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

Ladies and gentlemen, good day, and welcome to the Q4 and 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 call is being recorded. I now hand the conference over to Mr. Prashant Panday. Thank you, and over to you, Mr. Panday.

Thank you, Ayesha, and welcome to this investor call, dear investors. My apologies at the beginning for a 2-minute delay in the start of this call. I hope we will be able to cover up this little delay that has happened. Today, I'm going to talk to you about a few important things because this quarter has been a little exceptional, as you would have noticed from the results that we put out. So I'm going to talk very briefly about the performance of the company. Then I'm going to talk about the resilience that ENIL has demonstrated over the last 4 quarters. Then I'm going to talk about the impairment that we have taken because I'm sure you'll have questions about that. And finally, I'm going to talk about our expansion plans and where we plan to use our cash, and we can cover subjects like dividend over there as well. So let me get started with the performance of the company. Now you are aware that the radio sector, the print sector, the out-of-home sector and even partially the television sector, they have been badly hit by the pandemic. This is not news to you. So I don't want to dwell too bad. The very fact that our revenues are down 34% compared to last year is bad news enough. Now we can either continue to mope about it, or I would like to take advantage of this time and actually tell you that behind this really bad number of 34% degrowth, there are so many very, very good stories, and these good stories will play out in the future. And I would like you to be aware about these good stories. So allow me to get started on that. Now while the revenue fell by 34%, like I mentioned, the EBITDA has actually grown by 19.2%. And this is remarkable because, remember, in a radio business -- in a traditional radio business, when the revenues fall, there is no way that the EBITDA will not fall. And the only reason that the EBITDA has increased is because we have got a diversified product mix, and I will talk to you about that; and two, we have cut costs very, very significantly. And as a result of that, our EBITDA has gone up. Now our PAT also has reported a turnaround. We had a PAT profit of INR 70 lakhs before impairment compared to a loss of INR 3.8 crore in the same quarter last year. So that's the second piece of good news. The third piece of good news is that sequentially, we have grown revenues by 17%. Now again, this is exceptional because for most media companies, Q3 is the biggest quarter because of the fact that Diwali is there, Christmas is there. But for us, traditionally, as you know, in ENIL, Q4 tends to be slightly bigger. But 17% growth in Q4 over Q3 is a really remarkable thing. It is actually indicative of the fact that the economy was recovering from COVID, and the company was benefiting from the recovery. Now a key competitor of ours, which is also listed, has reported a 4% sequential growth. I'm mentioning that only so that you can appreciate the importance of a 17% sequential growth. The very, very good news for the industry is that advertisers, who had gone away last year, have all -- or most of them have come back in a very big way and allow me to give you some data on this. The biggest advertiser in the country is FMCG, as you know. Last year, FMCG had taken a drop of 20% in volumes on radio industry. I'm not talking about Mirchi, I'm talking about the entire radio industry. This year, FMCG has come back on that low base by 46%. If I were to talk about auto sector, last year, it was down 37%; this year, it has recovered that loss and come back by nearly 49%. If I were to take BFI, a strong category for radio medium, it fell by just 2% last year, and it has grown by a very strong 23.5% this year. If I were to take health and pharma, and this is a category which has been growing on radio, it grew by 18% last year, and it has grown by a further 62% this year. So this is really strong news. This has contributed to 6% volume growth in the industry. Unfortunately, there are 2 or 3 important categories which have not performed well for radio. One of them is a buzzing sector called e-comm or IT-enabled services, whether they are fintech companies, edtech companies, e-commerce companies or several other companies in the tech space. Well, they had fallen 24% last year, and they have further fallen by 17% this year as well. And one reason for that is that these are largely the big players who are advertising, and they get better CPMs by advertising on television and, of course, doing a lot of advertising on their own mediums and on digital. So I think this is a serious loss for radio, and radio industry will have to look at ways of getting them back. The other sector is, of course, our own sector, which is media and entertainment, and it used to be a big advertiser. It fell 56% last year, and it has fallen a further 20% this year. And the last category, which did not revive, is the government sector, which fell 41% last year and has fallen a further 26% this year. So this was a story on volume that I wanted to give you by categories. Well, in the middle of all of this, I want to tell you that the Mirchi market share has grown from 26% or thereabouts in the third quarter to 29% in the fourth quarter, which again indicates the strength of the brand. Overall, in FY '21, we have retained our market share at nearly 27%. So the strong performance of the company in terms of market share continues. Now one of the critical products that this company has, which other radio stations do not have, is our solutions business, and we have talked a lot about our solutions business. And if I were to show you the growth in the solutions business, while radio -- while our company's revenues grew 17%, as I mentioned sequentially, actually, the nonradio business grew 78% sequentially. Now this is the real strength of the company. And one of the key products in our solutions portfolio is what we call