Entertainment Network (India) Limited (ENIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '21 Earnings Conference Call of Entertainment Network (India) Limited. Joining us on the call today are Mr. Prashant Panday, Managing Director and CEO; Mr. N. Subramanian, Executive Director and Group CFO; and Mr. Sufal Agrawal, Financial Controller from Entertainment Network (India) Limited. [Operator Instructions] 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.

Thank you, Nirav, and welcome to this conference call, dear investors. I will take 7 or 8 minutes to give you a small narrative on the company's performance in the quarter 2. And as always, we will open up the call after that. From the presentation, you would have seen that our revenues are down 59% compared to quarter 2 of last year. This, by itself, is -- should not be surprising to you because you may have seen the results of several other media companies. And by and large, all media company results have been affected by the COVID on the ground as well as by the lockdowns that followed the COVID scenario. So let me give you a little flavor of this 59% de-growth so that you get more details about understanding this particular thing. So I mentioned first about the COVID impact, and we did a little analysis. And because in radio, you operate in different states and because the spread of COVID was different in different states, let me give you a flavor about it. So generally speaking, there were certain parts of the country which became COVID hotspots, and of course, Maharashtra was at the top with Mumbai pretty much being the hot shop -- hotspot for a long point in -- period of time. Subsequently, Delhi became the hotspot. And even today, Delhi is going through a third wave. And then you had Andhra Pradesh, Karnataka, Tamil Nadu, Kerala, all of those southern states were -- have been through a bad phase in the last 2 or 3 months, and also West Bengal. And just what we see that if you look at these states, the revenue de-growth in these states has been particularly high. So Maharashtra, our revenues are down 55%; Delhi, they are down 67%; Andhra, 60%; West Bengal, 62%; Tamil Nadu, 75%; Karnataka, 80%; Kerala, 70%. So these are clearly states where COVID spread rampantly and revenues -- and lockdowns followed. Lockdowns were strictly enforced, and therefore, the revenues also have taken a big beating. But there were other parts of the country where the COVID spread was much lesser, and let me give you examples of those now. Generally speaking, Gujarat went through far lesser COVID impact, and our revenue de-growth in Gujarat has been only 36%. Similarly, in Madhya Pradesh, it was 28%; in Uttar Pradesh, it was 32%. And then there are some very interesting states where actually revenues have grown compared to last year. Rajasthan, our revenues are up by 3%; Himachal, our revenues are up 36%; Chhattisgarh, our revenues are up by 11%; Jammu and Kashmir, our revenues are up by 40%; and in Assam, our revenues are up by 75%. So clearly, you will see that the 59% de-growth is not a uniform de-growth. It is very, very much attributable because of COVID. Now because of COVID, there has been another impact that you will observe in the performances of all media companies. And I'll just talk about radio companies over here for a moment. Now there are radio companies, which are very heavily dependent upon the metros, and the metros have been badly affected by COVID. So companies like Radio One or Ishq FM or Hindustan Times, which are dependent to a very large extent on the top 8 markets, have seen a bigger revenue drop, typically in the region of 65% to 80%. Then there are companies like Mirchi and Radio City and Big FM and Red FM, and these are spread across the country, and their dependence on the top 8 markets is relatively lesser, definitely lesser than the previous set of radio stations I identified. And the revenue de-growth over here for these players has been in the region of 50% to 55% to 60%. And then there are some regional players like MyFM, for instance, or some of the players who are in the state-specific areas like maybe the Rajasthan Patrika Group or some of the others who have a very low dependence on the metros, and their revenue de-growth has been typically lesser. I think MyFM has announced a 42% de-growth. So this is another aspect of just the same COVID phenomenon. Now as COVID is reducing in the country, we are finding that the business is starting to bounce back. So quarter 2 de-growth was less than quarter 1. October, November is looking pretty strong now with the festive season and now with lockdowns being lifted. So we are finding that as COVID lifts, the business will come back to where it was. I mentioned this earlier in some other interview that media companies are one quarter behind the real economy. Generally speaking, people believe the real economy will start stabilizing in the third quarter, which means that the radio companies, other television companies should also start stabilizing by the end of the third quarter or by the fourth quarter. And we are seeing the early signs of that in October and November, already Diwali is turning out to be good; IPL has given a lot of business to sports channels; and generally, we are finding that some of the print publications are starting to see advertising coming. So this was the first point I wanted to give you a little bit of insight into the 59% revenue drop that ENIL has reported. In -- let me come to the second point now. So in a situation like this, you have to look at sequential growth to figure out if you're doing well or not. And if you look at our sequential growth, sequentially, we are up by 30% compared to last quarter. And that's actually because last quarter, we had a big prior period revenue in the form of international revenues, which -- because of this, sequential growth is lesser, but in real terms, sequential growth on a like-to-like basis is far higher. Within that, radio has grown by 132%, our digital business has grown by 67%, our media solutions business has grown by 31%. The one business which has taken a hit in quarter 2 compared to quarter 1 is obviously the on-ground business, what we call the intellectual property business, or the IP business, and that's down 58%. So I think the IP business will continue to remain down in Q3. But by Q4, I believe that the IP businesses will start to open up. We just heard that the Sunburn Festival in Goa has been given the green signal by the Goa Government, which basically tells you that the market, the IP business will start opening up in the fourth quarter. So this is another flavor of