Entertainment Network (India) Ltd — Call Transcript 2021

Aug 20, 2021

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“Entertainment Network India Limited Q1 FY 2022 Earnings Conference Call”

August 16, 2021

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– MANAGEMENT: MR. PRASHANT PANDAY MD & CHIEF EXECUTIVE OFFICER & MANAGING DIRECTOR

– MR. N. SUBRAMANIAN EXECUTIVE DIRECTOR & GROUP CFO

– MR. SANJAY BALLABH HEAD OF FINANCE

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Moderator:

Ladies and gentlemen, good day, and welcome to the Entertainment Network India Limited Q1 FY 2022 Earnings Conference Call.

Joining us on the call today are Mr. Prashant Panday – MD & CEO, Entertainment Network India Limited; Mr. N. Subramanian – Executive Director & Group CFO, Entertainment Network India Limited and Mr. Sanjay Ballabh, Head of Finance.

As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing ‘*’ and then ‘0’ on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Prashant Panday. Thank you and over to you, sir.

Prashant Panday:

Thank you, Rutuja. And welcome to the conference call, dear investors. As always, I will make a few opening remarks and then we will be happy to take your call. With me is N. Subramanian, who is the Group CFO and Mr. Sanjay Ballabh, Head of Finance. We have sent you the investor presentation but allow me to touch upon a few highlights of the quarter gone by.

The quarter was a mixed quarter in the sense that there was growth compared to the same quarter last year. However, compared to the pre-pandemic levels, it was still a very bad quarter. Compared to the last year’s quarter one, the revenues have grown by 44% on a like-to-like basis, underlying EBITDA has grown by 39% approximately, and PAT has also grown by approximately 24%. So, it was a better quarter than the same quarter last year, clearly because the lockdowns this year were more staggered, it was more local, and there were less restrictions than last year. But compared to the same quarter in the pre-pandemic period of time, like I mentioned to you, the revenue growth was 71% lower than two years ago. And instead of EBITDA profit of Rs. 33 crore, reported EBITDA was minus Rs. 18.7 crore. So, clearly, the operating leverage that the radio industry works under was in play in this quarter. And whatever revenue loss we suffered, has actually gone down to the bottom line and converted it to a loss.

But honestly, I will tell you, at this point in time that it is not something that worries us any longer. When we were speaking with you last year, we had no certainty about what was going to happen. And I would say that we were more worried last year. But in the year that has gone by since last year, we have made a lot of progress in this company. And therefore, I am not overly worried with the results of the first quarter. I look at the next nine months of the year with a lot of confidence. And in fact, we are seeing the recovery being much faster in the months that have gone by, which is in July. We are also seeing that the August month has begun well. And we believe that if the third phase were not to come, then the recovery will be far stronger this year compared to what we saw last year. And also remember that we have cut the costs vary dramatically. So, therefore, what it means is that in terms of the profitability of the company, it's going to be a better time compared to last year.

Now, in terms of the expanding the revenue performance, the revenues improved compared to last year, largely because of the growth of volume. In fact, pricing was down by 5% at an overall level

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at the network level. Volumes were up by about 60% odd at the network level, so it was clearly volume led. But again, that is something that we have known, it doesn't surprise us. Whenever a recovery happens from very low volume levels, recovery is always first in volumes and then it is followed in pricing.

Recoveries, if you look at the volume recovery, all of the sectors which had actually underperformed last year have come back in a big way. The biggest category for us is FMCG which was up by 140% in ad volume. Health and pharma is the second biggest sector for radio, was up by 157% in volumes. The third biggest sector this time was auto, which was up 135% in this quarter for radio industry. Also categories like e-commerce which have become very big were up by 700%, so approximately 8x in volume compared to last year. But government and political continue to be a drag on the volume performance of the industry and the company.

So, the key takeaway is that after one year, when we look at how the sectors have performed, their confidence in radio remains high and they have backed it up by giving large volumes to the radio industry. Despite this, the capacity utilization in the industry remains pretty low. In our top eight markets, the capacity utilization was just 31% in this quarter. And in the batch one and batch two sessions, it was just about half of this, at about 16% odd. So, there is a long way to go. And I think in the second quarter, we will continue to see volume buildup happening, we will continue to see pricing remaining similar at similar levels, but not really growing. But if the third wave does not come, then I think that in the Diwali quarter and in the fourth quarter, which are traditionally very strong quarter for Mirchi, we should start seeing both volumes and pricing going up.

Now, the revenues that we did in the quarter, nearly 40% came from our Solutions business. And we are now going to start talking about our Solutions business in two different parts, one being Solutions and the other being Digital Products. And the reason we are carving this out for you is because digital is starting to see a lot of traction. And this year for instance, out of the 40% that solutions plus digital contributed to the revenues, approximately 12.5% came from digital and the remaining 27.5% approximately came from core solution. What we used to combine called 40%, we are now splitting it up into 12.5% digital and 27.5% for core solutions. We have mentioned this earlier that we see solutions and digital growing faster than traditional radio in the years ahead. We see the share of digital and solutions climbing to approximately 25% each or approximately 50% in the next couple of years once things stabilize. So, clearly, solutions and digitals are the two sources of growth, which are going to be continuing in the years to come.

