Balaji Telefilms Limited (BALAJITELE) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon and welcome to conference call of Balaji Telefilms organized by Batlivala & Karani Securities India Pvt. Ltd. [Operator Instructions] I would now like to turn the conference over to Mr. Yogesh Kirve. Thank you, and over to you, sir.

Thank you, Pranavi. Good afternoon to all the participants and thank you for joining in. We at Batlivala & Karani Securities are pleased to host this earnings call for Balaji Telefilms Limited. To discuss the results and the business outlook, we have the senior management of the company represented by Nachiket Pantvaidya, Group COO and CEO, ALT Digital Media Entertainment; and Mr. Sanjay Dwivedi, Group Chief Financial Officer. I will now hand over the call to Mr. Pantvaidya for his opening remarks, which will be followed by question-and-answer session. Over to you, sir.

Thank you. Welcome to the conference call of Balaji Telefilms Limited. We will be covering this evening the results for the quarter and 9 months ended 31st December 2020. I'll start with an update on our digital business, ALTBalaji. This quarter, we saw the highest-ever subscriptions being sold, and that number stood at 1.6 million. And I'm pleased to report that now we have over 2.1 million active subscribers on the platform. This strong growth in subscriber addition is on the back of our continued efforts to improve and widen our content library, coupled with a unique marketing strategy targeting a lot of first-time video consumers from tier 2 and tier 3 towns of India. This quarter, we added 9 new shows, taking the total number of original shows live on the platform to 74. We believe that ALTBalaji today offers one of the most diverse content choices for its consumers. Meanwhile, our focus remains on building content for Bharat, which is called India, too, popularly. And with that in mind, we are ramping up our production capabilities to create a model where we can produce at least 30 to 36 shows a year to keep our consumers engaged and attract newer audiences. One of our unique advantages is that through our TV and movie business and access to the wider content ecosystem, we have an advantage of producing great content at lower cost when compared to market rates. For example, we can harness talent from our movie and our TV businesses to create a differentiated content offering as compared to the shows Balaji Telefilms produces on TV. Our platform continues to see strong traction with almost 22,000 new subscriber additions per day. And given that a number of these are first-time video consumers on the Internet, we feel our deeper library of relevant Hindi content will allow them to sample and enjoy a lot more content at very affordable rates. Despite the plethora of competing content, we still see a very good engagement and retention metrics and believe that as our library strength increases, we will continue to see better subscriber metrics. As the OTT video streaming landscape in India gets stronger with widespread adoption into tier 2 and tier 3 India and requiring diverse and relevant content and affordable pricing, we believe that ALTBalaji, India's leading independent homegrown OTT platform, will continue to drive growth in the category on the back of its strong content and most affordable pricing plans. Since inception, we have maintained an affordable pricing regime at under INR 1 a day. And we've seen that has played an important role in driving the consumer adoption. Coming to the TV business, production has returned closer to the pre-COVID levels with almost 185 hours of content produced this quarter. Our TV business added 7 shows during the quarter. And of that, 4 shows were running throughout the quarter, 3 new shows were launched, including 1 for Dangal TV, and 2 shows came to an end after long runs. Overall demand for contact remains strong. However, we are witnessing some softness in rates from the broadcasters, impacting the top line. Having said that, big shows continue to command premiums. And as you are aware, Balaji has a strong record of creating it. We have a strong content pipeline for the coming quarters and remain confident that the rates will head up as the shows become successful. On the margin side, we continue to see some softness given the new launches, but that, along with some cost saving initiatives adopted, should help us on the margin front. Finally, the movie business has -- COVID continues to impact the theatrical releases. And even though theaters have opened up for audience, they are yet to see the good traction in terms of footfall. We also expect to see a lot of rush by producers to target the windows for release in theaters as the movie business would see some element of fluidity for the next 8 to 12 months. We were able to complete the sale of existing ready movies at a reasonable profit through digital platforms and cycle the capital without incurring any loss. We have a number of exciting projects. And given the nature of COVID-19, we expect these to release over the next 12 to 18 months and hence believe it will be necessary to continue to follow a derisked strategy using presales and coproduction agreements. We will keep sharing updates on these movies as we progress in the year. On the upcoming projects, some of the notable ones are: Rewind, which will be directed by Anurag Kashyap starring Taapsee