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Zee Entertainment Enterprises Ltd
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Good day, ladies and gentlemen, and welcome to the Q3 FY '18 Earnings Conference Call of Zee Entertainment Enterprises Limited. [Operator Instructions] I now hand the conference over to Mr. Bijal Shah. Thank you, and over to you, Mr. Shah.
Thank you, Margaret. Hello ,everyone and welcome to Zee Entertainment's earnings call to discuss company's performance in 3Q FY '18. Joining us today on this call is Mr. Punit Goenka, Managing Director and CEO of Zee Entertainment, Bharat Kedia, Chief Finance Officer of Zee Entertainment, along with senior management of the company.We'll start with a brief statement from Mr. Goenka on the third quarter performance, subsequently we'll open the floor for question and answer.Before I pass it on to Mr. Goenka, I would like to remind everybody 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 context of the risks that we face.Thank you and over to you, Mr. Goenka.
Thank you, Bijal. I would like to welcome everybody to this call and appreciate your joining us for a discussion on the results of the third quarter of fiscal 2018. We are delighted to deliver a strong operating performance during the quarter. The slower growth in the last 4 quarters was due to specific events, which required our advertisers to recalibrate their spends. As the impact of these factors is now behind us, ad spends have bounced back strongly and the outlook remains encouraging. The recent cut in GST rates across a wide category of products should aid the growth in [ advertising ].Our domestic ad revenue growth of 26% is a testament to the fact that television continues to remain the most effective medium for brand building. With a dominant timeshare along with an increasing reach, television will remain an important medium for advertisers in the foreseeable future.On top of this, digital platforms are driving incremental video consumption, which represents another growth opportunity for us to monetize content. Our new digital platform, Zee5, is scheduled to be launched in February -- next month, will enable us to capture this growth. The domestic subscription growth for the quarter was 7.5%. Subscription growth so far has been lower than what we have achieved last year as the content deals with our distribution partners are taking slightly longer to conclude due to litigations regarding the TRAI tariff regulation. Last year, we had closed majority of these deals in the second and third quarter.Having said that, we don't think that this will have any significant impact on our full-year outlook for subscription growth. EBITDA for the quarter was INR 5.9 billion with an EBITDA margin of 32.3%. The cash and cash equivalents for the quarter ended December 31 stood at INR 32.6 billion. I'm sure that lot of you are aware that on the occasion of completing 25 years of operations, our businesses adopted a new and vibrant look with a fresh brand identity and new philosophy of Extraordinary Together, we think that we will be able to establish a closer connect with our consumer.Now, I will cover the operating performance, starting with the domestic broadcast vertical. During the quarter, we maintained our position as the #1 non-sports entertainment network, with a viewership share of 18.3%. [Operator Instructions] Our performance in several regional language markets improved while we continue to be leader in pay Hindi GEC segment.In continuation with our focus on premiumization, HD versions of Zee Telugu and Zee Cinemalu were launched following launch of &prive HD and Zee Tamil.Zee TV was the leader in the pay Hindi GEC segment and &tv maintained its market share. In the Hindi FTA category, Zee Anmol retained its leadership position. With a strong portfolio of 4 channels, the cinema cluster retained its leadership position in the Hindi movie genre.Regional entertainment portfolio continued to exhibit strong performance. In the HSM regional markets, Zee Marathi and Zee Sarthak maintained their #1 position, while Zee Bangla continued to be the second most watched channel. In southern markets, Zee Telugu improved its market share significantly in the Urban market to become the #1 channel and Zee Kannada maintained its position as second ranked channel and Zee Tamil improved its market share reaching 17% share in Urban market in the month of December.In the English genre, Zee Cafe with its strong line-up of shows continues to be an audience favorite for English entertainment content while our recently launched, premium movie channel &prive HD gained leadership position in the first quarter of its launch.Our movie production division, Zee Studios, released 2 Hindi movies Secret Superstar and Qarib Qarib Singlle and one Marathi movie Faster Fene. While Secret Superstar performed well at the box office, the other 2 movies received rave reviews. Zee Music Company, our music label, continued with its library expansion an acquisition of rights of both Bollywood as well as regional music. In quarter 3, our music label registered approximately 3.0 billion views on YouTube.OZEE saw a sharp improvement in performance metrics with an average of 145 million video views per month during the quarter. DittoTV continued to see improved traction, leveraging its partnership with telecom operators. The strong performance of the 2 platforms provides a sound launch-pad for the new digital platform Zee5.With this opening comment, we would like to address any questions you have.