multimedia solutions. And it has been a truly remarkable performance because the number of executions that we did in this quarter had nearly doubled despite advertisers being a little vary of on-ground activations and those kind of things, and we also not able to do on-ground activations. Despite that, the number of activities we have done has doubled from 75 to nearly 150. Our revenues fell by 26%, but the EBITDA margin -- the EBITDA has actually grown by 14%. So this tells you that the solutions business has now become a very profitable part of the Mirchi portfolio. The EBITDA margin has grown from 48% last year to 73% in this quarter. So that is truly a remarkable performance on our main product in the solutions portfolio. One of the reasons for the growth in margins is that the share of digital revenues has grown from 9% to 21%. And that, I think, is the reason why we have so much confidence in our future. Now one of the other ways to look at this is to look at it in terms of the contribution of the radio business and the contribution of the nonradio or the solutions business towards our EBITDA. Well, out of INR 16.2 crore of EBITDA that we declared, as much as INR 12.3 crore has come out of our non-FCT or nonradio businesses. That tells you how strong this portfolio has become because of the margin enhancement that we've been able to take on that. Similarly, in our television properties business, we did all the exhibitions, we did the Mirchi Music Awards, we did the Mirchi Cover Star, we did the Mitch Top 20. We've done all the activities that are there in the calendar. And we have actually been able to increase our margins over here from 15% to 32%. You will notice the constant focus of the company on enhancing margins, and that has been -- that is something which we will carry forward into the future as well. Now the thing which gives us a lot of delight is the share of digital revenues in our overall revenues. And digital, as you know, is a part of our solutions portfolio and the solutions portfolio did approximately 1/3 of -- contributed to 1/3 of the company's revenue. Of that 33% that solutions contributed, almost 11.5% -- 11.5% of the company's total revenues came from our digital products. Now 11.5% is a big number because I remember just about 2 years back, I used to talk about digital being 2% of our company's revenue. That 2% has grown to 11% in just 2 short years, and the pandemic has really helped us along in that direction. It is our belief that in another 3 years' time, this 11% share will climb to anywhere between 25% and 30% share of the company's much larger revenues that we expect to have in FY '24. So basically, the company is now well entrenched in the digital space. It is no longer a novice. It is no longer a small start-up. It has tremendous assets. And it is now building very strongly on these assets in the coming 3 years. You already know about the great story on royalty. We won a very tough battle in the IPAV last year. And as a result of that, the benefits have flown into the company's P&L in this quarter, where the royalty costs are down by -- and license fee costs are down by INR 2.5 crores. In full FY '21, they are down by INR 9.5 crore approximately. So that's another great story. This again will continue into the future. And to summarize, the overall cost focus of the company has been very strong. In FY '21, our HR cost was down 31% over FY '20, and our rent was down 16%. And here is an insight for you. While our rent was down 16%, you know that it takes longer to renegotiate rent deals. So next year in FY '22, on the FY '20 base, we're expecting the reduction in rent to be 20%, which means actually the rent saving is increasing in FY '22 compared to FY '21. Electricity was down 25%. Administration was down 26%. Marketing was down 69%. Travel was down 90%. And provision for doubtful debt was also down 70%. So basically, we have managed to control our costs in a very effective way. In the full year, our costs are down by almost INR 90 crore. And we are expecting that we will be able to retain a large part of this cost saving in FY '22 as well. In fact, we should be able to retain as much as INR 70 crores out of -- compared to our FY '20 numbers. Compared to our FY '20 numbers, we were INR 90 crores down in FY '21. We hope that we will be able to keep this cost down to approximately INR 70 crores compared to FY '20. So the pressure on costs will be maintained, and it will be maintained in the future as well. Some of the changes we have done are structural changes, and they have long-lasting impact. For instance, we now work with a much smaller team. And that smaller team is now increasing its productivity using several IT tools. So this is as far as the company's -- the good points were concerned. I would like you to make a note of it because these good points will continue into the future even after the pandemic has gone away and even after the business has recovered. Now coming to the point of resilience. Now resilient is a company which is able to get up on its feet as soon as the opportunity arises, and it has not been debilitated by the pandemic. Well, here is some evidence for you. If you look at our revenue growth from quarter 1 to quarter 4; INR 36 crores, INR 47 crores, INR 84 crores, INR 99 crores. So it's a continuous growth in revenues over the 4 quarters. Now look at the EBITDA numbers of the company, where it was minus INR 34 crores, minus INR 15 crores, plus INR 16 crores and yet another plus INR 16 crores in Q4. So again, you'll see that at the EBITDA level as well, in FY '21, as soon as the market started opening, this company was back on its feet and retaining -- and retained it's past -- it's regaining its past [ highs ]. Now one of the very important statistics is the price. Now I remember, I mentioned to you that in quarter 1, the first thing that crashes in media is the pricing because media players always try to fill up the volumes. Well, pricing crashed approximately 23% in the first quarter. It fell a further 16% in the second quarter. But here is a good news again. In the third quarter, it went up by 6%, and in