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Zee Entertainment Enterprises Ltd
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Ladies and gentlemen, good day, and welcome to ZEE Entertainment Enterprises Limited Q2 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anshul Jain. Thank you, and over to you, sir.
Thank you, Stephen. Hello, everyone, and welcome to the ZEE Entertainment's Q2 FY '22 earnings discussion. We have with us today are MD and CEO, Mr. Punit Goenka, along with senior management team. We will start with a brief statement from Mr. Goenka, followed by a statement on operating and financial performance by Mr. Gupta. We will subsequently open the floor for question and answers on. We would request participants to restrict their questions to Q2 FY '22 performance. We will not be able to provide any additional updates from whatever is available in public comments on support merger with Sony and invest organization for AGM. I would also like to remind everyone that -- anything we say during this call that refers to our outlook for the future is a forward-looking statement and must be taken in the conjunction of all the risks that we face. We'll begin now. Thank you, and over to you, PG.
Thank you, Anshul. Good evening, everyone. Thank you for joining us today. I hope you and your loved ones had a wonderful Diwali. Before we speak about the company's performance during the quarter, I would like to share a quick update on the proposed merger between ZEE and Sony Pictures Networks India. Former to the in-principle approval received from the Board, the due diligence process had commenced and is in steady progress. We are confident that this process will be completed within the stipulated time lines or even before that, post which we will move forward with the next steps as mandated by the law. While our CFO, Rohit Gupta, will take you through the granular detail of the financial and operational performance of the company, let me give you an overview of the business environment. The second quarter has been one of recovery and revival for us and the industry at large. The second wave of the pandemic had a sudden surge in cases served as a disruption to the growth momentum of the previous quarter, and some effects of that also spilled over into the first half of the second quarter. But we are glad to note that the increase in vaccination drives and reduction of cases has led to gradual reopening of business activities across the country. This has provided an impetus to the consumer and to the overall advertiser sentiment, resulting in green shoots for macroeconomic growth. Amidst this scenario, the underlying trends seen in the content production during the lockdown remained as before. To elaborate on that further, viewership on TV and digital video streaming platforms continue to record new levels of growth. Furthermore, the launch of high-impact entertainment properties and engaging films across platforms has encouraged advertisers to increase their strength cross channels. As per our plan highlighted in the previous quarter, we launched 30-plus shows across our channels, leading to a gradual recovery of viewership in certain markets where we had lost share. On ZEE5, our new strategy continues to bear fruit as we remain in the growth mode for the business. Noteworthy efforts have been taken to improve the digital platform growth across key aspects like content and user experience, which has led to higher user acquisition and monetization. Globally the platform continues to post steady positive growth across markets, including the United States, where we launched in the previous quarter. We continue to invest in our core businesses to further ramp up our offerings to create compelling entertainment for our viewers across the globe. The impact around subscription revenue on the linear side of the business continued during the quarter, leading to a marginal decline. That said, we had announced our channel pricing in October, in line with NTO 2.0, but I would like to inform you that in the latest communications with the Telecom Regulatory Authority of India, has allowed broadcasters time till 31st December 2021, to revise and publish the RIOs. The revised implementation date is now 1st April 2022. Like I have maintained earlier as well, after the initial few quarters of disruption, post implementation, we will be back to delivering healthy growth in subscription numbers. Overall, with the receding fear of an anticipated third wave, the green shoots of demand are clearly visible. The reopening of malls, theaters and other economic and leisure activities, coupled with the festival season we have certainly seen advertisement spend bouncing back in the subsequent quarters. We are hopeful of a gradual recovery in theater occupancy and as the slate of films line up for release from these studios will be further serving as a positive factor for us in the subsequent quarters. We remain optimistic that if this trend continues, advertising should surpass the pre-COVID levels and swing into healthy growth mode. Post the impact of COVID in the initial part of the quarter, the creation and availability of original content, along with the relentless execution across the business, has led to revenue and EBITDA growth sequentially and on a year-on-year basis. We expect this robust growth in performance to continue in the coming quarters. Overall, there are very clear indicators pointing towards a sharp recovery for the economy and industry at large. I remain confident that the improved business sentiments will provide a strong growth momentum within the sector, helping businesses bounce back to pre-COVID levels by the end of this fiscal. On that note, I would like to hand over to session to Rohit to take you through the financial and operational performance of the company, and I look forward to interacting with you during the Q&A session. Thank you. Over to you, Rohit.
