Balaji Telefilms Limited (BALAJITELE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Balaji Telefilms Q1 FY '21 Earnings Conference Call hosted by IDFC Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Dokania from IDFC Securities. Thank you, and over to you, sir.

Thank you, Neerav. Good afternoon, everyone, and welcome to the Q4 and full year FY '20 results conference call of Balaji Telefilms Limited. I hope all of you and your near ones are doing good. I would like to thank the management for giving IDFC Securities the opportunity to host this call. The management team is represented by Mr. Nachiket Pantvaidya, Group COO and CEO of ALT Digital Media Entertainment; Mr. Sanjay Dwivedi, Group CFO and other senior management personnel. We'll start the call with the commentary from the management and then move into the Q&A. Thank you, everyone, and over to you, sir.

Yes. Good afternoon. Thank you, everybody, for joining us for our quarter 4 FY '20 earnings call. At the outset, I want to say that I hope you and your loved ones are all safe and sound. The current crisis is really unprecedented and enormous, and we are all aware and sensitive to the terrible impact that the pandemic is having on our lives and livelihoods. We also want to take this opportunity to express our gratitude to all the frontline workers who are risking their well-being and lives to keep us safe. Having said that, let me now start with the key highlights of the year FY '20 as well as quarter 4 FY '20. Starting with an update on the TV production business, we continue to drive the ratings for the broadcasters we work with and our production came to a halt at around the 18th of March. We lost about 13 days of production in that last quarter. We had a strong content lineup and a very good ratings during the quarter. Our daily shows bank only about a week's worth of episodes at any point, with a maximum of 2 weeks. This is to ensure that we can gauge audience reactions to the storyline as it unfolds and make the necessary changes. At the time when the lockdown came into effect, we had daily shows Kumkum Bhagya, Kundali Bhagya, Kasautii Zindagii Kay, Yeh Hai Chahatein, Pavitra Bhagya and Naagin 4 on air. And only a couple of days’ worth of episodes went. Broadcasters initially fell back on retelecasting old and other recent hits to keep the audience engaged and entertained. We were also able to premier some of our digital source from ALTBalaji on broadcast TV, which showcases the power of the content we produce. Overall, for the quarter, we produced 198 hours of content at an average realization of INR 39 lakhs an hour. On the early basis, we had 823 hours, which is an improvement of 8% year-on-year while maintaining realizations at the INR 37 lakhs mark per hour. We have recently resumed operations following the necessary health and safety protocol, and we will need to get accustomed to the new normal, where our focus would be on quality production, while at the same time, we have to take care to follow all the safety precautions. Further our existing shows, which were stopped, would need a rethink in the sense of recapturing viewers imagination and newer storylines. Coming to our movie business, we had an exceptionally good performance this year, and our strategy of pre-sales has worked very well. We had a great hit in Dream Girl and the other 2 movies Judgementall Hai Kya and Jabariya Jodi also did well for us. We have 4 movie projects in the work, namely Dolly Kitty Aur Woh Chamakte Sitare, Villain 2, KTina and Pagglait. Our movie business will continue to focus on pre-sales and coproduction of its future slate, and our capital commitment to the movie business remains limited. We remain very selective in the projects we back and always focus on movie projects where we are comfortable with the risk reward. For example, we prefer to do coproduction deals with the ticket size of the movies are large and also look to presell and lock in profits with upside sharing as early as possible in the movie cycle. All new projects follow a stringent green lighting process, and we continue to limit our exposure in the movie business. Given restrictions on theatrical releases, Dolly Kitty Aur Woh Chamakte Sitare will premiere on Netflix shortly, and we are exploring options for the other movies as well. ALTBalaji continues to establish itself as a preferred choice for mass Hindi content with the surge of people connecting to their digital devices at the time of lockdown. We have benefited with a phenomenal rise in viewership. We've seen a surge in subscribers we're getting daily from levels of what 10,000 subscribers per day, we are moving to about 50% to 60% more and we've also seen increase in the watch times. One noticeable phenomenon is that these subscribers are coming from previously untapped markets, rural, Tier 2 and Tier 3 towns. Further we are well positioned for these markets as we offer a very low price package of under INR 1 a day, and we are showing local Hindi content to address these markets. Also, the other reason for making these newly added subscribers stay with us is that our content is linear series. That it shows which are not episodic in nature. We don't show movies or things that can be watched in just one go at one time. These are shows which have seasons and episodes, and therefore, we are confident that this will form a very strong habit for these new subscribers. We continue to be ranked in the top 5 grossing apps across iOS and Android. Our ranks have been between #4 and #3, despite having one of the lowest subscription prices in the country. We also have one of the largest library of original digital shows, thereby helping us lower our cost of consumer acquisition, and we have a number of hit shows we can use to run campaigns. Overall, all 3 business verticals have done very well. We remain flexible to be able to navigate the challenges from the COVID-19 impact on the media and entertainment business. I'll hand over now to Sanjay Dwivedi, our Group CFO, to give you a quick update on the financials. Over to you, Sanjay.

