content, at that time, we will look at potential partnerships all around or whichever we will do right now, we we'll chat with you guys first.
Okay. So just to understand you right, I mean, this is another point you made in the past that you're not interested in big budget, big star movies?
In the fold of Saregama, we are creating ourselves no. We don't think -- we don't have the wherewithal to do it, but that doesn't stop us from partnering with somebody. If all the other guidances and guidelines are met, we may look at those possibilities in the days to come. Are we interested in video? Yes, very keen on video segment.
Okay. Okay. I mean it semantics here, whether what part where the partnership means investments?
Sir, at this is juncture, there's nothing happening. So I don't know what to share with you.
Okay. Now I just wanted to leave it to thought, if you've seen your competitor, Tips films and music, you would see how Tips music has gotten re-rated once they split the company between Tips films and music. There is a message in that. That's all I wanted to let you know.
The next question is from the line of Prolin Bharat Nandu from Edelweiss.
You have answered my question, but slightly more color on your comment on data-driven, AI driven model to buy the content. So can you tell me as to from that reliance on the model when we started, how has that model developed over the period of time? What is the way in which you marry the model with human intelligence? And if a competitor were to decide to follow a similar kind of an approach, how easy or difficult it would be? Is data the only differentiator or the key mode that model has? Can you just give some more color because everything hinges in a way on that and you're going to spend INR 1,000 crores over the next 3 years. So can you help me better understand this part of the -- your business?
Sure. See, everything that you do your competitor can go out and repeat. At the end of the day, majority of the space is that -- majority of the companies are, unless it's a trademark stuff, things can get replicated. But what you can't replicate is the mindset of the DNA of the company. We, as a creative house, one, we believe that we are not in the creativity of entertainment. We are in the business of entertainment. That's a very big difference. We don't get happy right now if we are getting a big hit movie of critics like it. We become happy if there is a return which is coming on the investment that we're doing on an IP production. That's a mindset part.
The modeling part has also come out of that thing. As a human being, even if I'm the most gifted singer, composer, music expert, which I'm not by a mile also. Had I been blessed, then also I would have been best in 1 or 2 languages. Humanly, it's difficult right now for somebody to be completely be on top of the more than a dozen languages in which Saregama is investing in today. So we said we need to have a more signed on approach, which is more data driven, so that is not just a gut call-driven part.
So what data does for us, and it keeps on getting the model is now at an accuracy level that gives us pretty confident. What does the model tell? Models doesn't share that you don't buy something. Models just goes back and tell that if this is the set of artists who are connected to this particular song, based on the track record of the last rolling 36 months, what is the amount of money you can expect to make over the next 5 years? [ Foreign Language ] That gives me an outer time right now. This is the money that we should be ready to go out there and pay. Every song makes money. The question at what cost did you acquire the song so that you don't end up losing money.
What does tells us that? Then the songs were heard by the local language young -- or everybody who has a song and takes to give their views are all under the age of 18. That's company guideline. Again, this is part of the DNA and mindset of Saregama, where we believe just because we are sitting on very senior level position, that does not give us the right -- automatic right to become the judges of what the younger people in this country want to hear. We leave it to people who are closer to that particular age group.
The thing is a little difficult to replicate. Everything can be replicated in that sense, which if that team goes back and say, no, [ Foreign Language ] then [ Foreign Language ]. If they go back and say, yes, we like the song. And we know the pricing at which model has gone back and so on, as long as the final deal can happen within plus/minus 10% of this deals get done, if there is a valuation which is far higher, that's your only time senior management starts getting involved and say, is there a bigger strategic benefit of doing that particular deal? If yes, we explore it. If not, the dealer said no right there.
Do exceptions happen, sir -- exceptions. Model does go wrong. Because, in this business, there is a possibility that a combination of a top hero and a top composer and a top singer and a top choreographer, which is given only hits over the last 3 years may give a flop or somebody has only given flop over the 3 years may give us a sudden hit. We believe right now, I'm better off leaving that kind of content here rather than taking a high risk because at the end of the day, our success is linked to the returns that we make from our IP.