the 59%. But let me also tell you about the good news about the solutions business, particularly, that our gross margins have dramatically improved. Now you may know that this has been a focus area for the company for the last 3 years. In this quarter, our solutions business has reported a 54% gross margin number. Now that's truly remarkable because we -- our stable state, we believe, was in the region of 40% to 45%, but we have topped that and gone to 54%. Our digital revenues -- the digital gross margin is 45%. Now remember, most companies struggle with digital and report negative numbers. We have reported negative margins in the past as well. But we have now reported a 45% digital -- gross margin in the digital business. And even though our IP solutions business is very, very small in this quarter, we have reported a 54% margin there as well. But then you may wonder why the EBITDA performance is so bad. And the reason for that is that the core radio business, which has high operating leverage, has suffered a big margin erosion typically because the overheads are now being borne by a small -- on top of a smaller revenue base. So the gross margin in the radio business is just 60%. And typically, this number tends to be in the 80%-odd region. So that has taken a big hit. So that is the second flavor I wanted to give you on my revenue performance. The third flavor on the revenue performance is about categories. And if some of you, who may be interested, I can just quickly tell you that there are categories, which are easy to understand, which are doing well. FMCG is doing well. Because -- simply because people have to buy FMCG products, and they're doing well. Education is doing well, primarily because of a quarterly shift in the education season from quarter 1 to quarter 2. Health and pharma, obviously, is doing well. BFI is doing well because it's again targeted mostly at the male audiences, and radio is a very strong medium for male audiences. What is down on radio is IP. Basically, all the e-commerce and e-education and e-payment wallets and those kind of things, which have chosen to go on the sports channels and haven't done much on the radio medium or on the print medium. Typically, we have seen that the smaller IT companies are not advertising, and smaller IT companies used to advertise city-by-city or state-by-state. And that is the reason that print and radio both have been the rest of revenues in this quarter. But of course, all of this will come back. So this was just a bit of a category information. Auto is down. Government is down. Real estate is down. These are some of the sectors which are down. But as the economy lifts, I believe that these will all come back. Now a little flavor on the revenue -- on the pricing and the volume front. Overall, there was pricing pressure. The pricing is down about 30%. However, the good news is that the pricing is not down in its value. The pricing is down because we have been forced to give bonus talks to many advertisers. And to be fair, advertisers have extracted a good deal from us because of the fact that the overall demand was lesser. But I think that the bonusing is getting -- it can be reversed and the bonusing is already starting to get reversed. And I think that unlike in the earlier past when pricing took a long time to recover, I think, this year, the pricing will recover far faster. So that's one bit. On volumes, the volumes drop has been very, very related to the COVID phenomenon. So top 8 markets, our volumes have dropped by 51%. But in the remaining 27 growth markets, I'm talking about the legacy markets, the volume drop is just 11%. So I think that's -- there's a big message over there that when COVID lifts, the company's performance will be back on track. I also want to come to the next point after covering revenues. But in terms of cost management, I think the company has done a fantastic job. Our overall costs are down 35% in the quarter. And there are very tough actions that the company has taken on almost all areas. So for instance, our DVC business, which is related to events, obviously, the costs are down by 63% because the revenues also are down. But look at HR, our HR cost is down 38%. Electricity, because we have reduced power of transmissions in our offices, electricity is down 20%. Admin costs, which include travel, is down 59%. Our provision for doubtful debt is down 57%. Our professional fees is down 42%. Marketing is down 66%. But I want to draw your attention to a couple of sticky costs which we are finding difficult to reduce. One is the license fee which we pay to the Government of India, which is down only 7%. And the reason for that is that the government's license fee has a flooring limit. And we cannot go below the floor limit, and that's the reason why the drop is very limited. There's rent which is down only 4%, but we will see an improvement in the coming quarters. But again, the improvements will be limited in scale. And then there are other expenses like production costs, which includes basically All India Radio towers and the monitoring fee that we pay to best sell and all other things, those, again, the government has been very unrelenting. And basically, those are costs where we have not been able to reduce costs dramatically, but they remain challenges for the future. I also want to tell you about one last thing before I open it up, and which is that the company has been following consistently a strategy of transforming from being a radio company to being a much bigger content company, from being an FM company to being a multi-platform company. And to that extent, we took a really big move of changing our company, our brand logo itself. So if you see the logo, then we are no longer Radio Mirchi by logo. Our logo is just Mirchi because Mirchi is a strong consumer brand, and we have said that Mirchi is way bigger than radio. Today, we define ourselves as having 3 businesses. One business, of course, and the biggest business, the cash generator, the market leadership position we have is what is called Mirchi FM Radio. The second business is Mirchi Digital, and we are making huge strides. The presentation has some details about it, but I would be happy to talk about it if there are any questions. And the third business is Mirchi Live, which is our on-ground IP businesses, some of which also go on television. So these 3 businesses are now what Mirchi is into clearly identified under a logo called Mirchi. And with that, I will open up the session for questions. I'm happy to take that. Subbu is there to answer some questions. Sufal is there, and I'm there. Nirav, it's all yours.