Now the good news, of course, and it's a continuous sustained phenomenon is that the margins have been improving on the Solutions business. The margins on core solutions was 53% in this quarter. Now, this is of course a very high margin, and one of the reasons for this is that we were not able to do on-ground events. And on-ground events come with a lower margin. So, this number will taper down in the quarters to come as on-ground opens up. But even so, we expect that lower margin to still remain in the mid-30s, or even the highest 30%, it was 53% in the first quarter. The good news is that our digital growth is powered by, in a profitable way, so the gross margins on

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our digital businesses were approximately 31%. So, digital is growing and profitably, solutions is growing and profitably.

Now, let me just tell you a little bit about traditional radio, because at the end of the day, 60% of the company's revenues, even in this quarter came from radio, and in the future quarters 50% will continue to come from radio. Well, it is our belief in this company that FY 2023 and FY 2024 could possibly become golden years for traditional radio. And the reason I say this is that it is expected, and you will agree with me, that FY 2023 and FY 2024 will remain years of economic slowdown in India, even after the pandemic has receded and gone away. Now, of course FY 2022 will see a growth of 8% or 9%, but that's on a low base of FY 2021. But if you were to look at steady state growth of FY 2023 and FY 2024, chances are that that growth will be somewhere in the region of 5% to 7% per annum, which in India would be called a sluggish growth.

Now, we have observed that whenever the growth is sluggish but there is no lockdown, which means the retail establishments are all open, that's an ideal combination for a vehicle like radio, because brands start spending much more on promotional activities. And when brands spend on promotional activities, the first medium they use is radio. And we have seen that whenever there is an economic slowdown then radio gets consumed. So, we have a feeling that FY 2023 and FY 2024 will be strong year for traditional radio. But before the growth happens, we first have to recover we the FY 2020 levels that we had set, which will probably happen in the early part of FY 2023. And from that point on, 2023 and 2024 should see growth in traditional radio as well. So, basically, the point I am making is that, all three engines of this company should see growth coming up in the latter half of this year, as well as an FY 2023 and FY 2024.

In terms of international markets, you may be aware that we have made pretty big strides in the recent past. We re-entered the UAE on 28th of March in a brand licensing, and the news is that the channel is being accepted very well by the business over there. The UAE market and Dubai in particular where we operate has started to open up and the business has started to flow. And we are performing quite well in Dubai. We launched in Qatar just before that on 21st of March, and Qatar also has been going through lockdowns and many other issues, but the markets have started to open up in Qatar as well. We launched Bahrain on 9th of May, and the Bahrain market is a small market and these are early days, so we are still observing. But the whole region is now emerging from the COVID crisis. And I think we will see some good revenue performance coming up in the quarters ahead.

And lastly, on 4th of July, which is the American Independence Day, we opened up San Francisco, we commercially launched in the Bay Area. And signals are available now from the entire stretch from San Francisco all the way up to San Jose. And it's a huge market in the U.S.; it's the biggest radio market for South Asians and Indians. And we have also launched just yesterday, Telugu radio station in the Bay Area, but this is entirely online. And with that, we are doing an experiment because, as you know, in the U.S., online radio consumption is very popular and there's a big Telugu population in the Bay Area. So, if we are able to appeal to them, and we can get advertisers on the back of that listenership onto our app, then I think we would have found a very good way

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to enter many other markets in North America and Australia and New Zealand and the U.K. and many other countries. So, the Telugu experiment in San Francisco is very interesting and we will keep you informed as things go ahead.

Finally, in terms of cash, we closed the quarter at Rs. 213 odd crore. And despite pretty significant EBITDA loss, we were able to keep the cash drain at just Rs. 5 crore because of very good collections performance during the quarter.

Now the one question that a lot of people ask in quarterly conference calls, and I want to state this upfront, is a question of dividend and cash distribution, where our position has not changed since the last time we spoke with you. The Board of ENIL will take a call on these matters at an appropriate time. Unfortunately, today, we are not in any position to give you any further update from what we had given you two months ago. And I will just restate over here that the company plans to invest a substantial portion of its reserves in the digital businesses going forward, not in the radio businesses. And in the digital businesses, we see it as a combination of investments we make directly and investments that we make in external opportunities. But they will be adjacencies to the strengths of Mirchi, we don't want to blindly invest in digital opportunities, but we want to invest in opportunities which is around the area of operation of Mirchi, where Mirchi can either lend its brand name or Mirchi can lend its relationships with the film fraternity, music fraternity or brand name or its people and/or wherever the synergies can be put to play is where we will also look at external opportunities. So, at the right time, we will come back to you with more information on what we are doing with the cash and what will be our dividend declaration policy in the future. At this point in time, we are not in a position to share any more information with you.

With that, Rutuja; Subramanian and I am available for any calls that the investors may have.