the fourth quarter, it has gone up by a further 5%. So price recovery has also started and, had the second wave not come, we would have been looking at price being fully regained by the season, which is coming up ahead of us. So enough on the resilience part of the company. Now let me talk to you about impairment. Now impairment that we've taken of INR 97.5 crores, I must point out, is a result of our conservative policies and philosophy that we have followed in ENIL and in the Times of India group. It is not as if we have shut down the second frequencies. It is not as if we are demanding less from our teams on the second frequencies. However, out of extreme conservatism and given the fact that the second wave of COVID has hit us pretty strongly, and there is talk of a third wave hitting, we believe in the interest of transparency, it is important for us to take the hit now with the realization that these stations continue to be cash positive and also with the realization that we may well be able to restore this impairment back into the books of the company in the years to come. And it is not impairment of the type that you've seen happening typically in industry, which is that it is a permanent impairment. I must point out to you that this is not a permanent impairment. We expect to be able to redeem or recover much of this impairment in the months to come. There is no further downside. There is only upside. So that's what I wanted to say on impairment. And finally, on the whole subject of dividend and returning cash to shareholders, well, I wanted to tell you that when I look at Mirchi, and when we talk to the team inside our company, and we talk to our Board and we talk to our Chairman, I realize that Mirchi is a very young company. It is a dynamic company. It has a huge brand. It has a passionate team. It has great consumer equity. And there is no reason why the Mirchi brand should be limited to the radio space. Now you're well aware about this, and we have spoken about it. In fact, we even dropped radio from our logo sometime back. We have been producing a lot of nonradio content over the years. We produce video content, we produce original content, we produce podcasts, we produce on-ground IPs. We've been producing a lot of content apart from radio. But the one thing that we have decided to add now is creating and setting up for ourselves a digital platform. Our own web and app platforms are being created as we speak. And hopefully, by the end of this calendar year, we will be able to make a big launch of the Mirchi digital platforms. Now what is the reason for creating the digital platforms? Well, so far, we have been largely a content company. And we've been making content which we have been supplying to various digital players. We've been supplying to Gaana. We've been supplying to other OTTs. We have been supplying to video OTTs. We have been putting our content on YouTube. We've been putting it on client pages. But here's the thing that we are underexploiting the value of our content. And while this content itself is our strength, we are not being able to generate the full value of the content that we are creating. And the primary reason for that is that when we create content and supply to others, we do not get customer information. We do not own the customer. We simply become content players, and we make a small margin on it. But going forward, ENIL will own the customer. And it is our goal that in 3 years' time, we should be having 50 million active users on our web and app portals in the coming 3 years. And if we were to do that, we would be able to scale up our digital income. We would be able to protect better against any future pandemic or similar such event that comes up in the future. So that is a key thing. We plan to invest a substantial amount of our cash in our own domestic -- in our own homegrown platforms like I mentioned to you. We also have active plans to get into new businesses in the D2C space where we don't depend on advertisers for our revenue, but we depend directly on customers. And when customer spending happens, then the company gains from that. So we have active plans to get into that. We also have active plans to invest in external companies, start-ups, people who are doing exciting work, but in areas which are close to the area that Mirchi operates in and businesses that we do not want to run ourselves. I mean just to give you an example, let's say, there is a person who has an idea about providing music DJs to birthdays and events and weddings and all of those kind of things. Now this person has ideas, but what we have is relationship with the music industry. We have brand. We have technology, we can create platforms, and we can bring in a lot of value to this particular process. But we cannot run the business nor do we want to run the business. Well, this is a classic kind of an investment that we will consider. And we have already been looking at various such opportunities outside of ENIL, and we plan to invest in maybe 10, maybe 15, maybe 20 such opportunities in the coming 3 years to come. And we will put our cash to work in these areas. And as you know, these are businesses which are growing very rapidly. These are businesses which are highly valued by investors. In fact, it is -- one of the discussions we are having is about putting these businesses in our subsidiary, which, as you know, we continue to operate. And we plan to get external investors in our subsidiary companies. So we should be able to generate a far stronger valuation for the company and for our investors on the back of the cash that we will invest in the expansion purposes. That said, our commitment to giving shareholder returns remains. We will give it in the form of the 10% dividend that we have announced again for the year and, more importantly, through the returns that we will generate through our investments. So these are the points I wanted to talk about. I'm sorry I've taken a little longer than I should have, but I -- but Ayesha, I would like to open the floor up, and you can ask questions to me or to Subbu and to Sufal as well. So please start.