Pannu to start shooting by the end of the month; Villain 2 staring John Abraham; and Goodbye, staring, Mr. Amitabh Bachchan. These will all start shooting in the March-April period. There are 2 more projects which are official adaptations and remakes, including the hit movie Ala Vaikunthapurramuloo. As you can see, we have many exciting projects coming up, and we expect to have a good FY '22. We have a good share of presales and coproduction agreements locked in place. All of these steps will ensure that our movie business in FY '22 is further derisked and we can benefit from the upside in these movies. Overall, I think the first half was impacted by the pandemic, and in Q3, we saw content production coming back to pre-COVID levels. This has allowed a lot of fresh content to be released both on TV and digital. This has also created a lot more customers, and we will continue to see stronger engagement levels as digital -- as the digital library grows deeper. 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. I will now proceed to explain some of the key items this quarter and how we are looking at the business. On a headline basis, revenue for the quarter is up 35% to INR 105 crores against INR 78 crores in the previous quarter. The improvement in revenue is primarily due to better sales in ALTBalaji, and Q3 also had the recognition of the sale of movie Pagglait to Netflix. Looking at the digital revenues, some of you might be aware, our monthly billing related to ALTBalaji used to be in the range of INR 3 crores to INR 4 crores. But we are now running at close to INR 10 crores a month, which is a tremendous improvement. I would also like to clarify that given the revenue recognition policy, we recognized the revenue on sale of subscription over the life of the subscription pack, and this has resulted in nearly INR 11.8 crore of revenue of this quarter being deferred out to subsequent quarters. On the gross margin front, while our margins have improved from INR 17.8 crores to INR 19.2 crores, the margin percentage are down from 23% to 18%. The primary reason for the shortfall in margin percent is we launched 3 new shows this quarter and 2 shows came to an end. As we had mentioned earlier, we operate a model where the initial few episodes have higher cost outlays. And as the show progresses, the cost reduces, thereby improving margins. We hope to see these shows return to their normal operating margins in quarter 4 of FY '21 itself and resulting in a significantly improved margin in FY '22. On an EBITDA basis, the EBITDA loss for quarter 3 FY '21 was at INR 24 crores against INR 12.4 crores in quarter 2 of FY '21. The primary reason for lower EBITDA was on account of increased marketing spend in ALTBalaji. Given the higher number of shows we launched coming out of the lockdown, we took a strategic call to increase marketing spend for a short period, which has resulted in a very strong consumer acquisition. Going forward, we expect marketing spends to taper as our strong library plus unmatched content diversity drive revenue growth. As Nachiket discussed, with capabilities expanding to create more shows, you can see the operating leverage play its role and deliver a much stronger revenue profile against our committed overall cost of around INR 130 crores to INR 150 crores a year. Now looking at 9 months figure, I would like to remind you that quarter 1 FY '21 was a very difficult quarter for us given the nationwide lockdown and associated challenges. In addition, last year, we had a hugely successful movie, Dream Girl, thereby leading the comparison with this year. On a 9-month basis, revenue was at INR 218 crores, down 53% compared to INR 465 crores during the same period last year. The 2 main reasons for lower revenues were that this year had 361 hours of content production in TV business vis-à-vis 625 hours last year same period. In addition, we have seen broadcasters drop rates, and our average realization has fallen from INR 36.5 lakhs an hour last year to INR 31.3 lakhs an hour, a drop of nearly 15%. In addition, as I mentioned earlier, FY '20 had a hugely successful movie, Dream Girl, which grossed over INR 100 crores at the box office. Looking at the 9 months EBITDA, we moved from a positive INR 11.5 crores EBITDA to a loss of INR 62.7 crores as we had a lower contribution from our TV and movie business given the near-zero activity in quarter 1 of FY '21. In addition, Dream Girl contributed significantly to our profit increase last year. One of the highlights this year has been our operating costs, such as staff costs and other overheads, have reduced significantly. And we have managed to operate at much lower cost as compared to last year and hope to capitalize on this reduced cost base going forward. Finally, looking at our balance sheet, we are a zero-debt company with good liquidity. We are well positioned with nearly INR 158 crores of investment as we enter into quarter 4. On TV, we hope to revert to a more normalized run rate of 6 to 7 shows a quarter and margins. Movies will go on floor and release over the next 12 to 18 months, helping us realize some of the profits that are locked in these projects. And finally, ALTBalaji with now nearly at INR 10 crores revenue run rate should allow us to scale rapidly as more shows are added. I thank you all for joining us today, and I would request the moderator to open the Q&A session.