Thank you, Punit. Hope all of you are doing well and taking good care of yourselves. The second wave of COVID took us by surprise in the first quarter of this financial year when things were starting to normalize. We continued to see the residual impact of the same in the first half of the quarter as well. As number of cases came down sharply and the pace of vaccination drive activated across the country, we saw a strong bounce back from advertisers in second half of the quarter. The accelerated progress in the face of vaccination, the release of pent-up demand in the subsidiary season provides much needed upside to grow revenues. During the quarter, we continued to be India's strong #2 TV entertainment network. The viewership share for the quarter increased by 70 bps to 17.7%. This increase was on account of 30-plus new launches across the market. These new launches helped us increase share across key slots. While the performance in markets like Bangla, Telegu, Kannad, Oriya continues to be strong during the quarter, in the Hindi, Tamil and Marathi market our share should improve further based on compelling new launches planned in country. We will continue to launch new shows across the market to drive share gains. New channels now contribute about 1.2% of the total network share. ZEE5 strategy outlined in previous quarters is well on track and we have started seeing robust growth in operating as well as financial business. Global MAU and DAU as on September 30, stands at 93.2 million and 9.3 million, respectively, with watch time of 186 minutes. During the quarter, we launched 13 originals across languages. We have a compelling slate of content lined up in H2. Revenue for ZEE5 during the quarter grew sequentially by 17% to INR 1,305 million. EBITDA losses for the quarter stand at INR 1,720 million. These studios during the quarter released 5 movies, including theatrical release of 3 movies. We saw encouraging response for theatrical releases in the space where we were allowed to release. With more state governments gradually lifting the restrictions on theater opening, we remain confident of stronger performance in H2 with strong pipeline of movies. Now coming to the financial performance for the quarter. We have witnessed healthy recovery ad revenue towards second half of this quarter. Ad revenues for the quarter grew by 17.6% sequentially and 20.7% Y-o-Y. As revenues for H1 stand at INR 2,159 million, up 52.3% on a Y-on-Y basis. Subscription revenue for the quarter stand at INR 7,885 million, marginally down on Y-on-Y basis. Overall revenues came at INR 19,788 million, grew 14.9% year-on-year. Consolidated revenues for H1 FY '22 stand at INR 37,538 million, up 23.7% on a Y-on-Y basis. EBITDA for the quarter came at INR 4,121 million with a margin of 20.8% on the back of higher ad sales. EBITDA for H1 FY '22 came at 7,562 million with a margin of 20.1%. PAT for Q2 came to 2,661 million, up 27.4% Q-on-Q and 185% Y-on-Y. PAT for H1 stands at INR 4,749 million, up INR 3,524 million for FY '21. The cash and treasury investments of the company as of September '21 were INR 16.2 billion post payment of equity dividend of INR 2.4 billion. The cash and treasury investments include bank transfers of -- includes bank balance of INR 7.8 billion, fixed deposits of INR 3.4 billion, mutual fund investments of INR 4.5 billion and NCDs worth INR 438 million. Over to you, Anshul.
Thank you, Rohit. Stephen, we can now begin the Q&A round.
[Operator Instructions] The first question is from the line of Naval from Emkay Global.
My first question is on ad revenues. If I look at the performance of your peers, that seems to be better off as compared to yours, if I look at on a 2-year CAGR basis. Would you attribute that weakness only to market share loss? Or you have corrected significantly on account of being the same reason, I am missing something over here. So that is my first question.
Yes. So Naval, I think, like I said, we have seen ad revenues bouncing back in later half of this quarter and advertisers have started spending for growth. We expect that this growth will continue. And while there has been -- there was softness in market share in some of the channels that I already mentioned in our opening commentary, we have taken steps to correct that. And what we are now expecting is that the winter season coming in, we should see bounce back in ad revenues in H2.
Okay. And one point I missed out what Punit stated that ad revenues will be at pre-COVID level. Were you talking about industry? Or ZEE specifically? And what will be the time line for that?
I was referring to H2 for [indiscernible] and for both will be in line with the pre-COVID levels numbers.
Okay. And lastly, on ZEE5, can you give some guidance on number of show launches because although now production is kind of back to normalized level and you have launched 13 shows into Q4, what is the number of pipeline for H2 of this year?