[Operator Instructions] The first question is from the line of Sidhant Mattha from B&K Securities.

So basically, just wanted to know 2, 3 things. First of all, I missed out 2 points on your opening remarks. One about the cost, some INR 70 crores amount you were giving. So what is that? Can you just repeat once?

Yes. On our other operating cost base of FY '20, FY '21, we are INR 90 crores down; FY '22, we will be INR 70 crores down on the same FY '20 base.

Okay. Okay. Okay. INR 70 crores. So INR 20 crores additional you will be incurring. Okay. And second, after -- second point on this -- basically on this impairment, can you just again explain in simple words what has been done with this impairment? So basically, you have some second -- and what I understood is that we have some second frequency music channels -- video channels, which you -- so what is that? I didn't get that.

Okay. So Sidhant, we run 2 radio stations in some of the major metros like in Ahmedabad or in Pune or in other cities, right? And we call it Mirchi Love. That's been our -- that's the brand name in these cities. Now they were doing fine and the listenership was growing, revenues were growing and everything was on track. However, because of the pandemic, over the last 1.5 years or so, what is happening is that the advertiser is choosing to focus his spending on the main brands. So Radio Mirchi is getting the advertising. However, the Mirchi Love frequencies have not been able to get the support of the advertisers. So what it has done is that it has created a stress in the revenues on that business. And we expect that it could possibly continue for another 12 months or another 18 months, depending on how long the pandemic lasts. Now what that does is that if you were to look at the future cash flows and discount it back to today, then it reduces the value of that particular second frequency business. We have factored that in, even though like I mentioned that in future, the market may reopen, and we are confident that these businesses will start generating more revenues. But out of conservatism, we have taken the impairment today.

Okay. Okay. Okay. And finally just about this digital business, which you're talking about in the solutions business. So basically, from your last previous calls, there were 3, 4 segments in the solutions business. One was the on-ground activation, where you had all these music concerts and Mirchi Music Awards and everything. Then second was the digital space, which you have entered, which has contributed around 21% of your revenues for this year or for this quarter. And what are the other segments?

Well, our solutions business has multiple products. One of them, like I mentioned to you, is what we call multimedia solutions where we develop ideas for clients and use multiple media vehicles. Another business is our television IPs business where we create content like Mirchi Music Awards, et cetera. A third part of our business is our on-ground activation business where we again create IPs like we've got the Rock n Dhol and Mirchi Neon Run and so on and so forth. None of that happened this year. Then we also have concerts business where we create on-ground concerts for our -- for people who love music. Then we have a digital business where we create original content, where we create social media content, where we create solutions for clients using the plain old telephone system. So all of this is part of that thing. So all of this put together is what we call our solutions business. And these are the products that I mentioned to you.