[Operator Instructions] First question is from the line of Depesh Kashyap from Equirus.

Sir, the royalty rates that you pay to the music labels is up for negotiation, right? So the music labels have been talking about increasing the rates to 10%. So can you highlight where the talks are? And when it should be closed?

Well, I can only tell you about the -- that the talks are on and the IPAB, which is the new body which looks after these matters, has been hearing matters since day before yesterday, since Tuesday. And IPAB has decided to hear the matters continuously without break, no adjournments for 15 days and announce a verdict by the end of this month. We are extremely confident of getting a better rate than the 2% that the 2010 order had shown us. And the reasoning that we have offered is very simple. And the reasoning is that after the 2% order came, there's been a huge growth in music OTTs. And the music labels need to focus on the music OTTs, and FM Radio needs to be given an even lesser royalty rate because -- simply because the music OTTs eventually will put pressure on FM Radio. So we have taken the tack, and we're getting a good hearing. The first 3 days have happened. That was radio's turn to speak. We've got senior council representing the industry, and I'm confident that we will get a good order.

Okay. Understood. And then secondly, sir, our net cash is also pretty strong. So are we thinking anything on the buyback, dividends to reward the shareholders just like a competitor has announced?

Subbu?

Okay. So what -- this question came up in our AGM which we had last month, and we said we will come back after discussing with our Board by the end of this financial year.

[Operator Instructions] Next question is from the line of Manish Gandhi, an individual investor.

Congratulations on INR 6 crore revenue for digital. And so my questions are on digital. After the pandemic rising importance of digital in everyday life, and what kind of shift you are witnessing in advertisers' mindset for our solution business? And to capture this increase in huge advancement of shifting digital, what are the distinct changes we are making within our organization?