Thank you. I hope you all have seen the results presentation available on the website. Financially, we have had a very good quarter and overall good year. The key figures, which I would like to highlight are as follows: on a consolidated basis, revenue is up 34% to INR 574 crores versus INR 428 crores FY '19. The revenue growth came from all 3 businesses. TV business saw increase in production hours, movies had a higher revenues given we had some presale revenue and a very good lineup during the year. ALTBalaji continues to grow at a much faster pace and revenues were at INR 77 crores versus INR 41 crores for the year. On the EBITDA front, we have managed to turn around a loss of INR 105 crores from FY '19 into a profit of INR 11 crores for FY '20. The majority of this EBITDA growth came from the TV and movie business where we saw a near 4x growth on TV EBITDA. Movies had a very strong performance and contributed an EBITDA of INR 37 crores for the year. Coming to our PAT, although a loss of INR 59 crores, one need to adjust these certain items, which I will highlight. PAT this year includes INR 13 crores of mass [ MAT ] utilization, which is a noncash charge. Otherwise, our effective tax rate remains at 25%. In addition to this, our treasury and nonoperating income this year has reduced to INR 8.6 crores from INR 31.8 crores. This is primarily on account of lower income from mutual fund as the average balance was lower in the year plus yields have been lower. Coming on to our balance sheet. We are a 0 debt company with bank FD and mutual fund investment at INR 163 crores and other short-term working capital in movies of INR 76 crores. Total balance at INR 239 crores, which gives us significant cushion in these volatile times. Our inventory levels have lower to INR 155.8 crores from INR 195.8 crores in FY '19 and is primarily for our web series under development and movies awaiting release. This will readily convert to cash in due course. Our trade receivables stand at INR 177 crores and are from some quality names in the industry, which further helps strengthen our balance sheet. Overall, we had a significant year with H2 performing much better than H1 as anticipated. All our 3 business verticals have taken proactive steps to mitigate the impact of COVID-19, though we continue to remain cautious in our spend. I thank you all for joining us today and now would request the moderator to open the Q&A session. Thank you.

[Operator Instructions] First question is from the line of Chintan Desai from Param Capital.

Congratulations for the good set of numbers. Sir, my question is pertaining to the OTT business. By year-end, what would be our active subscriber base and direct subscriber base, that is one, and of course, ARPU as a result? And secondly, can you give us some flavor on how the Zee deal is working for us? And also it's accounting per se?

So let me just give you a bit of color on what you've asked for. One is that at any given point in time, we are between 1.5 million and 1.7 million active subs in that last financial year that we talked about as we ended the year. But on an overall basis, we have had about INR 38 crores to INR 39 crores of direct subscriber revenue in the INR 77 crores for all INR 38 crores to INR 39 crores is direct subscriber revenue, which translates roughly into about more than -- slightly more than 3 million subscribers at INR 130 ARPU. So that is the number. Now what has happened is post September, we have gone into the Zee deal, because of which we have taken our products out of all -- I mean out of Airtel, Vodafone, Times Internet, other places where our shows are available free. The result of that is that we have seen an enhancement in direct subscriber acquisition on the base. Also, our costs have been mitigated on the content side to the extent that we pay 60% of our costs. So this has meant that the first half of the year, ALT losses stood at around INR 68 crores. And in the second half of the year, it has come to about half that number to around INR 37 crores, INR 38 crores. So the effect of the Zee deal is that we've halved our losses in the second half of the year, and we will continue to go down. And we have seen a spike in direct subscriptions. And just to give again a background over the 3 years that we have been in operations, every year, we have doubled our overall revenue as well as direct subscription revenue. So we've gone from levels of something like 4.5 direct subscription to INR 15 crores to 40 -- to INR 38 crores in the 3 years in terms of direct subscription. And of course, our revenue numbers are, I think, INR 7 crores, INR 40 crores and INR 77 crores. So every year, you're seeing a doubling of overall revenue and the doubling of our direct subscription. And that encourages us to say that we are on the right path strategically to exploit this. We are not in OTT, which is a bottomless hole where you have to keep investing. We are seeing decrease in losses year-on-year. What is also heartening for us is the fact that all the divisions this year are performing well and will continue performing well on a like-to-like basis. And they will help us sustain digital. We don't -- means we are cash positive. We have no debt. And the profits that we earn from our television and movies business, we'll ensure that we'll continue to grow our digital business that is ALT.

