Balaji Telefilms Limited (BALAJITELE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Balaji Telefilms Q2 Earnings Conference Call hosted by Equirus Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Depesh Kashyap Equirus Securities. Thank you, and over to you, sir.

Yes. Hi, everyone. On behalf of Equirus Securities, I welcome you all to the Balaji Telefilm's 2Q FY '21 Earnings Call. From the management, we have Mr. Nachiket Pantvaidya, Group COO and CEO of ALT Digital Media Entertainment Limited; and Mr. Sanjay Dwivedi, Group CFO. I would now like to hand the call to the management for their opening remarks. And post that, we can open the floor for Q&A. Over to you, sir.

Thank you. Good evening, and welcome to the conference call of Balaji Telefilms Limited. We will be covering this evening the results for the quarter and half year ended September 30, 2020. We hope that you are staying safe and keeping healthy in these uncertain times. As the unlock India commenced earlier in the quarter, we put our focus on restarting our production operations with the full swing, while taking all necessary health and safety precautions for our teams on ground. Our TV production started getting ready towards the end of June, but telecast only started from July 13, resulting in over 12 days of loss of revenues this quarter. Our TV business resumed with 6 shows with the necessary precaution as per government guidelines. On the TV front, we produced 176.5 hours this quarter and expect to return to more normalized level in the second half as our content lineup appears to be steady. We have 2 new shows launching shortly: Brahmarakshas 2 on Zee and Molki on Colors replacing 2 shows that have come to end recently. One of the important changes we are seeing is that broadcasters have been impacted severely by the pandemic and are now not commissioning high-budget shows. This has resulted in around a 15% to 20% drop in realizations for us. The silver lining indus for us as the broadcasters rely more heavily on proven content expertise to deliver their ratings, which we have. COVID has also forced us to relook at our costs, and we are hopeful that some of the cost savings implemented in quarter 1 will continue, allowing us to maintain our margins in the business. Coming to the movies business, there was limited activity for the first half as theaters remained closed. With theaters now slowly opening and an expected rush for pending movies to be released quickly, we completed the sale of 2 movies from a portfolio for a direct-to-digital release instead of competing for theatrical windows. Pagglait will premier on Netflix and we will be accounting for the same in the quarter 3 revenues. Similarly, in quarter 1, you would recall, we sold Dolly Kitty to Netflix. Both of these movies have been profitable for us and reiterates our ability to back and monetize nontypical Bollywood sales. Looking ahead of the movie business, we remain conservative in the movie business and currently, we're working on a few projects. Confirmed projects are Ek Villain 2 starring John Abraham, KTina starring Disha Patani. We continue to work on the pipeline for FY '22, which is an exciting project, and we will be in a better position to announce the FY '22 lineup later in the year. Suffice to say that there are a number of exciting projects. But more importantly, we have also got and played good presales to back all these projects. Turning to ALTBalaji. Our focus this quarter was to improve library utilization and improved depth of viewing as we could add only 2 shows in the quarter given the closure of all production activities. Our deep library of 65 shows allowed to generate revenues in line with the previous quarter, and we should see subscriber addition both in the coming weeks as our pace of adding new content improves. We have an exciting lineup for the upcoming festive season and hope to see the momentum carry through to quarter 4 also. As we are now heading into the season, which usually is the time of blockbuster movies' releasing, but, however, this time, the situation is different. Theaters have opened with staggered openings and restricted capacities with safety being everyone's primary concern. People are expected to take the crisis seriously at the moment and prefer to rely on video streaming platforms to deliver fresh content to watch at home. Production has resumed across multiple projects and we have a very strong pipeline, which is based on our learnings over the last 3 years. And also this has helped us go deeper into mass India, a market which we are very familiar with. In addition, there will be a number of returning seasons coming up. So we should have a busy launch calendar in the coming 6 months. Overall, I think the first half was impacted by the pandemic, and we are now slowly emerging from the same. And we are also restoring our content production in both TVs and in the movies division. The long-term potential for digital video has only got stronger with newer audiences now exposed to varied and differentiated content on OTT. With 65 shows and growing, we are well pleased to ride the growth of the OTT sector. I will now hand over to Mr. Sanjay Dwivedi, our Group CFO, to give you a quick update on the financials. Over to you, Sanjay.