[Operator Instructions] The first question is from the line of Kunal Vora from BNP Parnaiba.
Congrats for great ad revenue growth. First question on subscription revenue, should we expect a strong 4th quarter as you conclude all the domestic subscription deals, at least like -- that's what you implied if I am not mistaken. And also post the exit from sports business, have you seen any reduction in bargaining power with the distributors? That's question 1. Second is on Zee5, are there any costs which are related to Zee5 which are already being getting booked, or it's all completely getting capitalized, and how do we see the impact of this on margins going forward?
So let's take the last question first, on the Zee5, no cost have come into the P&L so far, it will only happen once the launch takes place. Currently the P&L only accounts for OZEE and DittoTV on the digital side. On the subscription revenue, yes, as and when we close out the contracts with the distribution partners, we will see a bump up in the subscription revenue for domestic business. Our overall annual number guidance should not change, it should remain in the low teens as we have already spoken about. Can you repeat your first question?
So like in the sports business exit, has it impacted subscription revenue in anyways like, say, your bargaining power with MSOs or the DTH companies not having sports in that.
As I mentioned to you, that we are already expecting the numbers [ to be up ], so I don't expect it to be any different.
Sure. And on Zee5, how do we look at the margin impact of Zee5 in coming quarters?
Kunal, as we've guided, our margin guidance still stands at 30%-plus irrespective of all the investments that we're making, including Zee5.
Understood.
Barring a few quarters as far as I know, but on an annualized basis it should be 30%-plus.
The next question is from the line of Sachin Salgaonkar from Bank of America.
I have 3 questions. Firstly, clearly ad growth was super strong at 30% domestically. Just wanted to understand how you look at the sustainability and if you could throw some light in terms of what did the industry grow and have you grown at a rate slightly higher than the industry?
So, the initial period of -- we are not guiding for the next year right now. Let us see how quarter 4 plays out and we'll be in a better position to give you a number by end of the year.
But generally, Punit, you believe you've gained some market share in this quarter?
On the back of all our market shares that we have gained in terms of viewership, definitely we will outperform the market.
Okay, got it. The second question is, clearly now you have visibility on Zee5 launch, which is on in February. Can you help us understand broad range of investments you believe Zee5 would need to make it a proper launch?
Sachin, as I've said, this is a bit of a competitive information that we will not like to share division wise profitability at this stage. We are committed to make the investment into making Zee5 a success, whatever it takes for us. And my margin guidance already takes into account any investments that we are making in Zee5.
Okay, got it. And is it fair to assume that even -- because we have sort of 3 quarters already done in FY '18, even in FY '19 more or less your guidance will remain the same 30%-plus?
Yes. That is correct.
Okay, got it. And last question is to Bharat, this is on the debentures of INR 167 crores. I do see a footnote which says that company has initiated legal action in terms of enforcing that. Can you help us understand what exactly happened and what could be the time-frame for a recovery?
Thank you very much, Sachin, well, yes we have taken legal action, but we are adequately secure and we are very confident the recovery will not be an issue for us.
Sir can you help us understand what exactly happened and what the time-frame for this?
See, we have adequately secured, but the money has not come. The money is now overdue. So we have taken legal action and we believe that the money should be available to us in due time.
The next question is from the line of Ankur Periwal from Axis Capital.
Congrats for a very strong ad growth. My first question is on [ added ] sales. So any specific trend we are seeing in terms of whether national ad spends have increased, for it is largely driven by the regional recovery after the GST implementation?
I can only give you some examples. We have seen strong volume growth of almost 11%-plus. This is with the largest advertiser that we have on our network. And on a year-on-year basis, we've seen almost 25% growth coming from them. So that's all a function of both volume as well as value.
On the regional side, we are not seeing anything. The recovery on the advertising side is very broad based. It is across category across region, across national and across regional advertisers also. And kind of 26% kind of a growth is not possible if any of the important advertiser is not really doing well. So it is very broad based advertising growth across the [ region ].