Got it, sir. Sir, and out of the balance -- I mean, out of INR 78 crores, INR 40 crores will be direct. Balance would be a mix of revenue from telco and syndication?

See, the first half of the year, that is still September 1, we were on Telco partnership . So that is there, plus there is some component of revenue of Zee that we account for in that, I think it is to the tune of INR 15 crores to INR 18 crores. INR 77 crores [Foreign Language]

Next question is from the line of Dhaval Joshi from Sundaram Mutual Fund.

Sir, just 1 basic question, sir. If you look at your stand-alone top line, so we have mentioned the reason of decline on Q-on-Q revenue is largely because of the COVID. But can you give me some idea about your inventory part because generally, we have inventory of more than 10 to 15 days maximum, I'm saying. And lockdown and everything has started from the 18th of March or 24th of March, basically. So why a sharp drop in Q-o-Q revenue in stand-alone? That is one. And second, if you can give exact or in subscription data that could be really helpful for us.

I just gave you.

No, no, no. You gave us the number of -- direct number and everything, direct revenue and all. But the way we used to give earlier, like till Q2 or Q1, we have the data. If you can provide us paying subscriber base...

Paying subscriber base is 3 million subscribers at INR 130.

Sorry, sir?

3 million subscribers at INR 130 ARPU.

That is the Q4 run rate you're saying?

It's 3 million subscribers at INR 130 ARPU, that totals to INR 38 crores revenue number. Yes, we'll go through the number. Sanjay, could you just help us out with that?

Yes. So on a sequential basis, you want to know the revenue, correct?

Yes, yes, yes.

So on the TV side, we had INR 125 crores for quarter 3, correct?

Right.

And we are currently in quarter 4 it is INR 107 crores. The loss on revenue due to COVID is around INR 6 crores.

Okay, but -- okay. Okay. Fine. Got it.

And the drop what you are seeing is because the programming mix changes between weekend shows to kind of...

Weekday.

Weekday shows.

[Operator Instructions] Next question is from the line of Rakesh Laroia from Oldpine Advisors.

Sir, what is the lifetime value of the subscriber and average customer acquisition cost for you?

We don't yet -- we have not yet calculated the lifetime value of a subscriber. But you can just take -- if you want to do the math on it, there's a 33% churn on subscribers. And our ARPU levels are between INR 130 and INR 140. So I mean it depends on what you call lifetime. Indian market has not stabilized in OTT business to actually get a lifetime value very quickly. And those abound the calculations are better in western markets. But that's the data. Roughly ARPU is INR 130, and our churn is 33%. Do you need any other -- any information on that or...

Mr. Rakesh, are you connected?

Hello.

Sorry.

Yes, sir. What is the average streaming cost per customer per month for you as of now?

As of now I can't reveal the data. But I can tell you as of March, it will be mostly somewhere between 15% -- 10% to 15% of the ARPU. So if the customer is a 3-month customer, [Foreign Language].

Next question is from the line of Kiran Naik from Mody Fincap.

Hello. I have 2, 3 questions. Sir, you told that ALT is in loss at present. So when will it be in profit?

So we are expecting -- we have always said that between 36 to 48 months after launch, we will have one quarter of breakeven. I think because of COVID, we can say between 39 months, means [Foreign Language] July [Foreign Language] in the next 1 year, 1 of the quarters, we will definitely show profit.

Okay. So can I take 18 months from here?

No, no, you can take 12 months from here.

Okay. 12. Any dividend declared?

No, we don't have any -- we have a dividend policy, which is listed on the website. So I request you to kindly go through that.

Okay. And this INR 130 is monthly or yearly? Monthly?

Yearly, yearly, yearly.

Yearly. Okay. Okay. And...

And our price is INR 300 a year. I can never get an ARPU of INR 130.

Okay. Sorry. And excuse -- the question is for the CFO. I hope that cash convergent days is for manufacturing companies. Do we also have any cash convergent days, the difference between the receivables and payables for us is how many days?

So you want to know my ratio, number of days of collective?

Yes, yes, yes.

Collectables minus payables.

So that how much is...

So the process manufacturing concept, I think, yes, but...

Okay.

So our receivable outstanding is closer to 90 days for the group.

Okay. Okay. So net 90 days?

Yes, net 90 days.

And payables also would be same.

Payable also would be same.