Rohit, do you have the numbers?
No, we have a very healthy plate Naval for H2. Actually, the number in H2 will be higher than H1. And because of COVID, some of the renewals got pushed to H2. So -- the number will be more than have been -- will be about 17 to 18.
Per quarter basis, you are seeing in H2?
Yes, in Q3, yes.
[Operator Instructions] The next question is from the line of Abneesh Roy from Edelweiss.
My first question is on your movie production business. So we are seeing very good pent-up demand. For example, Suri, Ranchi and in South India also. So I want to understand the pipeline of movies, potential for ZEE Studios next few quarters, if you could discuss because now things are almost normalizing and capacity constraints also going away. And one of the other listed South Indian broadcaster has prioritized clearly the movie production over the OTT. Would you also -- if given a choice, would you also prioritize movie production in the near term, medium term over the OTT content? I do understand the general answer that both are important. But given a choice and will there be slight inclination to tap more the movie production side?
Yes, Abneesh, thanks for the question. So first of all, we have a very healthy pipeline of film releases lined up in the H2 of this year. This includes a very healthy skew towards the regional languages. And when I say regional languages, I've been covering both the northern region as well as southern regions. And also the slate is from A plus movies down to even midsized low budget films. We do expect that it will be very healthy returns for us in the coming H2 from the ZEE Studios business. On your second point, on reprioritizing our business towards the studio model at the cost of ZEE5. No, we are not going to do anything like that. We are focused very much on ZEE5. That remains our topmost priority as a company. And we will continue to focus on that. So ZEE Studios business is an independent and we believe that both will coexist. And ZEE Studios is a very critical strategy in the success of ZEE5 and the linear business. And therefore, these are very complementary to each other rather than against each other.
Sure. One follow-up on ZEE5. So ZEE5 revenues finally could pick up quarter-on-quarter, it had been stagnant in that broadly INR 95 crores to INR 110 crore revenue. It's a good scale up in spite of cutting the prices. So my question here is essentially what is going right here? Do you see this kind of a quarter-on-quarter scale up further every quarter. So normally, e-commerce start-ups or digital startups are seen like that. So that's one bit. Second, now with so much of confident and so much of aggression on Sony ZEE merger, won't OTT see some backseat given ultimately, 2 OTT apps for Sony ZEE won't make much sense. So is there any dilution in aggression towards ZEE5 because of the impending merger?
Well, Abneesh, until the merger doesn't happen, things remain as it is. So life is normal, there is no change in thinking. We will continue our aggression of ZEE5 as it is. In terms of -- can you repeat the first part that you were...
Quarter-on-quarter scale-up of revenue in ZEE5 is good. It has finally broken out. But can we look at this kind of a quarter-on-quarter scale-up going ahead? Or is it more now likely to now remain stable at that INR 130 crores, INR 135 crore revenue quarterly?
Certainly not but you will see scale-up of revenue quarter-on-quarter. I can't comment from one quarter to another quarter. But certainly, on an ongoing basis, we'll see the revenue of ZEE5 growing leaps and bounds.
Sure. And last question. So good to see some market share improvement, but still it is well below your past averages. So if you could discuss with the new content, some of the good things which has worked in your 3 laggard channels? And normally, ZEE grows faster than industry. If your flagship channels, et cetera, have seen some market share erosion. Currently, are you seeing some growth slower than the industry growth rate in terms of advertising?
[Foreign Language] slaggard [Foreign Language] every child goes through some problems that...
But it's a flagship channel. It's a flagship channel, so it becomes very important.
Yes, it does. I understand that. So if the child is having some problems then we are fixing those problems. And I'm quite certain in the coming quarter itself you'll see the rebound happening on the flagship channel and the other channels as well. So -- and as you rightly said, we will endeavor to grow faster than the industry normally does. So the turnaround will be as usual in the ZEE style. But certainly, first, we have to get the content right. You must have already seen the kind of content lineup we are bringing, including Sa Re Ga Ma Pa and some of the other key properties that we have lined up for not just Hindi, but even for the regional languages. So I'm pretty confident that in the coming quarter -- quarter 3 and quarter 4, you will see a significant improvement.