Sure, that's helpful. And secondly now the BARC is already working on digital ratings, so to say, probably by the end of this calendar year. So just wanted to understand in terms of TV ad yields on a per eyeball basis, we are still probably no lower than other advertising medium, let's say print. So do you think any discussions you will be having with the advertiser on that front? If there is any uptick in terms of ad yields on the anvil?
So ad yields are going up on a year-on-year basis. If you look at our growth numbers, those are not achievable by just volume growth, because we are not adding that level of inventory. Whether the currency shift happens or not that's an industry-wide call. We do continue to work with the industry to see how we can fast-track that, but I will not be able to give you any commitment on as to when that is going to take place.
The next question is from the line of Vikash Mantri from ICICI Securities.
Punit, I'll bore you with the advertising question again. Now this performance was superlative. Now I was of the belief also, however, that we would have outperformed because of our brand refreshing and the 25-year celebration, which also meant big budget programs or events and therefore higher advertising and this will normalize going forward relatively. Would that understanding be right?
Yes, you're right Vikash, that we have had lot of brand refresh et cetera, but in terms of events, which are purely 25-year event, no we didn't do any extraordinary event other than having the Zee Cine Awards in the third quarter this year, unlike normally when we have it in the fourth quarter. That's the only difference from the regular going forward plan. So the number of hours that we've increased has had an impact on the growth of the ad revenue and the only exceptional thing was preponement of Zee Cine Awards. Other than that, as I've said, whatever the market expectation is we would be -- our endeavor will be to beat that going forward, Vikash.
Now coming on to the &tv thing and if I were to look at Star Bharat's performance after the event available on Free Dish, let's not use FTA. Clearly they've become as -- let me not say as strong but at least in terms of impressions, the ratings are quite similar to us. Now &tv -- and when I say us, I say Zee TV that way. So &tv, however, seems to have now plateaued at this point, so what needs to be done and -- or should we go with the Star Bharat model?
I think it's too early to say that we need to go with the Star Bharat model, because as you will be aware with us, & as a brand has been built for the new India market and the urban market, so just by purely being available on DD Free Dish will not necessarily have the same impact what you've seen on Star Bharat. Definitely, if we are to change our [ content ] and our positioning of the channel, that is one route what we can look at. But we believe that the brand that we've created with &tv and not just with &tv, but &pictures and now &prive has created a really solid brand recall in terms of differentiated content not coming from the house of Zee, let me put it that way. And I think we need to build on that by having more sharper content execution on &tv for it to start moving. So the word plateau, while I accept you are right that it's been stable at that number, but our endeavor will be to continue to grow it further within the same genre as it is.
Next question is from the line of Sanjay Chawla from JM Financial.
My question is on Zee5. How are we planning to differentiate Zee5 offering vis-a-vis others in the market Hotstar and Voot. I mean, because given the lack of sports and also, [indiscernible] could there be greater emphasis on original programming and are we going to have original programming on Zee5 from day 1. That is first question. And secondly, just a housekeeping question. Would there be any spillover of 25th anniversary related events in cost into 4Q?
So on the 25-year related costs, very minuscule amount if any is left in quarter 4. It's more or less done in quarter 3 itself. So, no, there will not be any impact on quarter 4 of that. On Zee5, our strategy is purely content driven and the breadth of content that we want to offer will be our differentiator compared to anybody else out there. Yes, we will have original content on day 1 on the Zee5 and also the application itself, we are trying to build in certain features, which may not be available on the current OTT platforms.
Any thoughts on how the content related cost would be amortized with regard to Zee5?
I don't see why it should be anything different from the way we are doing it aggressively on television.
The next question is from the line of Alankar Garude from Macquarie.
My first question is from a movie acquisition perspective, should we expect Zee to be as aggressive in FY '19 as we have seen in FY '17 and FY '18. And perhaps a linked question to that would be, do you expect content exclusivity in digital movie rights to continue in the future or rather not be there in the future?
I don't think there is that much quantity of films available to buy any more in financial year '19, as like what we have done in the past. Also keep in mind, a lot of the investments we have done in the last 18 months are for future rights where the rights are yet to kick in starting from year 2019, 2020 etc. So, that is the first part. In terms of exclusivity on content, movie content for digital, I think they are going to play that strategy out as we speak, I think right now we do want to have exclusive content for our digital platform, not just movies but even on television shows. But that's something that we'll have to answer as we go along.