Next participant is Dharmik Prajapati from Prospero Tree Financial.

Sir, congratulation first for the good result and for the taking out ALT losses. And my most of the questions have been answered, but I have 1 question regarding to what is the ARPU composition for yearly and quarterly users?

No, the total ARPU across all users is INR 130.

The 30 million subscribers, what is the composition? How many percent are the yearly subscribers and how many are the quarterly...

Out of 3 million, 70% are quarterly.

70% quarterly. 70-30 ratio.

Yes, yes. Roughly, yes, it fluctuates, but if you take an average.

Okay. Okay. And how you see this current run rate for daily increase in subscriber base after the lockdown?

Well, we started off well with a 70% increase in subscriber rate, but I think it will go down to around 14,000, 15,000 per day now. Earlier, it was 17,000 per day from 10,000.

Again, congratulations.

Thank you.

[Operator Instructions] Next participant is [ Kunal Jain from District Capital Partners ].

Sir, my question is that film been doing good performance, you films. And also the recent announcement of Dolly and Kitty coming on the Netflix is a positive. So will we see Balaji making such more digital-first movies going here for?

Actually, the movies are -- see, we have to make digital creative content for all audiences. If you realize that we have a digital-only business, which is ALT. But when we make TV shows, they also go on free digital. So if you make a television show also for Zee, it goes on Zee5. If you make it for Star, it goes on Hotstar. And movies also today a large component of the revenue, even pre-COVID was coming digital. So there is more and more the world is embracing the fact that whatever content you make has to be digital friendly. So our viewpoint on this is that all the content that we put on ALTBalaji, which is a pay platform, we make it for individual audiences. Whereas for movies and for television, we make it for family audiences, yet digital friendly. Now having said that, we will -- given that the theaters are not going to open too soon, we will have our business model skewed more towards digital releases, especially for films that cost less than around 30 -- INR 25 crores to INR 30 crores.

Okay. Understood, sir. Sir, one more question is -- one more question I have is that your H2 performance has been really strong compared to H1. So is it because of the impact of your Zee partnership? And will we see these numbers this way going forward?

Well, there are 2 things on the H2 performance. One is, of course, on ALT, it has been stronger, and we have got our losses down by 50% in H2 due -- because of the digital partnership with Zee and because it's consequent increase in direct subscription. That is one. Also, we had a good movie hit in H2, which is Dream Girl, which helped the numbers up in quarter 3. What is really heartening for us that is in quarter 4, we didn't have a big movie number, but even then we are breaking even in quarter 4 of FY. We are able to fund our ALT Digital business loss directly through our television business and therefore are fully self-sustaining now without debt and with around INR 240 crores, INR 250 crores of cash.

And we are not taking away our investment portfolio. We are not using any of those to kind of fund our digital business.

Correct. So we have, in fact, reached a tipping point where we are looking to leverage our strength of library and grow exponentially in this year.

Sir, then what kind of impact do you see in Q1 due to the closing of the shooting because of the lockdown?

Well, the television business, we'll see an impact naturally because there is no production. And I don't want to kind of preempt our next board meeting and our release because we will be talking again probably in a month, 1.5 months time. But for sure, the television business will be impacted like the rest of the world because we can't produce that in sense.

Next question is from [ Nikita Mehta from BN Investment Advisors ]. Nikita, sorry to interrupt you. May I request you to speak little louder.

Sure. Congratulations on a good set of numbers. My question was related to the digital content that we put on television, like some of the shows like Baarish and Karrle Tu Bhi Mohabbat and all. So I was asking that do you think that more such digital shows can be a part of TV going forward or something in that line?

Well to be very honest, because we didn't have television production, these were put out. But like I mentioned before, the shows that we make for television are, in fact, put out on digital, and they do well, like our Naagin does well on growth there -- on the digital platform that it is on. And so does Kasauti or Kumkum Bhagya, Kundali Bhagya. So we are not going to go into that exclusive market of producing shows for only television. Our shows do go on both digital as well as television platforms.

But then what about the library that we already have, is there has been something more that you could see going ahead on television is what I am trying to ask?

No. You won't see any one. It was just a COVID stopgap because there is no production going on.

All right. And also, I wanted to ask in line of like, now that we have any, like a start strong cash and cash balance, I mean, sorry. And also, our EBITDA positive. So we can say that we are pretty self-sufficient now. What are the plan for the future, like for this 3 parts that we generating? If you could throw some light on that?