That's very clear. I want to probably drive your attention back. I mean you shared a part of your model back at the analyst meet, right, I mean, as to how you arrive at a particular pricing based on the artist and so on and so forth. So, in the same presentation, you also had a projection in terms of FY '28 where do you want to reach? And you said that the -- in the call, you said that the -- for 5 more quarters, the investment on content will continue to be high, probably higher than the quarterly run rate or half yearly run rate that you have probably we have seen in the H1 of FY '25. But is it fair to say that this gap between the revenue growth and adjusted EBITDA growth that with the PBT growth that will narrow much sooner than the 5 quarters. Is that a fair assumption to make?
To start narrowing, but we'll still be growing at a rate, so you are at this juncture as a part where big investment has happened, is that literally the first quarter, the big investment has happened, but the revenue, some impact on the revenue you're going to see in Q3. So as we go -- keep on going ahead, the gap of the growth rate between adjusted EBITDA and PBT will start going down. As we go even closer to the end of 5 quarters, they will start growing at a rate which will be similar to the top line growth or exceeding that.
The next question is from the line of Lokesh Manik from Vallum Capital.
First, happy Diwali. Secondly, I had one question on the film vertical line and I know you addressed it by asking for some time for the next few quarters to gain some clarity. But just a little more detail on how I see it in 2 components. One is the TV series vertical, which was historically there with Saregama and then you introduced web series and movies in 2019, '18 onwards. So just to get a sense of our deal out there was that we would do a costless model with 3 platforms and license it for a period of 3 years. Post which, the IP would be exclusively ours. So is that now maturing? Is that margin of maturing and coming back and adding to the profitability that is reported in that vertical this quarter?
And can this be the margin side that I know the revenue is lumpy. The margin, the 10% margin can be sustainable and whatever revenue comes in the following quarters because this is the first quarter that we reported a good profitability in that vertical. So has that model now matured where these movies are now going back to other platforms and there's very little cost [indiscernible]?
Our video business has not matured yet. Remember, there is a new video segment that we have taken with us, which is the short format content, which is sitting in the [indiscernible] that's substantially enough. That's also a substantial number. The models will mature with time. That's why we have put this constraint on the total amount of capital that we are allocating to the video business here. So that there's enough amount of checks and balances with us sitting here.
We model the way we people function any newer content today on film sales. Before we go out and start spending money on the films, we need to get a soft agreement on at least 70% of the cost of the film will get recovered. So the digital television and whatever music team believes is the right valuation for the music, primarily on TV and digital. So the risk that we are taking on the theater is limited only to 30% of the cost of the film.
On series, if you are making something, we do it only if we have a pre-licensing commitment coming out there for any of the platforms. Otherwise, we don't go out there and do it. The same philosophy we have started now putting in Pocket Ace system. And as and when we work with any other partner also outside in whichever fashion on the video side, we will ensure that the financial discipline that we are bringing to the table does not get waivered.
We understand radio business is a good business provided you can maintain the financial discipline. We have been able to demonstrate on the music side. We are now -- hopefully, we'll be demonstrating on the live event side that we are good at doing a very tight financial discipline which ensures that even irrespective of whether movie becomes a hit of flop because that's never in our hand. And those things will keep on happening. They're also the same portfolio approach works right now. If you're making 10 films, 3 or 4 best are going to become hit, some will be average and rest will be flopped. But the discipline should be that strong that you don't take too much of the risk on a single film and majority of the money is spent on the film and not spent on frivolous stuff. Wherever we believe that nature of the deal is not happening, we just walk off the deal. We don't do deals for the sake of deals.
Fair enough. Just to understand a little more on the success of the model. So are you seeing takers for the series that we have developed pre-licensing in 2019 and '24. Are other platforms interested in taking these up?
The kind of movies that we are making at that time, the film vertical has -- or the video vertical has metamorphed. The kind of content we were making from 2017 to 2019, 2020, pre-COVID, were small budgeted films, which were not planned for theater, which were planned only for digital. Some of them have completed their first cycle and really moved to the second platform and have started generating revenue.
The model that we are working today has completely changed. There is a smaller market going in for these very tight budgeted films. That's why for last 2.5 years or so, our focus has been more on movies, which will first go to theater. But just because they're going to theater doesn't mean that you aren't going to take massive amount of risk, [indiscernible] pre-license rights and at least secure 70% of the cost.