Okay. So it's -- basically it's a multimedia business, the concert business, then there's a digital business, then there is on-ground activation. And what was the fifth one, which...

Television IP. Television impact property like Mirchi Music Awards.

Television IP. Okay. Okay. And -- so how do you -- what is your FY '22 outlook on this?

Sidhant, I will request you to come back on the queue because you've asked 3, 4 questions.

The next question is from the line of Jinesh Joshi from Prabhudas Lilladher Pvt Limited.

Sorry for harping on this question again with respect to impairment. I know you have kind of explained that in detail. But just for my understanding, you mentioned that the future cash flows from these frequencies can be lower because of COVID. And does that mean that we will not be able to recoup our investment in the second frequencies and, hence, we have taken an impairment? Is that the correct way to look at it?

Jinesh, you're right, because what it means is that with lesser future cash flows coming as per our current projections, when we recover the money, like I mentioned, it is a cash positive in the future as well. But when we start to discount it to our current price, then the returns are less than what we would like it to be. So that creates the impairment. So we have internal hurdle rates that we evaluate our investments on. When it goes below that hurdle rate, we create an impairment out of it.

So Jinesh, let me explain. These are out of our batch 1 assets, right? When we bid for batch 1 assets, we expected a return in the region of about 13% to 14%, right? It would have been higher if we had not paid more money for Bangalore. Based on the performance of the last few years and also our expectations from these frequencies over the future, we realized that this would be low single digit, right? So what we have done is that since it's below our threshold, we have looked at the threshold IRR that we won from these assets, and then we have discounted those cash flows at those IRR rates. And that has led us to this impairment number of INR 97.5 crores. So if your question is that without the impairment, would we have recovered the capital? Yes, we would have recovered the capital. But we would not have recovered capital with good returns. So at least going forward, what happens is that we will have a good IRR on the investments that we have in our balance sheet, excluding the cash component. The cash component returns will come in when we deploy these in digital assets as Prashant explained earlier.

Is that clear, Jinesh?

Yes, sir. Yes, sir. One last question. If I look at our FY '20 revenue base, we were at INR 540 crores. Now obviously, '21 got impacted by COVID and I think '22 will also have an impact of COVID. But do you think that in FY '23, we will be able to achieve our FY '20 revenue base of INR 540 crores? Or you think that even that figure can be challenging in next 12 to 18 months?

Jinesh, if I could answer that question, I would be eligible for the Nobel Prize or for the Padma Bhushan or something because nobody has the answer to that question, because nobody knows whether there will be a third wave or there will be a fourth wave or not. So let us assume for a moment, and that is our assumption that with vaccination drive going up and all of those kind of things, we do not have a third wave and the fourth wave. If that happens, I'm more than confident that in FY '23, we will go past our FY '20 numbers. But here's the thing that there's a lot of uncertainty about it. When we did our FY '22 planning in February -- end February and early March, we had no idea that such a strong second wave would come. And clearly, that has upset our FY '22 plan, even though we are trying to recover in the balance of the year. But there is uncertainty about that as well, right? So this is the answer to your question.

Yes, to -- adding to what Prashant said, while it's very difficult to forecast, management is clearly working on the assumption that our FY '23 numbers will be far better than our FY '20 numbers, right? So we have had multiple years of no incentive payments to employees. So clearly, the management team is working on a number far higher than the FY '20 numbers for FY '23.

Sir, I just want the capacity utilization figures for legacy batch 1 and batch 2 stations for FY '21.

So Jinesh, capacity utilization for existing stations -- 35 stations is up by 2.2%.

Sir, can you please give the absolute number?

Absolute number is 78.7% -- 79%. Batch 1 is at 34% and batch 2 at 30%. At overall level, we are at 54% capacity utilization.

[Operator Instructions] The next question is from the line of Arun Giri from [indiscernible].

Very good to see a big traction in the digital assets. And also, it's great to see your confidence that it will go to 25% of the revenues in the next 2, 3 years. So congratulations for that. My question is now you have in the digital -- in the entire solutions business, you have multiple components, digital and then multimedia solution, and then you have concert and -- plus IP business and on-ground. Now this multimedia plus digital together. Digital, I know it is about 11.5% of the revenues for the last quarter. So if you include multimedia solutions, together, what would they constitute?