And secondly, 1 question on high definition, we have launched 2 more channels in this quarter, can you comment on the overall HD ad market how big is it, how fast is it growing? Any color on this?
It's a function -- I mean it's a very small number today. Because the total universe of HD in the country would not exceed 10 million, 12 million homes. So from that perspective, it's a very, very small market and it's a subset of the overall ad growth that you see in any case.
And just 1 final bookkeeping question on other income to Bharat, it has been low for the second consecutive quarter. So is there any one-off in this quarter?
No, there is no one-off in the other income in this quarter. In fact, there was some one-off in the last quarter and that we've now corrected. I mean not corrected, but that was not there this quarter.
Okay but then, Bharat the yields seem slightly on the lower side, any particular reason for this?
So the other income actually has yield and also it also has a exchange fluctuation in it. So as the exchange fluctuation moves from one direction to the other that also impacts our other income. So the total other income is not just [ yields ].
Okay. And are we quantifying the impact of ForEx?
The impact of ForEx on us over 9 months has been on our international revenue about 4%.
The next question is from the line of Abneesh Roy from Edelweiss.
My first question is on the content cost quarter-on-quarter, which is the like-to-like comparison, your content cost is up 16%, but you have called out that that's because of the Hindi movies and special programs, but your number of programming hours is up. So my question was even if your programming hours are going up it seems cost is not going up, but you have called out that revenue wise it's quite accretive. So where do you see this number eventually, you have guided earlier at 32 hours in Q4. But are you also long-term thinking a much larger, much higher number of programming hours because it's much more revenue accretive but cost doesn't seem to be increasing much?
Abneesh, this quarter we are seeing programming cost increase that is on account of the movies, which we released in theater, so it is movie production cost which has come, secondly this year Zee Cine Awards was there in this quarter as compared to that was not being there in the previous quarter or the corresponding quarter in the previous year and lastly, also as we were gearing up for the 25-year celebration on our channel as well we were gearing up for brand refresh, there were a lot of properties [ in which ] the production values had gone up in this quarter. As such, there's really not much of a change in our guidance on the programming cost and programming cost to revenue ratio should not change materially. This quarter had some specific element which I highlighted. So I don't think that there is really anything [indiscernible].
No, my question was different, my question was even if your programming hours are going up, so Punit highlighted that it's helping in terms of the advertising growth. So why stop at 32 itself, for example, and because cost wise it's not visible. So one I wanted to understand, if I take these one-off shows out in terms of your normal fiction content, your original programming hours, how is the inflation there?
Abneesh, unfortunately we get stuck on Zee TV's programming hours. If you look at the programming hours on our bouquet of channels, they are going up significantly. So it's not as if we are going to stop at 32, 32 is our plan till quarter 4. We are already in the midst of planning what our plan is going to be for next year. So if it makes financial sense for us to take 32 to 35, we'll obviously do that. So it's not something that we have fixed on at any given point in time. For example, Tamil will move significantly in terms of number of hours next year. So unfortunately, we tend to get stuck only on Zee TV's numbers, but the network extends way beyond that as well.
So, Punit, here just 1 follow-up, a lot of investors want to understand, yes programming hours are going up in Hindi and even in regional, but that's not visible in terms of the cost item. So either inflation is coming down and that's why number of programming hours kind of balancing each other. So is inflation coming down in terms of per hour?
Yes, so that's why I was just going to say that, we work on our per hour cost and we do try and find efficiencies wherever we can. So, yes, we may have noticed that, we may have improved our per hour cost in certain channels and certain channels would have gone up on an inflation basis.
Right, my second question is on the sector, we have seen Star Disney deal happen and both companies have very different strategies globally and India also. You have done quite well and you have in fact -- you are now focused on overall market share in the non-sports entertainment, what's your sense Punit, these might be initial days but what's the sense, is it good for you as a company, you see a big change in the strategy of how Star operate?
No, I don't think that that should change how's the strategy of Star's operation is in the country. So I think there is no impact per se on our business. We know what we are doing and will continue to do that. I don't think this is why Disney entering the shoes of Fox will change their strategy on Star India.