Thank you, Nachiket. Good evening, everyone. Actually, this quarter, we focused our efforts on getting ready after a prolonged gap due to the closure of all production activity in the pandemic. We lost 12 days of broadcast revenue on the TV business as programs were only telecast from 13th of July. Since then, we have managed to avoid major set closures and have resumed with 6 shows on air. Movie wise very limited activity, and we will be recognizing the revenues from sale of Pagglait in quarter 3. Overall, given the backdrop, this was more of a recovery quarter for us and getting ready for H2. The key figures, which I would like to highlight, are as follows. On consolidated basis, revenue for the quarter was INR 78.3 crore, up 123% quarter-on-quarter compared to INR 35.1 crores in previous quarter. TV business saw lower production hours for the quarter along with a near 15% to 20% reduction in rates from the broadcasters impacting overall revenue. There were no movies released in the quarter. Moving to ALT. It saw some slowdown in direct revenues, but compensated it largely from revenue from our sale of content to Zee5. Overall, ALTBalaji revenue for the quarter was at INR $14.7 crore and H1 was at INR 29.6 crore. Direct subscription growth was muted as unlock meant people slowly getting back to work and social commitment. And this, coupled with fewer releases, meant a marginal slowdown in direct revenues. We believe direct subs growth will pick up as we got a good lineup going into Diwali and content production for ALT has picked up pace. We also expect revenue from Zee5 deal to return to the usual run rate of 6 to 8 shows per quarter adding to the revenue growth for ALTBalaji. In line with the lower slow launch, we also had lower marketing expenses for ALTBalaji. An interesting observation I would like to share is that over the last few quarters, we have managed to successfully reduce our consumer acquisition costs and now operate well below the INR 100 mark. We believe as a pace of launching new shows goes up, we should be able to leverage this lower acquisition cost to drive faster subscriber growth and drive profitability. On the margin front, in the production business due to prudent and tighter cost control measures, which were put in place in early quarter 1, we were able to deliver improvement on margin front and hope to maintain this as volumes return to more normal run rate of 200 hours a quarter. On half yearly basis, revenue was at INR 113 crores, down 59% compared to INR 278 crore during the same period last year. De-growth in revenue on half yearly basis was purely because of the impact of the pandemic on our quarter 1 and lack of any big movie releases. EBITDA loss for the H1 was at INR 38.7 crore versus EBITDA loss of INR 28 crore H1 of last year. H1 last year had the hugely successful movie Dream Girl. Otherwise, we are in line in despite the huge impact of no TV production in quarter 1. Coming on to our balance sheet. We are a 0 debt company with investment of over INR 219 crore in hand. And we have calibrated plan to invest these in making more content. Our strong focus on balance sheet strength has allowed us to sail through such tough times and come back to operation at a much faster rate. Overall, we are coming back to track and coming quarters will be better with business growth. I thank you all for joining us today, and I would request the moderator to open the Q&A session. Thank you.

[Operator Instructions] We have our first question from the line of Varun Pattani from Prospero Tree.

Sir, so my question is ALT has been a cash burning business as we have seen in the past. And until now, we have not achieved breakeven. So can you just give some color on the strategy that is being adopted and the time line within which we can achieve a breakeven?

We are hoping to break even this business in Jan, Feb, March quarter, which we have already indicated in our previous call, even before COVID had stuck. So I think because of COVID, we were uncertain whether we'll do it in Q4 or Q1 of next year. But I think the way the numbers are looking, we are looking on course to breakeven in Q4 of this financial year. Having said that, as a group, what you're saying is that it's taking up cash, but we are not having to take cash from outside. From the last -- I think September onward, we are in a position where we are much more secure on our cash front. And maybe Sanjay would like to elaborate a little more on that.