Moderator:

Thank you very much. Before we proceed with the question-and-answer session, Ladies and gentlemen, now we will begin the question-and-answer session. The first question is from the line of Rohith Potti from Marshmallow Capital. Please go ahead.

Rohith Potti:

Sir, my first question is on the Platform business. If I remember, in the last call we had mentioned that we are getting the approval from the Board on our strategy in the Platform business and we will be getting a detailed update on the same in this call. So, it will be helpful if you can share your thoughts on this right now.

Prashant Panday:

So, Rohith, we have been in discussions internally and with our Board on the digital strategy, but it is work-in-progress even as we speak. And what I can tell you for a fact is that we are working on launching our web and app platforms. What I can also tell you is that it will happen towards the end of this calendar year or the early part of the next calendar year. We will be starting many product lines including audio product, video product, etc. But specific product lines and specific strategy pieces are still to be finalized with the Board.

Rohith Potti:

So, a couple of follow-up questions on this. In the last call, I believe, you mentioned that we won't be investing a substantial portion of the cash in any way. And in this call I think you mentioned

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that we are investing a substantial portion of our reserves in this new venture. So, if you could give us some more details on what the cash investment will be going forward as well, because if I understand you, it is in 23 and 24 we will be generating about Rs. 100 odd crore of free cash every year. So, over the next three years, we will be technically having total cash of around Rs. 500 crore, right? So, in that context, how do you think about cash distribution and investment in digital businesses, what is the quantum, is there anything you can share right now?

Prashant Panday:

Rohith, just like I said, these are the things that need to be discussed with the Board, and we haven't reached that stage yet. But what I can tell you is that the cash that we have on hand and the cash that we will generate will be used as one of the investments that I mentioned to you in digital, both internal and external. They will also be used as a hedge against any future crisis that may that may happen. And you know that there are uncertainties even today with respect to the pandemic and with respect to any economic slowdown which may follow. So, that is another thing. And then of course there is also the whole opportunity to distribute the cash amongst shareholders. But this entire discussion is what is not yet frozen, and I am not able to share details and specifics with you.

Rohith Potti:

And I believe around the time of elections, they tend to become the largest or one of the largest contributors to our revenue pie. And if I understand it correct, what I think is next two years we are going to have a lot of state elections and we will have national election as well. But generally, how much in advance have you seen the government programs come into radio? And do you think we will see that over the next couple of years coming back strongly?

Prashant Panday:

Yes, so two things happen typically, one is that governments start spending on its programs, and that usually happens a year before the elections, at the central level. But at state level, it is a shorter window. But then there are some states which start spending earlier. You might have already seen that in the newspapers there are some advertising which is already starting from Uttar Pradesh, and elections are I think about six months out. So, typically, states will start advertising six months ahead of the election date. And then of course, the actual election advertising will happens once the Election Commission announces the dates.

Moderator: Thank you. Next question is from the line of Nagraj Chandrasekar from Laburnum Capital. Please go ahead.

Nagraj Chandrasekar: I have a question about capital allocation on what you mentioned, the web and the app platforms. If you would have a sense of how much something like that should cost, right, in your head right now, how much should that be, a ballpark number? Because the problem with an app platform is, it's just another app that is on someone's phone, once they are cluttered a number of apps that are only there, I mean, your sister company Gaana already has a very good app that is already likely on someone’s phone or there might be a Saavn or there might be Wynk app, and then definitely YouTube. So, it is just another app on someone's cluttered phone. And then we already have our stations on Gaana, the sort of rationale for doing that and putting another app sort of becomes slightly vague. So, just wanted to get a sense of the amount of spend for this web and this app

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investment, and why we are thinking about adding another app to a cluttered sort of offering of OTT, video, radio and music apps already in the market.

Prashant Panday:

Yes, good question, Nagraj. And that's precisely what I meant when I said that these are the strategy points that need to be closed with the Board. You are very right in asking where is the place for another app? We are fully seized of that matter. Which is why we need to look at what kind of positioning we are going to be adopting for the platform, what kind of content we are going to be placing on the platform, how are we going to be finding synergies with other group assets that we have, and so on and so forth. These are all things which are work-in-progress. We have an idea about the investments that are required to be made. And we are also aware that it will take a few years for business to grow and to recover the investments and to breakeven even in these businesses. But we also know that the advantages and the reason why we are entering this market is because, as you know, in this business it's very important and vital to own the customer. And today, while we have great confidence in our content capabilities, and our content has, as you know, power external platforms for many years, we did more than 700 million views on YouTube, more than 500 million listens on Gaana, many, many more million consumption on social media and others. So, we have a lot of confidence in our content strategy. But how do you position the platform is something that is still work-in-progress. And therefore, that is the reason why I said that I am not in a position to share anything today. But I can assure you that it is work-in-progress. And when we discuss and close the strategy, it will cover the areas of content, community, commerce and technology. And we will come back to you as soon as we are able to.