And one last follow up on Tamil market you mentioned cost will go up, content will go up. So in regional market, Punit, is there space for 4 players, Colors will soon enter, so what's the sense you have, you are currently #3 doing well, but wanted to understand this.
It's a general rule that I keep talking about, Abneesh, that the Top 2 players make money, the third guy breaks even, the fourth guy loses money, that's the order generally that operates in our business. And I expect the same order will prevail even in Tamil Nadu. It's not the fourth player entering, there are already 8 players already in Tamil Nadu, it's just that the other 5 don't get noticed.
The relevant ones are 3. Now you are currently #3 and Colors is very formidable in South India especially, Karnataka if you see. So long term, you will aim to be in the Top 2, right?
Absolutely.
The next question from the line of [ Sidharth Mehra ] from Nomura Securities.
My first question is on the subscription side. I mean, we are in the process of closing deals, so can you give us some color on how will the next year look in terms of growth. Because, I mean, progress of digitization and monetization in cable operators is also taking place. So on this context, how will the growth look for the next year?
Yes, it's again linked to the uncertainty around the TRAI tariff order and therefore until the implementation of that, this is pretty much still fixed fee deals that are being entered into and as I said that, I do expect that there will be some growth. Of course, it will be lower compared to what you have seen during Phase 1/Phase 2 because given that the monetizing in Phase 3, Phase 4 will be far lower.
But mid-teens growth is what we can look at or it can be in the low-teens only?
Low-teens is what you should factor in.
Okay, understood. Sir, my second question is on the cost side. We have seen some deduction in the staff costs on a sequential basis this quarter, one is that; and second is on the movie side, we have seen like around INR 40 crore of higher revenue coming on the movies, but similarly our costs on both ad and other expense have also moved up by close to INR 40 crore on a sequential Q-o-Q basis. I understand there are other brand expenses and this continue to nail awards but just wanted to understand that the additional benefit from the movie segment at the EBITDA level will be how much?
Bijal?
Yes, we have been guiding for consolidated EBITDA as a margin, bit difficult at this stage to really talk about margin on a quarter-on-quarter basis about single digit. So we still refrain from that and we continue to stick to our consolidated EBITDA margin guidance. All movie business is profitable and that's what we can say.
But the basic strategy behind having a movie business, can you help us with that, I mean I understand that they've been profitable at the EBITDA level, but what can be our overall strategy for the movie business in the longer term?
So on the movie business if you look at historically, we are buyers of almost 50% of rights that is being -- we buy through various medium, whether it would be satellite, digital, music et cetera, and overseas. So I think from that perspective, it made a natural extension for us to get into film production business as well, because the risks are that much lower for us and it complements our broadcasting and digital business directly.
And my last question was on staff costs. Why have they been lower on a sequential basis this quarter than normally?
So there has been some realignment in the cost. So if you look at the staff cost, there has been some cost allocation that has moved from one line to the other. At an overall level, the staff cost remains flat.
The next question from the line Karan Taurani from Dolat Capital.
My question was pertaining to the digital content. So English and Hindi is something, which is already there on the digital platforms, but digital content consumption on a digital platform is the next big thing. Do you see that as a threat for your regional channel growth. And secondly, in terms of lot of new players like Sony, Sun TV, they are launching the new Marathi channel, they are also going very aggressively on the regional space. So more players coming in the regional channels, do you see that also as a threat for your growth in the regional segment?
So competition has been intense throughout -- I mean, if it is not somebody competing in that market, there are other players. As you said Sony entering into Marathi or even Sun TV is entering into adjacent markets that Zee also been hearing about. But given our formidable position there, well, we are ready for the competition as and when it arrives. On the digital piece, we do have to be cognizant of the fact that regional content also will move the similar way that Hindi and English have moved on the digital platforms. And we have to prepare for our ZEE5 also to be ready to fight in that market space.
Sir, any focused approach for ZEE5 to position it as a regional platform or something of that sort?
As I said, the breadth of our content will be the differentiator and therefore regional will be key to that strategy as I said.
And just one last question if I can add. Will it be a premium-based platform or a subscription-based platform? Any idea on that?
It's a combination of both.
The next question from the line of [ Varun Saboo ] from Citigroup.