And one last follow-up on advertising. So currently, every sector is seeing either a 10-year high or a 40-year high in terms of cost inflation. And FMCG is 55% of your advertising, which is seeing a very, very high gross margin pressure. So I'm sure some sectors will revive because of the normalcy in life coming back. But if 55%, 70%, say, of your sector is going to -- advertising is going to see gross margin pressure, what is the feedback you're getting from your advertiser next 2, 3 quarters because it's looking very tough on the advertising sentiments.
Let me say it's a matter of share of voice, right? I mean if one sector or one advertiser from that sector goes after share of voice, others will have to follow. But I don't want to double guess their business strategies, et cetera. As of now, we have no indication that they're going to be pulling back. We are getting all the indications that they do want to come back spending to the pre-COVID levels, if not higher than that.
[Operator Instructions] The next question is from the line of Arun Prasath from Spark Capital.
My question is on -- first on advertisement spend, the A&P spends in the film line. It is substantially higher as compared to base quarter or even sequentially. Any one-off in this -- you did mention that in the presentation that it's mainly on investments on [indiscernible]. Can you give more color on this, whether it will remain at this level? Or is it some kind of a one-off only in this quarter?
Arun also if you look at the earnings release, we have had almost 38 launches on the linear side and 13 on the ZEE5 side. As this a and we will pay for at least another quarter or 2. So you will see higher A&P spend happening for the company in this financial year. And then you'll start seeing stabilization happening to that. So it is directly in correlation with the content strategy and launch strategy of the content across various geographies and languages.
So this will remain at this level even though the revenue has been caught up to the pre-COVID levels? Or is it a effort to bring the revenue up to the pre-COVID levels? How should we look at it actually? Because the linear has not kept pace with the -- top line hasn't kept pace with the ad spends?
And generally, in our business, the revenue has a lag to the content and things delivering because we are dealing on 13-week cycles with the advertisers and the agencies. So that's a general lag that we see. Rohit also talked about that we have a strong lineup of content to be launched in quarter 3, both on the linear side and quarter 4 on the digital side. So that is going to take a lot of A&P spend, and we're certain that as and when the content performs and it will perform, the revenue lag will go away, and you'll start seeing the revenue tracking a similar trend. Of course, at every quarter is going to see 30 to 40 launches going forward forever. So therefore, there should be some stability in the next financial year, as I said.
My second question is on [indiscernible]. There is an addition of 2 million DAU daily to sequentially. How much of this business is influenced by the U.S. business launch? Any -- a little more details on that? Or can we expect similar net adds quarter-on-quarter sequentially, if I may, onwards?
No, I don't think we should be predicting net adds and stuff like that on a quarter-on-quarter basis. It will too premature for us to start giving that kind of guidance. Our endeavor will be to continuously grow the business. United States, as you will agree, of that 9.3 million will be a fraction of ours because eventually the 93 million, also a large part of that -- or a significant part of that comes from India. The population outside the country is what it is. We all know what that number is. So therefore, the number is predominantly Indian revenue.
Okay. So sir, what exactly went right during this quarter or to result in this 31 percentage sequentially it has grown. Even the MAU numbers have gone very well. So can you just throw some color what exactly went right this time?
As I said in my opening remarks, 2 things that we've been working on. The strategy was on focusing on the platform, which is the user experience and user interface and the content lineup. Both have worked well for us. Grossly have delivered the same numbers. And this growth is not just in this quarter. If you look at -- we have been growing sequentially over the last 3, 4 quarters consistently, both on MAUs and DAUs.
[Operator Instructions] The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.
Sir, the revised tariffs that we have announced in order to comply with NTO 2.0, do you think the high taken sufficient point of to include the loss of revenue that can come from weaker demand of the as most popular channels will now be sold [indiscernible]?
Certainly, Mr. Joshi, we have taken all that into account before deciding our pricing. And so in our experience and wisdom that is -- it should work to offset any revenue shortfall that we may have. But time will tell once we go to the market with it as to whether we are right or wrong. But in our wisdom and in our experience, this should be something that will work.
Can you share what is the current revenue mix in terms of [indiscernible].
Sorry, Rohit. I don't think we have that.
I can take this with you one-on-one. I don't have that number off hand.
One last question from my side. I think we are also planning to launch quite a bit of new shows in 3Q. In this quarter, you highlighted you have launched 30-plus new shows. So any number you have in mind that you would want to share for the upcoming quarters?
I think for the upcoming quarters, the number would be the same range it will be about maybe 28 to 30 shows across languages.