Nagraj Chandrasekar:

No, I absolutely trust the Times Group to make and generate the best content, and I trust capital allocation. But just it would be great if you could specify and sort of get down done with all these things in mind. And secondly, on the Solutions business, as I understand there is a large linkage between radio and Media Solutions business, you have said in prior conference calls that 25%, 30% of business we will be making a campaign, putting it on radio and the other portions would be on-ground, digital, etc. So, to an extent, is the Media Solutions business joined at the hip with the radio business? Or are there lots of campaigns which only include on-ground and digital campaigns only? And how does this compete with internal competition from Media Solutions arms of the BCCL family or the Gaana entity? Is their sort of sharing of revenues and work or is there competition between the arms as well?

Prashant Panday:

Okay. So, let me answer this question, because there are several parts to it. First, you are very right that the Solutions business or at least the Media Solutions business is joined, I won't say at the hip, but it is certainly connected with the advertising spends of the client. So, yes, if the advertiser shuts the advertising spend down then Solutions or the Media Solutions business also gets hit. But there are other components in the Solutions business which are not directly dependent on the advertising spends of the advertiser. For instance, when we do concerts or when we do on-ground activations for clients, or when we do activations on ground which we then carry to television, these are kind of businesses which do not depend on radio at all, which actually take money from the advertiser from a different budget of their, from what is typically called the below the line budget in many cases. Or it takes budget away from media, money which is allocated to other media, like when

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we do our television IPs, the money comes really from television budgets of the clients, or when we do our video content the budget really comes from either television or OTT budget, it doesn't come from the radio budget. So, there are some parts of the Solutions business which are connected with radio, and there are other parts which are not connected with radio. So, I think I hope that this clarifies that particular position.

Now, yes, there are synergies with the group. For instance, if in a deal I think that my solution needs a newspaper advertisement or newspaper coverage, or it needs to put up a show on a television channel, as part of a solution, then I will approach Times Now or The Times of India, but these dealings are at arm's length basis. And typically, we would pitch for a low rate with our sister companies in the group, just as much as any external client would pitch for a low rate with our group company. So, it's at arm's length, but we try and get favorable terms because we are generating incremental business for those publications. So, that's as far as that is concerned.

And the last part of your question was whether there is competition from other group companies. Well, actually no. And the reason is very simple. Because see, one of the characteristics of the radio business is that it is relatively small in size. I mean, we did Rs. 550 crore in the pandemic period, but The Times of India did Rs. 5,000 crore. Now, for a Rs. 5,000 crore elephant to try to dance like a Rs. 500 crore baby, is very difficult. And therefore, they typically are not in the same comfort zone with respect to solutions as we are. Second thing I will tell you that solutions are best delivered by entertainment companies, not that much by news organizations. Because news organizations tend to be very rigid about their content and are very, very concerned with the neutrality of the content. But entertainment products are all about fun, we reach a wider audience, and we can do lot more, we have a lot more flexibility with what we do with our content. So, we don't face any competition from The Times of India or from Times Now, Gaana is too small, MX Player is in a different business. So, to answer the question, within the group, no, there is no real competition. In fact, we do partner with other companies and use their assets wherever required for our solution.

Moderator:

Thank you. Next question is from the line of Manish Gandhi an Individual Investor. Please go ahead.

Manish Gandhi:

I just have one question. Say, what we are planning to do in few things in digital, it seems like what Times Internet is also doing, a direct-to-consumer from their different properties like MensXP and like many other social commerce you want to do. So, why would, say, if I am a Bennett Coleman and want two companies doing almost something similar? Or are we doing something very different which Times Internet cannot do, please explain?

Prashant Panday:

Okay. So, let me attempt to answer that. And again, like I have been saying, Manish, it is workin-progress, so don't take my answer as a definitive answer. But see, think about it, what is it that we can do which no other group company can do? Or in fact, no other company outside of our group also can do as well as we can do? I think the whole music and entertainment piece is something that we have very deep roots in. We are probably the only company which does

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concerts, which does music shows on television, which does radio, which does activation which relates to music and entertainment, and we have deep relationship with music artists. Do you know that there are more than 200 senior artists across the country who actually work for free for Mirchi when we create the awards? Or the video shows that we make using film celebrities, I don't think that there is a single entity in the whole country, forget within the Times of India Group, who has all of this in its capability set. And on top of that, the brand Mirchi has a very strong connect with audiences, so there certainly is a room for a brand like Mirchi to do a certain amount of activities on the online space.