Mostly all the questions are answered, just wanted to understand on ad growth. Although you have explained that recoveries across geographies, regional, et cetera. Just wanted to understand any particular sector which is driving or you are seeing a jump in any particular sector and if you are okay to share that?
It's pretty broad-based, [ Varun ], so there's no one specific sector that's outperformed the other.
Okay, why I'm asking is because in my few corporate interactions, I understand that there is some rural recovery and a visibility of good 2, 3 years plus, which people are looking at. So was just wondering if this trend can continue and probably if this trend can improve going further?
Well, FMCG does constitute the largest piece of the television market. So yes, if you are talking about rural recovery, FMCG is direct gainer of that. But from our perspective, the mix is not changing, it's pretty much remaining what it was pre GST or [indiscernible] so it pretty much remains the same.
So just to add to that, the overall content visibility is pretty high and the outlook for advertising is encouraging. On top of that, the cut in GST rates will also benefit in probably at the medium term, so ad spend also is pretty decent at this point in time.
The next question from the line of Vivekanand Subbaraman from AMBIT Capital.
Can you please give us an update on the free-to-air advertising market. That's question one. I have follow-ups, which I'll ask later.
So the free-to-air advertising market is almost reaching close to INR 2,000 crores now.
And this is across genres that you are mentioning?
Yes, including everybody. Including Doordarshan, Prasar Bharati, everybody.
And in light of the robust ad growth that you are seeing, is it fair to assume that free-to-air is continuing to grow faster than the rest of the piece or are the growth rates similar?
Growth rate of FTA is slightly ahead of the average, but I mean we just looked at the growth of every single channel. And almost, I mean, there is really not much of difference between growth rate of them, if you want the average number. So what I'm saying is that from a channel perspective, almost it is from a -- there is really nothing one particular channel or one particular [ channel ] is driving this growth.
Right, right. In the context of the robust growth in the free-to-air market, is it realistic to assume that, that this is a preferred mode of monetizing rural audience than say subscription, where there are pressures, but it doesn't seem to be impacting your overall revenue growth and overall EBITDA growth. What I'm trying to understand here is, are you -- is this trade-off that you are seeing, where advertising is growing at a very healthy pace that offsetting say your subscription growth, which was -- at the start of the year was mid-teens, that was the guidance, now it is low teens. So clearly there must be some impact on subscription growth due to free-to-air, which is being proliferated because of your efforts. So is it fair to assume that you have made this choice of wanting to grow the rural market through advertising vis-a-vis subscription?
So just a slight correction. Beginning of the year, we were just getting into that a new tariff order. And we have actually not guided anything in the beginning of the year. The low teens guidance has been there ever since we started talking about FY '18, so there is really no change in guidance. Secondly and more importantly, free-to-air is a separate and incremental opportunity. These people were actually working DD, therefore we were not able to reach these people through our channel, because they are either not willing to pay for the content or they are not able to pay for the content. By reaching them through a free-to-air route, we are actually adding to our viewership and that is incremental advertising revenue, which we are seeing. So this is a market, which is an addition through the pay market, which we serve though our pay channels.
And also keep in mind that FTA advertising market is just 5%, 6% of the total ad buy. So we would not give up subscription revenue just because an FTA opportunity has arrived. I think both will be looked at independent of each other.
The other question that I had was on your music and live events business. I can see that over the last year or 2, you have aggressively invested in that business. Now we are also seeing that you acquiring 9X and also doing derisk with OTT platforms, with your library. Any sense that you can give us on how you are monetizing that and what is the kind of inventory position there and contribution to the overall business. Thoughts on this would be helpful.
Both the businesses that you talked about are still fairly small in terms of overall contribution to the company. The live business is still making losses or very small amount of losses and the music business is as per our plan, on track too, make profits next year itself. But it's still very significantly low compared to the overall number for the company.
The next question is from the line of Rohit Dokania from IDFC Securities.
I just have 3 quick questions. If you can sort of touch upon really sharp increase in depreciation in this quarter? And is this sustainable?
So the increase in depreciation in this quarter is with the alignment in the life of the assets. This is a catch-up interest of 3 quarters into this quarter. So basically the run rate would be 1/3 of the increase going forward.
1/3 of the increase, okay. That is helpful. Also, if you can talk about what should be the tax rate from a P&L perspective that one should build in for the full year?