Okay. Thank you, Manish, for the questions. And it's always a pleasure to talk to you. You're very right that the pandemic has given a big boost to the whole digital space. And because we have been doing this business for many years, we have seen that happening to us as well. Sequentially, like I mentioned to you, our digital business is up 67%. Now let me explain what makes up our digital business. And in our digital business, there are many -- there are several products, but there are 3 or 4 products which I think are very critical for investors to know. One of them is basically the whole digital solutions business that we are, I think, becoming experts in and where we face very limited competition. So let me give an example. So there's a brand called -- there's a company called GSK, as you know. And GSK wanted to address their media dark markets in, let's say, UP or Bihar, and they don't get television coverage -- adequate television coverage, et cetera, et cetera. So using the plain old telephone system, we developed a solution where we made content for -- we created a character, Jasoos Arjun. We've created content around the character. We built stories. We involved common people from the villages and the smaller towns of these 2 states. We made content in audio format. We made content in video format. We put it out on the plain old telephone system. We put it out on YouTube. And basically, we drove engagement and reached across the whole markets. Now this is a classic -- so we combined our knowledge of telecom. Because remember, 15 years back, we started something called Mirchi Mobile where you could listen to the radio of one city in another city. So we have learned the telecom background from there. We are good at creating content. We have got good local celebrities. We've got a programming team of 350 people, which can create great content. So we have been leveraging that. So digital solutions is one product that we see really, really growing very rapidly. The second product is our entire YouTube-related businesses. And today, our 12 channels have got 11 million subscribers. Now this is a huge number, and we should pause and think about it. Because the #1 independent Bollywood channel in the country is Mirchi -- is Filmy Mirchi. And today, when we go to movies, we are very excited about promoting their movies on our digital footprint. And there is a lot of money that movies spend on marketing. It's very tightly spent within 2 weeks or 4 weeks, and there are very few players who can actually compete by offering a combination of radio and digital. So I think we are very well placed over there. And then there is the whole space about original content that we are becoming good at. I won't say we are very good, but we're becoming good at. And essentially, we are very -- we will become very good in vernacular content. And we are focusing on low-length content, so 10-minute episodes, 15-minute episodes, et cetera. So digital, Manish, to answer your question, is some -- and then there are other products as well. But to answer your question, digital is an area that we are growing very rapidly. Now you asked a question about organizational support. And we have recently -- so we have been beefing up the strength behind the digital team and the solutions team. The solution team is the engine that provides the ideas to go out and sell. So today, we have rebranded the solutions team as the brewery team because they brew up great solutions. And we have beefed up the digital team. And we -- in the next -- we have a digital -- we have a head -- we have a new head who looks after the whole digital business. We have divided the division -- the digital team into 3 clear verticals. There's a platform vertical, there's a revenue vertical, there's a products vertical, and there's a content vertical. So there are these clear identified verticals, where senior level people now run these businesses. There is a lot of focus on both solutions and digital as far as the organizational structure is concerned. In the future, I see these 2 businesses being strengthened in terms of human resources. And I find -- I feel that our revenue growth and jump will really come from our solutions and digital businesses.

So my second question is somewhat related to what you explained. So with our huge existing followers in digital, are we planning to launch many more products in regional language as well something in line of like Scribbled or Mirchi Indies to monetize and capture the rising trend?

So Manish, there are 2 things that we're doing. One is that we are consolidating our digital businesses behind certain products, which have shown a lot of revenue potential. I mentioned to you, the movie promotion business has a huge potential, original content has a huge potential, digital solutions has a huge potential. So one is a consolidation of efforts, putting senior management, HR resources, putting marketing resources, putting sales resources behind these businesses. But two, remember that digital is a fast-growing area, and there are new frontiers being opened every day. So we are exploring all of them with the clear intent that when anything picks up, you should be having a foot in the growth. An example is podcast. Now in the presentation, we have mentioned that we got Sanofi to sponsor our podcast series. But there is humongous amount of opportunity in the podcast business. But it is very different from what conventionally people think of. It may not be B2C podcast alone, it may be B2B podcast, for instance, and they are a lot. So yes, we will explore podcast as well. We will explore all types of other content that is possible in digital. We have also -- we are also tying up a deal with Google, and hopefully, in future with Facebook, where we will be selling their inventory to the long chain of advertisers that we have a control on. So yes, there are many new products that we are launching in digital, but we will also consolidate the main 3 or 4 big products that we already have.

Right. Great to hear. So do -- I have one more question on the digital. Should I go on? Or I...

I think, Manish, you should come back later or we can chat.

Next question is from the line of Sanjesh Jain from ICICI Securities.

First question on the early signs of revival which we talked about in October and November. Can you give some more favor, where are we in terms of October and November this year versus the last year? That would be helpful.