So if you see the difference between P&L breakeven and cash breakeven, we are already cash positive in terms of our spend and in terms of our revenue. However, P&L will also show a track because there is earlier year's amortization, which has come in only in this fiscal because our Zee5 deal has happened only in September of last year. So we are already cash positive in terms of overall number. However, P&L EBITDA positive, we think we should -- we are targeting for quarter 4.

Quarter 4.

So the good news is that we are not going to -- it's not going to...

We have not short of cash, yes.

Okay. So sir, as per the Zee5 deal, what we are supposed to get is 60% of our production cost. Am I correct?

We cannot, I think, verify any of that because our deal keeps changing with time. We are not in a position to kind of verify that at all.

Okay. Okay. Okay. And sir, what about the Pagglait release date? And what is the revenues that you're forecasting for that?

Netflix has not announced the date of release for Pagglait.

But the revenue is also kind of confidential. Suffice to say that we are positive on our movie business across Dolly Kitty and Pagglait.

But irrespective of the release date, once we deliver the movies to them, we can realize the revenue. So hopefully, quarter 3 should show you that number.

Okay. Correct, sir. And sir, what would be the subscriber count for ALT?

Right now, if you take total cumulative subscribers, it would be upwards of 4 million. Of course, that includes the churn also.

Okay. Okay. Churn would be around 65%, I think?

It's kind of becoming a little lesser. It's going into the high 50s right now. But yes.

[Operator Instructions] We have the next question from the line of [ Nikita Sharma ] from NJ Advisors.

So I had a couple of questions. First, in the line of TV business, you mentioned that the rates have come down. Is it going to stay the same at digital level going ahead? Or is going to come back up? Also, when do you see that happening in case of that? And what was it a way going forward for Balaji to release the number of hours? Or how is it going to work?

Well, there are 2 aspects to the business. First is rates for our shows that also depends on how the advertising market goes up. As you know, that we sell to broadcasters who are largely advertising supported. And if that comes up in a good way, then I think we will look to a situation where we can slowly take the rates up. It won't happen, certainly. It will take at least 6 months to 9 months for that to track back to normal. That is point one. Point two is, like we mentioned, we have managed efficient cost management, though it's not in the same proportion as a top line drop, but we are managing to save our costs and we hope that we continue these savings going ahead and trying at least deliver the similar percentage margins that we were doing earlier. Last as far as volume is concerned, we are looking at volume growth. However, the new -- we have to pick and choose what new shows we take on, especially given the fact that shows are going at a price, which is 15% to 20% lesser than what they were earlier going on. Sanjay, is there you have anything to add?

No, no, I think you've covered.

All right, sir. And also on the movie strategy, the current strategy seems to be looking very good for us. Given the current situation on the movies taking the digital route, how do we plan to go forward from here?

We plan to go forward by trying to take -- there are 2 cornerstones to the movie strategy, rely on presales to cover some of your costs. That is point one. And what we have also done is that we have partnerships with some of the other players in the market to ensure that our capital outflow for movie is not very high.

Okay. Okay. And so also on ALT, can you see now that the movie -- sorry, not movie, the productions have come back and like they've resumed, will we see the same number of shows being launched during like from the pre-COVID levels how many shows we have launched per quarter? Is the same number of shows? Can we see that going ahead?

We will not see the same number. We will see a 20% increase from the number of shows that we launched last year same time. So I think what is going to happen is if you see in the month of November, December, Jan, Feb, we will launch at least 3 shows per month. So that is an upward take from the 2 shows per month run rate. The run rate will actually go up simply for the reason that there is -- we've got a lot of inventory of development during COVID that we have done. We have written a lot of shows. Those will be put into production on a very fast track, speedy kind of method to ensure that these come out at the rate of at least 3 to 4 shows every month going ahead starting this month, November.