See the tax rate for us is slightly complicated because we have a dividend income that we bring to international territory into India. And we also pay the dividend tax on it or income tax on it. So for this particular year, our effective tax rate is expected to between 40% to 41%.
And so how will it play out over the next year. Is it expected to sort of move to the nominal tax rate?
That remains our endeavor. Correct.
Okay. And also is there any update on the redeemable preference shares probably thinking of sort of redeeming it earlier?
So as of now, we are looking at redeeming 20% value of each of the preference shares that we have, which would be this quarter. And then we will take the decision for the rest.
We are still to find a tax efficient mechanism to prepone the redemption, Rohit. So we are still -- as of now only guiding for the 20% redemption which is planned.
Rohit, just to add to the tax thing. See I can take you through the tax rate offline, it is slightly complicated. But just to say, we are -- if we strip out the dividend related tax, we are pretty close to the marginal rate. There would be some of the subsidiaries where we might not be taking therefore tax credit and there is another [ 14A ] related tax in income tax. But still it will be very close to marginal tax rate. Now what happens is that the incremental 5% of the tax rate or 6% of the tax rate, which you are seeing [indiscernible] Bharat mentioned, we really get an offset for that fully when we payout dividend to our preference shareholder or dividend to our equity shareholder. So I mean, the tax rate has moved above that profit line. From a company perspective, there is really no additional tax output. We would have paid that amount in any case as dividend distribution tax, while we distribute a dividend. So optically, the tax rate is going up but actually there is really no financial impact or amount cash outflow impact on the company.
Just one last question from my bit and if you can answer this. So if I look at your sort of expenditure excluding this sports expenditure in the base quarter, which is 3Q FY'17, the overall expenditure would have grown by almost 26%, now I believe there would be some sort of expenses related to the 25th year celebration and the brand re-launch and so on and so forth. Can you quantify the like-to-like sort of cost increase that has happened excluding these 2 factors. Will it be possible on a Y-o-Y basis?
So towards the 25-year activity, we have close to INR 40 crores plus that has been spent of the brand refresh and the 25-year celebrations. That have gone into it.
To add to it. See, last year same quarter, we did not have these [ movies ] in fact this quarter we had 3 movies and it might not give you a perspective even after adjusting --
Yes, I understand. You also didn't have Zee Cine Awards in Q3 FY '17. But this number has, this one-off number really helps in terms of sum calculation.
So the underlying cost increase is much lesser than even if you adjust for this fourth quarter.
The next question from the line of Amit Kumar from Investec Capital.
Just a quick one on the entertainment share now that sports is sort of completely out of the picture. So this current 18.3% market share that we are basically looking at from an entertainment rather India cable and satellite entertainment piece. What would be this number in the same quarter last year if you have that?
I will just get back to you. We have that number.
All right, all right. Sir, very quickly, the time line for the digital revamp, do they sort of still remain broadly. So we are looking at this particular quarter for the launch or is that extended?
Amit, as I mentioned in my speech itself, it's happening next month.
All right. Sorry. I was slightly late in joining the call. So my apologies for that. So finally, quickly on the other expenses side. So lot of this brand refresh and 25-year celebrations, I would presume the impact would get captured in advertising and promotional spends. But other expenses, which are more like sort of normal overhead, that has also inflated quite sharply on a Y-o-Y basis, almost a 35% kind of increase. So is there anything to that as well?
So let me first give you an overall picture. The total expenditure grew about 26% compared to the last quarter in terms of run rate, that has 3 elements to it: a, Punit just spoke that there is an exceptional expenditure, which is about INR 40-odd crore, b, we have around 3 movies into this quarter, which weren't there in the last quarter, which is Secret Superstar, Qarib Qarib Singlle and Faster Fene. All of those 3 added both in terms of the marketing spend and administrative spend. However, the counter-effect of that is in the other sales and services revenue, which you have also seen significantly grew. So therefore, if you netted out that impact [indiscernible] and last but not least, we have also increased the original hours of content and therefore there is an increase in content cost. So if you look at these lines individually, it is difficult to kind of track one by one item into line by line. But overall, this 26% growth in an underlying scenario would have to exclude the film and the exceptional [ for the year ].