Yes. So this year, Diwali is in November, as you know, 14th November. Last year, Diwali was, I think, 25th October. So remember, in the media business, we always look at October plus November combined because in different years, Diwali is split, okay? So if I were to look at October plus November, and if I were to add a December and IPL for good effects, so I talk about quarter 3, then I would expect that the revenue de-growth, which was 59% for us in quarter 2, should come down very strongly in quarter 3. It should be probably half or it should become less than half of this number. Maybe -- there will still be de-growth because there is still a high base of last year. But I would imagine that the revenue de-growth will probably come to 25% or 30% or thereabout. I'm not giving you a guidance, but I'm just telling you the early signs. And in quarter 4, I would expect that if unless things go really bad in this country and another wave comes, and I think the country has now learned that even if the waves come, lockdowns are not to be done. Look at Delhi, Delhi has got 7,000, cases, 6,800 cases yesterday, but nobody is talking about any lockdowns in Delhi. So if -- as long as the COVID is under control and the government does not think of lockdowns, I think in the fourth quarter, the -- either the revenues will come back to last year's level or just maybe shy of last year's level. So I think that there's a continuous improvement quarter-by-quarter.

Okay. Just one observation. Has the IPL timing change has incrementally hurt us in terms of Q3? And that's why it's slightly -- the revival is slightly lower than what we are expecting?

No, the revival is not lower than what we are expecting, number one. And number two, remember, radio is a very small medium. I bet it only takes 5% of a client's spend, right? So it's not the one that is affected by IPL. But what IPL has done is that it has affected the business of greenfields and other categories of television companies, possibly of print, I'm not sure. But radio is an incremental medium. Radio is always combined along with other things. So radio has not been affected by IPL.

So I was just looking at the decline. You said that internet contents are moved to the IPL, and we have talked about a decline in auto, whereas if we see the sales in auto are now reaching more than pre-COVID level, they have started to grow. I think that the growth for the customer has come back, but I think there is aversion in terms of spending on the advertising. Is that what you are sensing?

No. So of course, there is aversion in terms of consumer spend. There's no doubt about it. And we know that the auto sales is mostly prime right now, and actual RTO registrations are still quite some distance away from last year levels, but there is a revival happening all the same. But no, I don't think that, that's really a big thing which is affecting us. I think remember, again, October plus November is what you should look at. So when I said that the auto sector is down for radio in quarter 2, I think that's simply because of the shift of Diwali. And related to Diwali, spending starts 45 days before. So a lot of the September spend has gone to October, et cetera, et cetera. But I think that auto will be a good sector for radio to concentrate on. And just for your information, the sports business is up by 15% in terms of overall number is what I'm told, the GEC business, the television business.

Sure. Just what's your sense on the government spending? Or what are you discussing with them? Because that last year declined sharply, and it still continues to decline, so do you sense...

Yes. Sanjesh, I think that the government is still not spending. Government sector revenues -- volumes were down, I think, 27% or thereabout in this quarter compared to last year. Remember, last year was already a very steep fall. So government is not spending. And obviously, I think government is not spending because their own earnings have been impacted. But I think we'll have to wait and see how that sector goes.

[Operator Instructions] Next participant is Jinesh Joshi from Prabhudas Lilladher.

Sir, if I remember correctly, I mean, in the last call, you highlighted that in order to be EBITDA breakeven, revenues have to be in the range of INR 280 crores to INR 310 crores for FY '21. Now if I look at our performance in 1H of FY '21, we are closer to INR 84 crores, which essentially means that the run rate for second half has to be in the range of INR 100 crores per quarter to meet the lower end of the guidance of INR 280 crores. So do you think that this kind of number is achievable in this environment?

Well, Q3 is -- Subbu, yes, go ahead.

Yes. So Jinesh, if your question is whether we will achieve an EBITDA breakeven in the current financial year, I think we continue to be very optimistic on that. We think we will be able to completely wipe out our EBITDA losses that we have incurred in the first half. On the cost savings side, I think we had mentioned, we are cognizant that we are looking at a cost saving of over INR 80 crores on other investments. We -- if you look at our numbers, we are at about INR 39 crores in the first half. And with the plans that we have already put in place, we think we will get to that number of INR 80 crores. And finally, given the improving margins in our non-FCT business which you -- which we have presented in our investor handout, we remain confident that we should be better than an EBITDA breakeven for the full financial year.