[Operator Instructions] We have first question from [ Kritika Agarwal ] from [ Newland Investments ].

So first of all, I would like to congratulate on the highest subs sold. And also, you have seen a very good pickup in terms of the shows launched and also the number of subscribers. So my question was, how much of this growth is because of the new shows added this quarter compared to earlier this year? Or is this a category actually now growing so fast?

Well, most of the subscriber acceleration that happens, happens with new shows. So I think when we see that shows are not launched, the level of 22,000 per day drops to around 8,000, 9,000. So you can say that about 60% to 70% always rides on the back of new shows.

And to give you quarter-wise subscriptions sold in millions, quarter 1 was 0.95 million; quarter 2 was 0.75 million; and quarter 3 is 1.64 million. And that's the jump you see when you launch correct shows.

Correct. Correct.

Okay. And so also on the overall industry side, we still see some new players coming on, especially making niche content in regional language. Does ALT plan to target audiences through regional content going ahead given that you were the first to target Hindi OTT specifically 4 to 5 years ago and now everyone seems to be making Hindi OTT content?

To be honest, I don't think we were the first one. Everybody was making Hindi content, but we were targeting it at tier 2, tier 3 audience and the others were doing tier 1 and they continue to do so. So my response to that is that we are trying to find a price point that is affordable to smaller towns in India, and that price point is less than INR 1 a day. I think that's where we are having the right combination of mass content and mass pricing. If you're asking about languages other than Hindi, right now we feel to get an ARPU of INR 100-plus in a regional language sometimes becomes difficult. Couple of players have done it, but we don't see that happening so easily. We are right now at INR 140 ARPU. And therefore -- yes. And therefore, to maintain a consistent, sustainable ARPU model, that will become difficult. So we will venture into regional only about a year from now when we reach about 100 shows on our app. Currently, we are at 74, I think.

We have next question from Mr. Varun Pattani from Prospero Tree.

So we started with the liquid assets worth INR 239 crores at the start of FY '21, and now we are at INR 158 crores at the end of Q3. So that is effectively a lower cash balance of INR 81 crores in 9 months. Correspondingly, we have also posted a negative EBITDA of INR 63 crores in the 9-month period. So I understand that this is due to mix of 2, 3 -- 2 reasons. First is the pandemic and second is the cash burn at ALT. So while the dynamic was a surprising and unanticipated event, we have been quite aggressive in case of ALT. So I would like the management to give an open answer on the cash burn, because at the current run rate, we will not be left with any cash in next 2 years. Does the management have a plan B to prevent such a scenario from happening?

Okay. So there are 2 -- 3 things which we have to look at. COVID, you have already covered and we accept it. Now coming back to TV operations, we've 18% drop in top line. In the -- effectively, itself has contributed wherever working capital gets stuck. Two, on motion pictures, as we have said, we have a lot of projects. It will come only to the theater and other places only next year. So our INR 88 crores of working capital is locked in motion pictures. And in ALTBalaji, we have a capital commitment of INR 230 crores of content out of which we have already paid or locked in talent and other players of worth around INR 68 crores. We have to keep building this library. Only thing is that because there was this lockdown, we couldn't monetize it as effectively as we thought we should be. But I think it's just a quarter away from there. We will beat that number very soon once we see the theatrical release of the movie.

Yes. But I don't know where you get this assumption that we are going to all run out of cash. What is the basis for saying that?

Sir, because the past figures suggest that.

No, they don't.