That's great. Also sir, given that like now a lot of traction is seen towards IPS and the movies are releasing -- being released to the digital platform. So does our content strategy remain the same or...

Content strategy has, I think, over the last 3 years, altered from being urban mass largely to now having a significant portion of our content targeted at Tier 2 and Tier 3 towns. When we started off this business about 3.5 years ago, we also had a kid section, which we are not -- which we have kind of omitted because we feel that in a pay subscriber environment, 18-plus is the age limit and, therefore, the kids we are not able to attract. And strategically, it's not the same PG for us. So that's the second drop. Third is, we are looking now to focus only on Hindi markets, but we will probably include one of the regional -- strong regional markets also in our strategy in the next 12 months or so.

[Operator Instructions] We have the next question from the line of Shaily Gathani from Reliance Industries.

I just wanted to understand since Balaji operates on a presale model, are we planning to exploit the movies on our satellite as well after the digital platform like Dolly Kitty? Are we planning to exploit it on satellite as well?

Yes, there will be exploitation of models for -- what are you asking about specifically? If you're asking for the specific movie, I, unfortunately, can't give you details out because it's a contract with Netflix and it's...

We'll keep the options open for both the platform. Whichever gives a better margin and revenue, we will definitely go for it.

Definitely, yes.

Okay. So later on, in case we get a better deal, we will be planning to exploit on satellite also going forward for movies as well?

It's obvious.

We will study the market carefully to respond. As a generic statement, and I don't want to go through each movie because it involves confidential area of contract. We want to exploit across all 3 medium that is satellite, digital, and we are looking for a theatrical window right now.

We have the next question from the line of Yogesh Kirve from B&K Securities.

So just the clarification. So whenever the OTT buys movies from us like Netflix or Amazon, do they buy the entire rights? Or is the only digital rights are in the purchase?

I mean it's a very generic question. You should ask Netflix or Amazon, first of all. But our deals are as per the deal. If somebody pays a certain amount for rights and if they pay double that amount, then the rights deal will vary. So I don't know whether -- I don't know what is the question you're asking. Everything comes at a price.

Right. But the deals that we have done so far...

The individual contracts, obviously, for -- reasons of confidentiality. But I don't know, therefore, what your question is.

Okay. Anyway. So second question I have, so earlier, the movies were largely done for this year because of release, now there's additional sort of window which is getting available. So is it possible that your film production business from the Balaji Telefilms side, could there be a bit of a scale-up in terms of the number of movies, now that we have an additional window?

I think we have a sufficient number of movies in our pipeline. We are probably going to produce about 4 to 5 movies in post-COVID era. That is probably in the next calendar year. And I think we are confident that we will be always delivering a positive bottom line on the movie business. We delivered it in the financial year that ended March '20 and we will continue doing that in years to come.

And having said that, internally, also, we have set max CapEx a lot we can invest into movies, so we don't intend to cross that.

Okay. And sir, finally, now I understand it's not like-to-like, but -- so how does the profitability compare in terms of when TV shows being delivered to television channels and movies being delivered to OTTs. So is movie a more profitable business based on experience so far?

One of the businesses involves an entire IP transfer. Whereas the second business that you talk about, does it involve an entire IP transfer? So I think there is a fundamental difference there.

And it goes for a limited period when it comes to movies when we sell the rights.

Correct. So I think, therefore, it's not comparable. But we are bullish on both. We have been traditionally a very strong television producer. We are the #1 producer in India. We've been getting hit with getting the hours, but that's not -- I mean, we don't get the IP there. What we have done in the last 2, 3 years is also built a good movie business, trying to get both IP as well as bottom line. And we are confident that both have their purpose, both help us also expand our vision towards mass India and the way we produce content for mass India. Both are essential for us to develop that competency and translate it into a very, very successful digital mass platform. I think they also help us get the expertise in other than the bottom line and the financial strength that we have.

So is it safe to assume in case of the direct digital releases the kind of cycle of the monetization? Does that cover our investments?