Just to add to what Bharat says, there is an -- somehow we feel that all the brand refresh related costs, and 25-year celebration related cost is all about marketing and publicity or advertising and publicity. But all of that has not been classified there because some events were not related to specifically advertising. So we had a very big event with respect to all 3,400 employees celebrating that coming from all over the world in one place. So that is coming in the admin expenses. So similarly there have been lot of events, maybe for our distribution partners, maybe for advertising partners, which are really sitting in admin expense or other expenses and that is the reason why you are seeing that sharp decrease. Underlying growth there is actually inflation and this is more to do with the 25-year celebration [ which we have ] .
Understood. My final question, again just trying to get a handle on the ad growth side of things. So our understanding is that last quarter or rather last quarter 3Q FY '17, November and December definitely the ad volumes came down quite substantially post demonetization. But still I mean, the inventory on the existing channels because these run at a 14-minute limit. There's not sort of much scope to grow that. And majority of the growth will essentially come from yields, so when we look at this 25% like-to-like growth number and how do we sort of broadly look at this in terms of volumes and yields and how does that sort of play out going forward?
So as I said earlier, Amit, that a large part of our growth does come from yields itself and not from volume because we are not adding that much inventory year-on-year. This year quarter 3 would be an aberration because actually in November/December, the inventory utilization levels rise up due to the demonetization impact. So it's not comparable, if it was a normalized basis, the impact on inventory utilization is minuscule and a large part of it comes from yields that go up for us.
But that's exactly what I'm just sort of trying to understand that, you know, typically the yield increase that we sort of look at is anywhere in the region of 8% to 10%. So in this quarter, has something sort of changed from there, are we seeing sort of better yields or it's broadly in that sort of region?
And then inflation is around 8% to 10% but I mean we also have higher increases, so it is not only 8% to 10% is the increase, so the yield increase is generally higher than that but if you are asking from a perspective of inventory as compared to last quarter, and bit difficult for us to provide you that number because there's a significant element of getting improvement or deterioration channel by channel and new addition, so a bit difficult to break it out into inventory and into price, [ toll free ] price.
So if I answer your first question about what was our share in the third quarter last year, we were at 16.3% vis-a-vis 18.3% now.
[Operator Instructions] The next question is from the line of Yogesh Kirve from B&K Securities.
In terms of your time spent on television, especially in the urban Hindi markets, what has been the trend over the last 1 year or so. And secondly, considering that people are spending more and more time on digital devices not necessarily video, but generally overall, do you anticipate any changes in the time spent on television over the next 2 to 3 years?
As of now, all the trends are showing only both on the television this thing is it has gone sequentially from 158 minutes to 161 minutes of consumption on television. And I also do expect that as more electrification of the country takes place, the consumption of TV will only grow. As I have said in my speech, for the time being at least for the foreseeable future, the digital consumption is all incremental given that 93%, 94% of our country is still single TV households.
You mentioned about those minutes, so can you just tell us what period you were referring to?
Quarter 2 to quarter 3.
Okay. And sir, finally, so few months back, we moved Zindagi from television to our OTT, so can you share how that has panned out. I'm just keen to check if OTTs are effective in reaching out to the nation [ discerning ] segments of viewers.
Definitely there our numbers of consumption on OTT did go up because of Zindagi contract moving there. For competitive reason, I would not like to quantify it but definitely we did see an impact and therefore we do believe OTT will be the better device to reach out to a niche audience.
We'll take the last question from the line of Aliasgar Shakir from Motilal Oswal Securities.
I just had a follow-up regarding the previous question relating to the secured non-convertible debenture of about INR 167 crore that we have seen in overdue, just wanted to check where has this investment gone towards and what security do we have to just to get a comfort in terms of the recovery?
Yes, so first of all, these are secured non-convertible debentures. So the security is against the company. In addition to that, we also have guarantees. So as we now invoke those security and guarantees through the court procedure, we believe, we have more than covered to recovery of the money.
Okay. And where has this investment gone and which company, if you could disclose that?
It's to our [ tertiary ] operations, to a company called [ SGGD ] .
Thank you. Ladies and gentlemen, that was the last question. On behalf of Zee Entertainment Enterprises Limited that concludes this conference call. Thank you for joining us and you may now disconnect your lines.