The next question is from the line of Ankur Periwal from Axis Capital.
So two questions there. So on the subscription side, now international subscription is now what you call OTT launches, is there pretty much --we are in the ramp-up mode, but at least the initiative is there to be on a global basis. What are your thoughts on the international subscription revenues? Do you think this will net largely transferred to ZEE5, your thoughts there?
Well, the market-to-market will differ, of course, it is not one glove fits all. So for example, in the United States, we have taken a conscious decision that we have gotten off the largest linear platform and focusing purely on ZEE5. So there certainly our endeavor will be to move towards the ZEE5 strategy. The other markets, we have a complementary strategy of continuing the linear distribution as well as the digital business. So we will play this out market by market, and it's not something that is an overnight switch on or switch off. So it will be done sequentially market by market as the operating teams sees the best strategy to go forward.
Sure. And just a follow-up there. From a pricing perspective, going directly through OTT will be dangerous later to this with respect to the specific market versus what you're getting right now through the distribution network channel?
Sorry, I couldn't hear you a bit in going directly would be...
So my question was that going directly in the international market through the OTT the plan in the U.S. versus the distribution model right now. Isn't this more value affected today you on net per user basis?
Yes. In the short term, it will actually be value dilutive because you will lose the base that you are being -- you were enjoying being paid by the B2B platform. But eventually, we expect that the yield will be much higher and much better for us going forward because it's a direct customer that we own rather than earning through a B2B platform.
Okay. And secondly, on the ad revenue side, now while you are still down on a 2-year, 3-year basis, how far have we reached in terms of recouping the ad yield correction that had happened over the last maybe couple of quarters.
Rohit?
So like I said, we are clearly seeing ad revenues coming back in the second half of this quarter. And we are also working it on the ad areas as well. And H2 of this year, we should see growth both over FY '20 levels of H2 and FY '21 levels of H2.
And Rohit, can you maybe highlight on the yield basis of let's say, in Ranchi making the festive season. Have we -- from a volume use perspective, are we more or less fully utilized across the network?
Yes, we are fully live across the network. And even on, like I said, on a yield basis, we are working on the yields with our advertisers. So that is improving as well.
The next question is from the line of from Raghav from Phillip Morris International. [Operator Instructions] The next question is from the line of Kunal Vora from BNP Paribas.
Can you share thoughts on subscription revenue growth in FY '23 once you to get fully implemented? How are you thinking about FY '23?
Sorry Kunal, that would be implementation itself is postponed to 1st April 2022. It's still early to predict what '23 will look like because we -- until we go to the market with the plan, we will not know the outcome. But I still believe that they will see some disruption in maybe a quarter or 2, and then things should stabilize and growth should come back. And I've always maintained that post the disruption, the growth will be back to the high single-digit kind of number for the industry.
Sure. Okay. Next one on your thoughts on margins going forward. When are you looking to get back to 25%? And whether getting back to 30%, which was an earlier target, if that's realistic in the medium term? Or we are looking to let you really get back to 25% or 30% seems difficult now?
Step by step so also 25% is the first step for us to get to, but we'll be able to guide you better at the end of next quarter once we have seen the full color of the advertising coming back in or not. So we give us one more quarter, and we'll come back to you with our guidance on that when we talk next quarter in January.
Sure. And lastly, if you can update us any incremental details on the Sony deal, any hurdles you expect from your largest shareholder, any possibility of an early closure? And whether there could be any need for any change in terms, if you can provide any incremental insight on the Sony?
Nothing that I can share. Apparently you missed my remarks, I already said that after the in-principle approval from the Board, the due diligence had commenced, it's proceeding very well on track. We are very confident of getting it closed well within the time line if not before that -- of the stipulated time line. So we are working diligently on that. We'll come back to you with more details once we have them.
Are you seeing any legal roadblocks or the path seems clear, assuming that the 2 shareholders agree to the terms?
Well, as long as the 2 shareholders agree to the terms then the path is very clear. There shouldn't be any legal hurdles. As far as the other shareholders go, they will have a time to vote for it.
As there are no further questions, I now hand the conference over to Mr. Anshul Jain for closing comments. Over to you, sir.
Thank you, everyone, for your interest in the company. Should you have any further queries, feel free to reach out to us. Thank you.
Thank you. Ladies and gentlemen, on behalf of the ZEE Entertainment Enterprises Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.