And Jinesh, let me just add to what Subbu said. Remember, for the whole media industry, Q3 is a very important quarter that you're already aware about. But also, please go back and look at historically, ENIL's revenues. ENIL's revenues peak in Q4. Because there's a whole lot of solutions businesses we roll out in Q4. And I'm very confident that a lot of those television-related businesses, for instance, and on-ground-related businesses will come back in Q4. So yes, that is in addition to what Subbu said.

Okay. And sir, secondly, can you talk a bit about this original content creation series named Back Stage Boys, which you have kind of highlighted in the presentation? So for original content creation, what are the funds that we have earmarked? How does the monetization happen? We have licensed this series to MX Player. But are we open to licensing our content to someone who's outside of the group? I mean what are your thoughts on this?

So original content is a very simple idea. Like I keep saying, we have 350 creative people in this company. Nowhere else -- I can't think of any other media house, whether it's print companies or whether it's television companies, Internet companies, which have 350 creative people under -- on its own payrolls. I don't think that, that is there anywhere in the country. So let's put it at that, that we have a large collection of creative people. These creative people have been unfortunately expressing themselves using only the audio format. They're now saying, "Hey, open up." You can do -- express yourself in whichever way. But here is the second thing that just as there are 350 creative people on the rolls today, there are at least 350 creative people on the outside who have worked in Mirchi and who retained strong relationship with Mirchi. So the whole ecosystem is available for us to tap. Now what is the logic on the original content business? Now, vernacular content is very difficult to produce because there just aren't enough players who are able to -- production houses, which are able to make vernacular content. Back Stage Boys that you talk about, it is a Punjabi web series. And the Punjabi digital ecosystem is phenomenal, whether it is music, whether it is original content, it's a phenomenal language to be in. And this is just the effort of our Chandigarh team and our Delhi team, which put together the content. Likewise, we have content happening in Tamil, in Telugu, in Marathi in a big way, in Gujarati in a big way. We are getting into Bhojpuri. Punjabi, we are stepping up on. And there are many other languages that we are -- Malayalam is already starting to do it. Bengali, we are very big in Bengali. So these are all areas where there's a lot of demand, and we are doing that thing. Now just 2 more things. One is that not only are we good in content, we also own a lot of media. Remember, I mentioned to you that we have 12 YouTube channels, which have 11 million subscribers. Well, these are all channels in multiple languages. So we can make content. And on behalf of the client, if there's an advertiser, they can even release it on our media. So that's a big, big advantage. But specifically to your question about whether we are willing to license it? Yes. Last year, we sold 10 shows to MX Player. And we are already talking to other platforms. We are not limited to MX Player. We are talking to every single platform. Some of them require us to do longer formats. We will look at doing longer formats. Some of them require us to pass on the IP to them. We are looking at that as well, but sort of higher margin. So there are various models being considered in the original content business.

Sir, typically, what is the markup in this business?

Well, I can't give you specific commercials for obvious reasons, but let's put it at that, that the markups are predictable, and they are very encouraging. And we have an advantage because our production costs are very limited because wherever it is possible, we use Mirchi in-house talent or Mirchi alumni. That really cuts -- gives us a cost advantage. That's how we're able to keep the margins high. But for the platform, which is buying, it still comes very economically for them.

Sir, one last question. I just want the capacity utilization of legacy batch 1 and batch 2 stations?

Yes, Sufal? Sufal, are you there? Or should I give the answer to that number?

Yes. Yes. Yes.

Yes. Sufal is giving. Okay. Sufal, can I just give it?

Yes, Prashant. I was just...

Top 8 markets, our capacity utilization was only 43%. In the remaining 27 legacy markets, it was 50%. In batch 1 like-to-like basis station, it was 41%; and batch 2, just 13%. I think I'm ballpark, right, right, Sufal?

Yes, yes, that's right, Prashant. And also the overall number is 32%.

Sorry, sir, 32%?

That is for all the network. Prashant gave you vintage-wise and batch-wise. The overall number is 32%.

For the full network, it is 32%.

[Operator Instructions] Next question is from Manish Gandhi, an individual investor.