Now I will give an example from a different industry. If you look at how Nykaa started. Now Nykaa started by creating an e-commerce platform for beauty products. And then of course, today it has become much bigger and it has become a platform where it has also become a marketplace. But what happens is, it's not that beauty products are not available online, they were available online, but somebody made it their core competency and then sold beauty cosmetics in the best possible way, better than what Amazon can sell or Flipkart can sell. I think that opportunity exists today. Considering the fact that today the online commerce is just about, as I told, $60 billion or $70 billion in India, and I heard at a conference recently that in another five years’ time or I think by 2030, so in another seven, eight years’ time, it is going to become a $ 1 trillion opportunity. E- commerce of all types, Manish, in India is expected to become a $1 trillion opportunity from some $60 billion or $70 billion that it is today. I think there is room for a specialist music and entertainment platform to create a lot of communities there, to create products there, to create commerce there, using the content capability. So, I am just giving you a broad outline of what our strategic thinking is about, we haven't finalized anything. And as you can know, these are very difficult discussions, we have ad consultants who are working for us. So, I think give us six more months, we will have a proper strategy and we will be able to answer your question more thoroughly. But the opportunity is enormous and we will not be stepping on other people's toes.

Manish Gandhi:

Thanks for the detailed explanation, Prashant, so I would understand better when I have an opportunity to meet you or the new CEO you hired for the digital. So, just kind of a related question, when you are doing so many things, we have so much opportunity, right. So, I am not saying that you shouldn’t do, say we are in Gulf, in few countries, so why are we then again going to America and doing. So, is the management attention also diverts, when we are seeing so great an opportunity in India, why we are diverting our attention. I know we are not investing more; you are just investing 5 crore. But still, it is attention, right?

Prashant Panday:

So, let me answer that question. You are very right, but the way we look at this international opportunity we are just dipping our toes into what we would call a low hanging fruit. See, who are we targeting? We are targeting Indians only with this market. These Indians already have an affinity to Mirchi, they do not have good content available, if we can make ourselves present over there, in our mind the advertising dollars will follow immediately and fast. Now in terms of investment, the investments are very low. In terms of management time, if independent teams will work in these markets, so we have a CEO for America who will look after the expansion in America, look after the expansion in Canada, we have a person who looks after Middle East.

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And if these two people and they have one corporate resource sitting in Mumbai, that is the team, there is no other teams. The P&Ls in these countries have to absorb the cost of any other thing that is happening. So, when we look at the pros and cons of our international strategy, we figured that we have more to gain and the distraction is not that much.

Manish Gandhi: Thank you so much and I hope so we are fine now. Take care. Prashant Panday: Yes, I am fine now. Thank you.

Moderator: Thank you. The next question is from the line of Rohith Potti from Marshmallow Capital. Please go ahead.

Rohith Potti: Broadly my questions have been answered. It was just to understand how your strategy would stand within the Times Group internet piece which I think you alluded to in the last question. My questions have been answered. Thank you.

Moderator: Thank you. The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Private Ltd. Please go ahead.

Jinesh Joshi: I just have one question on the original content creation side. In the presentation we have mentioned that we have created some content for MX player. So, first if you can explain, I mean what is the team strength when it comes to original content creation on the OTT side and how is the pricing done and what kind of margins do we need on such content. And going ahead, two, do we plan to create content for some outside third-party OTT platform or will we stick with inhouse company which is a MX player?

Prashant Panday: Of course, we will not stick to only MX Player. We are already talking to outside platform. But this platform has a different requirement of content. Some platforms won’t long form content, some platforms want a mix of long and short form, some platforms want IP transfer to them, some platforms are happy to let the IP remain with you and they just want licensing of the content. So, some platforms do not want any brands build into the content. Some platforms are okay with branches. So, it is a mix lay of the land out there. To answer your question, we are looking at all of those platforms. Now, in terms of original content, remember much of work that is done outside of the company, the team that we have is a relatively small team and this team basically looks at creative ideas that come to them and the greenlight the creative ideas. Now once the creative ideas are green lighten there is a process in this business where a certain amount of story line is written, a couple of episodes are written down in detail and then you present the concept either to platform the licensing or you present it to brands, if you are selling it to brands. Now depending on the response, you get, you green light a few and you keep working on the others. Once it is green light it is typically then outsourced to a production house to produce and at that point in time our team supervises it, but it can also move on to other projects that they can handle. So, it is typically like you know if you look at even a television company, the number of people who work in the programming team of a television company are very few, because a lot of the work is actually done outside of the company in the production

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studios that exist outside. So, it is the same over here. The skill that you require really internally are in terms of accessing the scripts which come to you, getting scripts written to you, knowing what will work in the market and basically all the stuff that comes around the kind of content you must create. And we cannot create all types of content because we are not known for it, so then to focus on doing stuff that you can do. Our focus is on trying to create more short form content, a lot of vernacular content and trying to sell these shows not just as shows, but as a marketing proposition as well. If you see the stuff, the work that is happening around ‘Ani Kaay Hava’ which is the Marathi show that they have just licensed to MX Player they are also doing part of the marketing for them. And it is again in that sense a solution that we are providing. We give the content and we also provide the marketing solution. So, our approach in the market is not that of just a production studio. It is much more. We own the IP, so we bring the brand and in this deal, we have also called a brand in to MX Player and we also do some of the marketing for them. So, it is a combination of all these things.

Participant:

Fair enough. Can you highlight what kind of margins do we make in this entire exercise?