Got it. Got it. And the pre-licensing period would be the same 3 years, roughly?
Sir, it depends. Right now, there are 3-year deals, there are 5-year deals, there are 11-year deals also.
The next question is from the line of Ravi Naredi from Naredi Investments.
Sir, I was waiting in June and now time is over, but still you have took my question. Sir, whatever song, Sarma ji ki beti or other we have sold. Can you tell how much amount Saregama is earning in a quarterly basis?
Sir individual [ Foreign Language ] I can't share here.
No, no, total. I'm not asking individuals.
Sir, the total amount of money that we are making from -- which part from -- selling the rights?
There's advertisement clips and whatever you had wrote the Sarma Ji Ki Beti, other like Khel Khel Mein.
As I mentioned, I can't give you a number out here. All I can say right, if you're ask around in the market, you will hear the very strong part coming in that on the [indiscernible] we call it, that our music gets embedded in ads or other production houses content. We are the care leaders there. [ Foreign Language ]
That I know. I'm a shareholder since last 15 years, so I knew each and everything. Sir, from Diljit Dosanjh, can you give the margin in percentage of 1%, 2% or less than 1% by the.
Even [indiscernible] is at best of single-digit margin percentage, but as I said, the capital gets locked there for a very short span of time. And there's also very little capital. So live events if done well, we will have a massive IRR, though a lower-margin business. And we believe that you have already seen the excitement with Diljit Dosanjh and there's an international British band called Coldplay, their tickets. That India, as we people go forward as discretionary income goes up in the hands of people. People have money with them. They would like to go out there and spend it, spend some of the money all of us spend on physical products, better car, better watch, better house. And then people start spending money in giving better experiences to their families, which once in a year can be an international trip, but on a regular basis, ends up being taking a family to a movie or taking a family out there to a concert.
So we believe live events may have a very bright future. And the fact that we people are the only live events player who is also into music and only music player who is also into live event gives us a massive edge in the days to come.
Okay, sir. And in last 18 months, how much your music has grown on a paid basis? Can you give some idea about this?
Sir, I'm not clear about your question.
In last 18 months, how much your music was on live the paid basis?
Subscription?
Subscription basis.
That subscription is up, it's growing. It's growing at a pretty fast pace, but that is because the base is very, very small. We are seeing a good amount of push coming on the subscription side, especially from partners like YouTube or an Apple. Now even Spotify pushing for it. I maintain my bullish nature out here and a bullish position out here that give it another few quarters, said 15 to 18 months, as maintained by 15 months back now, you will see the only 2 free guys also moving towards the pay side, which is Spotify and JioSaavn hopefully. All the other people have gone behind the paid while today and subscription will take off. That's also the reason why there is so much of international labels focusing on this country, because everybody understands India -- we are -- Indian used to spend more money on cassettes and CDs 25 years ago than they are paying for subscription.
So intention to pay is there. Disposable income is there. It's only that these 2 platforms have to stop giving free content, and I believe we are moving in that direction.
Thank you very much, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments. Thank you, and over to you.
Thank you, everyone, for this very, very patient listening. We people are on a strong growth path. We believe that we now have the wherewithal to invest in music in a wider fashion, giving us a higher rate than any of our competitors. We believe that's the right thing to do to invest in newer music to future-proof this company. We will continue being on that path.
It's a matter of another 5 quarters which the results of all these investments that we people are making will start showing fruits in terms of profitability growing at a rate, which will be in sync with what we be -- how the revenue growth is going to be happening. That's one.
Second, video is a strategically important vertical for the company. Both video on its own and the importance of video to safeguard our music business, and we will keep on making all the necessary moves in that space. What I assure you is whatever we do, and if we do something, it will always be keeping in mind the financial discipline by which we people swear by in our company.
Live event is starting in a very big fashion. It will be a low margin, high IRR business in the days to come. Hopefully, that will also start contributing significantly to -- both to the top line and in the bottom line of the company. Overall, we maintain that in the next 3 years to 3.5 years, you will see the profitability of the company [indiscernible].
We need all your support. Very, very happy Diwali to all of you guys and a happy new year. Thank you.
Thank you. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.