Most of it is around only 1 maxim, that is growth, growth and growth. And I think that we will try and be online with our production commitments in non-TV, that is both on digital as well as movies, and we see a very, very healthy outlook for ALT. Television will continue. We have already started production. Shows have already gone on air. So starting July 15, we will kind of maintain the same level of output as last year, proportionally, of course. But really, the buzzword for us is pumping into the growth for ALT, creating more content that is relevant to mass India on ALT, marketing ourselves exclusively to acquire subscribers on ALT and reach at least 1/4 of breakeven in the next 4 quarters starting today.

Next question is from Rohan -- from Rohit Dokania from IDFC Securities.

Just 2 quick ones. One is, can you talk about consumer behavior during this COVID times on the platform on ALTBalaji?

Yes. Well, there are 2 kinds of distinct behavior that we have seen. One is watch times have gone up at least 50% to 60%. And secondly, we have been exposed to newer markets. If you see a typical English content-led OTT will have 60% to 65% of its viewership coming from the top 8 metros or the top 8 cities of India, our proportion is 44% there. And it is anywhere between 40% and 44%. So we are more deeply penetrated in Tier 2, Tier 3 towns. During COVID, we were naturally exposed without having to spend much on marketing to these towns. And therefore, we are gaining momentum in these towns. The second behavior that we have seen is because we are spreading more into Tier 2, Tier 3, India, our quarterly packs are being subscribed to more than the INR 300 pack. So our price point is also extremely well suited for mass India. It's less than INR 1 a day and you can buy a subscription for INR 100 for 3 months. So I think 2 phenomenon have happened: one is that our mix has been Tier 2, Tier 3 towns focus, specifically Tier 2; and our quarterly packs are rightly suited for this demographic that's come on.

Sure. That's very helpful. And the other one, I just wanted to get your sense. So obviously, we have maintained very strong growth on ALTBalaji platform. Do you think that we can sort of maintain this kind of growth in FY '21 as well, what we have shown in FY '20?

Yes. I think there are 2 or 3 factors, of course, to it. One is that our -- we have started full-fledged production, and we need to get out new shows. Otherwise, people will go through our shows fast. But we are confident that we will maintain that momentum that we have in revenue year-on-year, INR 15 crores, INR 40 crores, INR 77 crores, and we need to kind of get that kind of growth this year. I think we will manage it. And only when we do that, we actually breakeven in one of the quarters. So we are pretty positive on the digital front. Also, what has happened is we have got 3 years data now. And we have now refined our programming strategy to be extremely focused. Nobody else in the country has got data for 60-plus shows made for mass today. So that kind of data means that we have taken 2 or 3 steps. One, we are focusing on Hindi language. Secondly, we have dropped kids from our portfolio. And we are not deviating from creating series Hindi television for the 18 to 35 demographic. And that is our sweet spot and which is helping us kind of gain numbers. So I think these 2 will mean that we will be among the top players at this -- in this year. If you look at data on the Android Play Store in quarter 4 of last year, we were #3. Though our ARPU probably would be the lowest in terms of gross billing, we were #3. And that, I think, is a good sign to show that we will be either #2 or #1 on the Play Store's.

Next question is from Sadanand Shetty from Truequity Advisors.

Yes, my question is to Nachiket. Can you help us with the granular detail, what will help you to breakeven in 1 of that next 4 quarters? I mean to say, rising revenue, freezing cost, what will that particular element? And will that remain a linear trend thereafter? Or it's only 1 of the quarter of 4 you are saying?

So like I had mentioned before, if you look at last 3 years data, we have been narrowing losses consistently. And that means there are 2 things that we are doing. One is that we are putting out more and more content out. As our content library grows, the incremental cost of acquisition of every subscriber is going down. So right now, our per subscriber acquisition cost is anywhere between INR 80 to INR 90. This was about INR 120 to INR 150 when we started off. So as we are adding more shows in our key TG markets and in our key TG demographics, we see acquisition cost is going down. That's one. Point two is that the fact that the whole new market has opened up during COVID means that the sampling has increased tremendously. We have seen a 50% to 60% increase in sampling of ALTBalaji in mass India. Both these factors mean that we will continue the trajectory of growth in terms of our bottom line as we go ahead. Our revenues have been growing year-on-year anyway. That's because people love our programs. Our library is not just library, our hit percentage is significantly higher than anybody else. And each year, as we add 20, 25 shows, we are finding that the marginal returns are increasing exponentially.

You used to have a original content per annum. Do you continue to maintain that metrics? And what is the original cost?

It has increased.

Can you put some number to that, number of calls that you will do it for digital?

It's gone from 18 shows to 24 shows.

Next question is from Sagir Khericha from Standard -- sorry, from Chartered Capital.