Prashant Panday:

See, again margin vary by product category. We normally don’t like to do outright sale of the IP. But like I mentioned there are some platforms which insist on it, we haven’t come to that point yet, but we have a model there. And obviously the margins there would be higher. But if you look at licensing where we get the IP back to us after a year or after two years depending on the deal, there the margins are lesser than an outright sale but they are still pretty healthy. I would imagine that margins are between 20% and 30%-40% are possible in this business and that is what we have done in the last year when we did the deal, we got I think 29% or thereabout the work we had brought from the 10-show deal that we have done last year.

Participant:

Sir, one last question. The pricing front, I mean do you think that pricing will make a comeback strongly in Q3 and Q4 or we are seeing that it might be slightly longer period till the pricing recovery is back to the pre-COVID levels? I am talking about the radio effective rate pricing?

Prashant Panday:

No, I don’t think that the pricing will come back to pre-pandemic levels in the third and the fourth quarter, I think volumes will come back to pre-pandemic levels and volumes will go higher than the pre pandemic levels. In fact, don’t forget that even last year in FY21, in the third and the fourth quarter the volumes had gone ahead of pre pandemic levels. So, I am very certain that the volumes this year will go far ahead of the pre pandemic volumes. I think pricing, remember pricing eroded by about 30 odd percent compared to pre pandemic levels. I think the pricing recovery will take couple of years. It won’t happen in just as first season; it will probably happen maybe 5%-10% now and then in the next year season it will recover and the 10%. It may go on till FY23 or FY24.

Moderator: Thank you. The next question is from the line of Shikhar Mundra from Vivog Commercials. Please go ahead.

Shikhar Mundra:

Just wanted to know, like what was roughly the capacity utilization this quarter for our old stations as well as our new stations?

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Prashant Panday: Shikar, nice to have you on the call. Like I mentioned the 8 legacy stations the capacity utilization was about 31% for the next 27, so we have 35 legacy station. For the next 27 it was about 33% and for the phase III which is batch 1 and batch 2 both was approximately 16%16.5%. So, very low-capacity utilization. Shikhar Mundra: And how do you foresee them for the next 6 months, like any ballpark number? Prashant Panday: See, I was mentioning that July has seen a good recovery, August has seen an even stronger recovery and if the festive season is fortunately spared of any other waves, then I think that the capacity utilization should go back to pre-pandemic levels in the third quarter, in the Diwali quarter. And if you remember in those days the top 35 stations, he would be running at somewhere between 90% and thereabouts. So, last year also, the volumes had increased to pre pandemic levels. So, if the third wave does not come then I think we can see a steep recovery in volumes in October-November-December. Moderator: Thank you. The next question is from the line of Chetan Thacker from ASK Investment Managers. Please go ahead. Chetan Thacker: Sir, just wanted to understand one thing, there is a restructuring that is going on at Times Group, so just wanted to get a sense on is there any read across for our business and will their shift to digital and that pivotal shift that will have a ramification here because we are also trying to do the same? So, just wanted to get a sense on that, if there is any linkage there? N. Subramanian: Chetan, this is Subramanian. I don’t think whatever Times Group does has any impact on what we do, All the business in the group are run independently and not am I aware of any restructuring at the Times Group. But irrespective of all of that I don’t think it will impact Mirchi in any way. Chetan Thacker: So, our strategy what we put in place will go through as we envisage it going forward? N. Subramanian: Right. The management of this company will evaluate what is right to do for this company and will present before the board and if the board is convinced, they will approve it. I don’t think the Times Group’s plans will in any impact what Mirchi wants to do. And as Prashant explained we are in a completely different space. Moderator: Thank you. The next question is from the line of Arpit Ranka from Kovil Investments. Please go ahead. Arpit Ranka: Two questions from my end, first one is on our ability to retain the talent basically. So, radio continues to save headwinds while pandemic has kind of helped say TV and OTT kind of scaled business. And one other thing we tried over is 250-300 creative people who work for us. So, what is their efficient rates, how they have shaped above the last year? Are we seeing any pressure in being able to hold back on the talent, which is there, is there something that we should be worried about?

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Prashant Panday: Arpit, you are very right that there is pressure on the attrition front and like you rightly identified because there were headwinds in radio while television and OTT were growing, so yes, there is pressure on attrition. However, we have ways to handle it. And one of the most important ways to handle it is to provide the diversity of growth opportunities internally. So, because we are growing our digital business, we are growing our audio content, our video content piece very strongly, we are able to keep people engaged and we haven’t seen too much attrition amongst our key people. We see more attrition down the line, lower rank people who find it easy to jump across to and it is really more, so on the digital side people do jump across to television, digital platforms and those kinds of things, but more at the lower level. It is not so much at the higher level that we have found, but it remains a problem, it remains a concern, but then it is going to be a concern for all the company. I am told even television companies lose a lot of people.

Arpit Ranka: It is a fair point. Is there are a way we can kind of map that, not on as a quarter-on-quarter but at least say on year-on-year basis or something like that because the real talent is with the people, in the media company in that sense, next to property. So, any way we could educate ourselves better it would be very helpful. So, you know better which metric we should look on and things like that, but if you could think on that, that will be very helpful actually.