They don't. If you see the run rate, TV always contributes over INR 50 crores of EBITDA. Motion picture is always derisked as far as we are concerned. It's -- ALT cash burn, which was over INR 100 crores, has now come down to bare minimum, okay? So now my cash burn on ALT is closer to INR 10 crores or INR 8 crores in a month, and it is depleting. So as we speak, my last quarter run rate of cash burn was only around INR 17 crores on a cash basis, I'm saying. What you are looking at, P&L, it has also an amortization lag, which comes from the earlier years.

No. I understand that. On the P&L front, I understand...

You have to see direct method of accounting of cash to understand this.

Okay. Okay. And sir, as you mentioned, that going ahead, you are locked in certain projects and stuff. So would it be so that the margins improve in the coming quarters because of that?

One, TV margins should improve because we have launched 3 new shows. Two, we are expecting broadcast to kind of give us the additional days so that it improves our effective yields. And once this movie thing gets stabilized, when the theater gets opened, I think we should see a better number there because we have already presold at a very good price for these movies split. We don't screen these movies unless until we have a clear profitability numbers on it.

Okay. That was helpful. The other question I had was that with respect to the Zee5. We have booked the revenue of INR 8 crores in the 9-month period, and our production expenses, the P&L production expenses, have been INR 68 crores in this 9-month period. In this context, I believe that the contribution from Zee5 is very small. And in exchange, we are losing the exclusivity of our platform. So if you could provide some color on this?

I think you [indiscernible] the business. Only 10% of the Zee5 contribution gets booked on the top line. As Sanjay just said, that's -- I would advise...

We have been [indiscernible] quarter -- See what happens is what you see as a top line contribution of Zee5 is only 10% of what you have sold. And also, as per Indian accounting standard, you keep accruing it. It is not when the shows go live that you will account for this 10%. So there is always a lag between actual show going live and what you account for...

[indiscernible] Zee5, that is only 10% of the cost.

Yes.

Okay. So -- but the cost will also come in future quarters, right? So I believe this is what the picture would look like in coming quarters also.

It's like this. It's like this. For every INR 100 of spend on content, INR 50 get reimbursed by Zee5, okay? So straight away, that doesn't come into your P&L. That goes as a receivable, okay? So inventory gets depleted. You show that as a receivable. INR 10 is something which we account as a revenue, okay?

[Operator Instructions] We have next in queue Mr. [ Ankush Balani ] from [ AB Advisors. ]

Congratulations on crossing 2 million subscribers this quarter. Sir, my question is what was the -- look, I mean, we added 1.6 million subscribers this quarter. So what was the like drivers behind that addition? And how do you see this growing going forward?

See, even as we speak, we have seen that our revenue rates -- so let me talk from a revenue perspective and then also talk about subscribers. We are seeing an accelerated acquisition of subscribers post COVID because throughout COVID, tier 2 and tier 3 towns got exposed to Internet, but we could not put out shows for that because, obviously, production was all stopped. Now that production has started and we put out at a run rate of 3 shows a month, we're seeing a huge upswing of tier 2 and tier 3 audiences coming on to our platform and paying. In terms of revenues also, you can see there's a significant upswing, and we have recorded highest revenue in December. So it's not just that we are getting subscribers who sample us and who we're also getting them to pay and stick on for at least a period of the quarter that we have. So I think we are poised to exploit the new influx of viewers that are coming in from mass India by keeping our pricing affordable and putting content that they can understand in a language that they can understand.

Yes, sir. Sir, my question was -- I mean I was coming to that only on the revenue front. So we are clocking, I think, around INR 10 crore of run rate every month now. So how -- are we confident to keep it at this level or typically growing above this level? Or what was the outlook on that?

So we are definitely confident of at least maintaining at this level. As we go ahead, this will definitely grow. So every 10 shows that we add, we see an incremental burst. So for the period of 10 shows, it stays at the run rate. Our past data shows that it is moving in batches of 10, 11 shows. [Foreign Language] we start exploiting that additional amount when it suddenly takes a surge upwards.

And for us, we also retain the subscriber who comes on board. Not all the subscriber gets churned 100%.

Correct.

So that keeps adding to your subs base.

Sir, what would be your retention rate then?

Normally, it's on a constant rate for 3 months and then upswing. Sorry, go ahead.

Sorry. Sorry, sir. What would be your retention rate then?