Prashant Panday: Again, there is a program that we have recently launched and I am just probably speaking a little ahead of time but since you raised the subject that I will mention to you. With our key talent we have worked out a mechanism by which they can earn as we earn. And technically there is no limit to how much they can earn. If we can transform and 25% of our revenues in the company can come from digital products, then our key talents can actually make a lot more money than they can make outside. So, we certainly have a plan and we find that our key talent is interested in this program.

Arpit Ranka: That is helpful. The second question is on the license fees, if I am not mistaking the structure is 4% and 2.5% of revenues and the frequency cost either of the two, right?

Prashant Panday:

Yes.

Arpit Ranka: And earlier we used to be in that lower bracket of I think 2.5% of revenues which helped us visà-vis the competitors. But I think last year we may or maybe last two years we have not been able to like really benefit vis-à-vis the competition aspect. Is there a room for us to expect the government can relax because it is really does skill the industry in a way, right? I think 4% of…

Prashant Panday:

Let me just clarify. You are pretty much correct in your numbers. But I will just clarify a little bit. See 4% of revenue or 2.5% of the bid value, the one-time entry fee. So, they are two different basis on which these percentages are applied. Now usually we would fall under the 4% of revenues and therefore the license fee is not a big burden at least in our matured stations. But because of the crash in revenues, in most of our stations what kicked in was 2.5% of the onetime entry fee. So, just to give an example if you take the city of Delhi and the one-time entry fee was Rs. 168 crore, so 2.5% of that would have come to about Rs. 4 crore. So, we have to pay Rs. 4 crore annually in Delhi any which way. Now it was 4% of revenues then you would have

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to go let us approximately we are doing 100 crore of revenue. So, till the time he was doing 100 crore of revenues in Delhi you are okay. But if 100 crore drop and becomes let us say 50 crore as it dropped last year by 50% then you are now going to still pay Rs. 4 crore. So, it is a big problem and you know the industry has been pitching to the government but the government is completely unrelenting on this subject, as you know they have not given concessions to any sector, to be honest in the last 15 or 18 months. So, they haven’t given to us as well. So, now there is no release over there and we have to just wait for the, in fact if you notice even though we cut our cost by Rs. 95 crore last year, in FY21, the government part of it was there was impact of growth in cost in tower rentals and all those kinds of things and there was hardly any reduction on the license fee.

Arpit Ranka: So, we should not be hopeful. I just hoping that given the circumstance you will see some kind of concession, given that this is an issue even pre pandemic and now just lately. Thanks for the clarification.

Prashant Panday: Pre-pandemic since it was not so much of an issue for Mirchi because our revenues were usually higher. But in some of the smaller stations, yes it was and Mirchi Love Station yes it was. But I hope that by FY23 we would again have gone back to that level where the 2.5% won’t kick in.

Moderator: Thank you. The next question is from the line of Nagraj Chandrasekar from Laburnum Capital. Please go ahead.

Nagraj Chandrasekar: Sir, you mentioned Nykaa earlier as one of an example of a company that grew in the niche within e-commerce that is growing. But in the media entertainment space which we want to focus on, are there any examples across the world which are sort of examples of what we are looking to do, or closely approximately and have been successful?

Prashant Panday: Well, we are not at all interested in this space. But I will just give you an example, which is all your ticketing portal, whether it is ticket master in the US or BookMyShow in India these are also basically in the same space, in the music and entertainment space they do degree of e- commerce and they have built a community. But like I told you we are not at all interested in that space, but that is just one of the things. But there are other things which you can aggregate. The whole idea is to aggregate audiences, we believe that we got 50 million people to consume our digital content on YouTube. But as you know when you got 50 million users on YouTube with YouTube barely share Rs. 1.5 crore with us in the ad revenue split. But if we knew those 50 million people ourselves, we could have monetized at 20-30x more. So, the point is that a time comes when you have to ask yourself where you should be creating content to add wings to somebody else’s content platform or should you try to bring it in-house. It was the same question that Hotstar faced when it decided to create its own platform rather than creating a channel on YouTube. So, this is a question which comes up with size. See, in the last 3-4 years where we have been focused on texting our own capabilities in producing content, we have chosen to put the content on external platforms. But I think now we have got enough confidence in our content capabilities that we can create our own platform. So, the platform that we are

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talking about will be hosting the content, will also create a community and with that community and once we know the community you can do either commerce or you can do education, you can do many things. The moment you have a community built up around a platform you can do many things. It may take two years, but just imagine two years later or three years later, if Mirchi has 50 million users of its digital content and it knew those 50 million people. So, 50 million people would be the same as what we have on FM radio, but 50 million people you would know the details of these people and that 50 million people on digital is probably what I don’t know 10 times of what the 50 million people are worth on FM radio. So, you get an idea about what I am talking about. It is not easy to get to the 50 million but it is an effort worth taking.

Nagraj Chandrasekar:

And just with in the, related question, the 25% mix that you want to get in digital, in an earlier concall you mentioned the mix between digital, between the whole digital business, the YouTube business which you mentioned the sharing is terrible here and the original content business, which of these will grow the most or become the largest portion within this. I am asking are we going to, it is a third one or content creation going to become the large piece of this in that we are going to move towards being largely a content producer for channels with the risk that come with it but with the upside as well?

Prashant Panday:

Well, look at it like this. If we did Rs. 32 odd crore in digital related product last year, I think all of it was towards our content business. I think in the next 1 or 2 years the digital content revenues will expand faster, because that I have been saying we have skills in that. But if you ask me two years later, which is in FY24 and FY25, if we are successful in hitting 50 million users on our portal, on our platform then I think the platform revenues will start kicking in and then the platform revenues can become similar to the content revenues. So, to answer your question specifically FY22, FY23 I would imagine we would be reliant on the content revenues, but 2425 we will see both content and platform revenues provided we are successful in our platform strategy.

Moderator:

Thank you. The next question is from the line of Manan Patel from Airavath Capital. Please go ahead.

Manan Patel:

Sir, I wanted to understand, last quarter you provided around 97 crore – 98 crore for Mirchi Love and Cool FM, and combining your comment that pricing will take two years to revive. So, I wanted to understand do we expect any provisions from our investment made in the Mirchi stations itself. So, it would be great if you can throw some light on that?

Prashant Panday:

First, let me clarify. Even last quarter when we took the impairment, we had explained that this was a conservative approach that management had taken considering the impact the pandemic had had in FY21 and the likely impact the pandemic could have in FY22 and possibly the slowdown in FY23 as well. So, it is a conservative approach in the sense that we have bitten the bullet, we have swallowed the bit of pill but it is not that our efforts has veined on Mirchi running Cool, so we continue to with our efforts over here. To answer your question, in all honesty I don’t think there should be any more impairment. I think the impairment basically means that

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we have now established these stations at the lowest possible asset value and therefore we should be able to convert this to a profitable business going forward. The bitter pill has been swallowed as I mention. Manan Patel: My question arise because as you mentioned that because your IRR might not match the initial expectation. So, the same question happens because of the pandemic entire like 3 years should be wiped out in terms of revenues, not wiped out exactly but substantially lower than expectation. So, my question arise because of that. Prashant Panday: You are very right, in fact that was the reason we took the impairment because the IRR as we calculated was falling. So, we took the impairment to readjust and recalibrate the IRR back to where we want it to be. Manan Patel: Sir, my question is for the Mirchi Spectrum fees that we have, investment that we have made around 600 crore–700 crore, on that do we expect any impairments because of lower IRRs going forward? Prashant Panday: No, we don’t expect any more impairment because all the impairment that we fancied has been taken already in the last quarter. Manan Patel: And in terms of the industry itself, so it reduced to around 1400 crore-1500 crore last year and as you say the pricing might take two more years. So, do we see any consolidation in the industry or some standalone air stations shutting shop? And in that sense even if industry goes back to 2500 crore can we go back to our previous level of revenues? Prashant Panday: Well, going back to our previous level of revenues is not related to anybody shutting down or anything or consolidation happening. I think we will hit our previous revenues for sure, whether it is in early part of FY23 or later part of FY23 is difficult to say at this stage. But we will hit it irrespective of what happens to consolidation. But consolidation is something that has to be seen in terms of supply and demand. I don’t know if there is anybody who is willing to buy any other radio network at this stage and also there are very strict and in fact restrictive government regulations on mergers and acquisitions. So, unless the government reforms its policy I don’t see large scale mergers and acquisitions happening.

Moderator: Thank you. This will be the last question which is from the line of Manish Gandhi from KPMK Investments. Please go ahead. Manish Gandhi: Just one question. So, what is happening in the startup space, see I am not talking about very small startup but mid-size and they are doing 5 crore-10 crore and they are in 2-3 cities, but they are expanding so fast and going to many cities and obviously they will not advertise on television or any traditional media maybe paint. So, our solution actually fits so well with that. So, it is going to be a huge opportunity for years to come, it may go up and down, so are we focusing targeting that thing, anything, your thoughts on that?

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Prashant Panday: Yes, absolutely. So, what we have seen, Manish, is that when startups find it very appealing to, we develop solutions for startups and they find it very appealing. Actually, when they become very big, then they find television etc. to be more economical. So, all the big e-commerce or Fintech players spend a lot on television as you know and their spent on radio relatively becomes small. But start up typically they work very well. We try to develop solutions for them and that is an active area for us as well.

Moderator: Thank you so much. Would you like to give any closing comments? Prashant Panday: No, as always if there are any further queries, we would be very happy to address them and the contact email address is mentioned in the presentation, you can please reach out and we will be very happy to respond to you. Thank you very much.

Moderator: Thank you. On behalf of Entertainment Network India Ltd. that concludes this conference. Thank you for joining us and you may now disconnect the lines.

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