Well, in this quarter, it was 34%. So overall solutions bucket contributed about 34%. As I mentioned earlier, of the 34%, 11.5% was digital. So the remaining 23.5% was made up of the other components of solutions. Totally put together was about 34%. Am I right?

35%.

35%.

Okay. Out of this 34%, if you take away the on-ground, it could be very negligible. Also the IP concert business, you are left with only digital and the multimedia solutions. So that -- those 2 components, how much would it -- would they, just for us to have an idea?

Well, you're very right that the on-ground vanished. So the on-ground activation business, the on-ground concert business vanished. However, the television IP business, we were able to execute every single television IP. Of course, with slightly lower revenues, but actually with higher margins because we cut back on the content cost, and we actually took the advantage of the pandemic and demanding lower pricing from every constituent of the people who supply content to these IPs, right? So we got better deals from the artists. We got better deals from the on-ground organizers, from the venues and from every single thing, and we were able to enhance our margins. So yes, 3 things we're working; multimedia solutions we're working, digital we're working and television IPs we're working.

So all these 3 together is about 33%, 34%? That's what is the...

That's right. That's right.

Now just looking at the direction of the business in the next 2, 3 years, leaving this on-ground business, which is a low-margin business, the rest of the digital business -- the rest of the solutions business, what is the kind of percentage we can assume 3 years down the line? You said digital alone will constitute about 25%.

Yes. So if I were to do a crystal ball gazing on the future, actually, let me not call it crystal ball gazing, we've actually worked on these numbers until FY '24. We believe that the split of revenues could be something of the order of maybe 40% or thereabouts could be core radio, maybe 40%, 45%; maybe 30% could be solutions without digital; and 25-odd percent could be digital. 25% digital, 30-odd of solutions and 45% or thereabouts of radio could be the broad revenue split that we could see. Now this is for domestic business. In addition to that, we have an international business, which also we see expanding quite strongly in the next 3 years. We believe that, that business, which is pretty strong -- small today, could become somewhere in the region of about INR 60 crore to INR 70 crore. And remember that this is targeting the NRIs and therefore, it is -- a lot of the content is produced in India and played in the U.S. and in the Middle East. So therefore, the -- it can be fairly profitable itself.

That's great to know, Prashant. I think all the best for this diversification of the revenues. So we are really hoping that you'll be able to execute this as per what you guys are working. So that is something very interesting in terms of how the company is transforming from a pure-play radio to digital kind of solutions business. The other thing Prashant...

Well, the other thing that you will notice is that the profile of the company's employees is changing. The brand has changed. The news that it is making in the market will change in the months and years to come ahead. So yes, this will be a digital first company in 3 years' time.

That's great. Prashant, the other thing I wanted to just check with you is just about a few months back, we spoke about this capital allocation. At that point of time, the company was very clear that they will look at distributing this cash because the company doesn't need cash for any of those CapEx or any of those utilization. So now the company has changed. I mean that's a bit of a surprise. Even if you...

Let me just explain the background to this. See, the fact is that we have so far been a digital content company. And then like I was mentioning in my earlier remarks, we have been making a lot of digital content. We had 700 million views on YouTube. Just imagine that number, 700 million views on YouTube. 500 million streams on Gaana. We are just making content for other platforms and they are taking the value of it, right? So we -- when you begin a transformation, you always begin with small steps. So I would like to justify this by saying that, okay, we were testing our hands on the content piece of it. But now we've proven our credentials over there. Now when we launch our own platform, we start owning the customer, and we are able to then not only generate more revenues for ourselves but very, very importantly, when you own the customer, you retain all the value that you generate for yourself. So like I mentioned, many of these investments in the digital side will be in our subsidiary company, and we will seek investment from external investors who know how to value digital companies. So -- and that valuation benefit in the subsidiary is also for the shareholders of ENIL to benefit from. So this is the reason why this has changed. And of course, the whole pandemic scene has completely fast-forwarded our thinking on this subject.

[Operator Instructions] The next question is from the line of Utkarsh Maheshwari from Reliance General Insurance.

Sir, I think probably this is a year of reset for many of the industries and many of the listings. Probably, we are also taking that big leap by taking an impairment. Just wanted to confirm. I mean these frequencies will still be with us, and we'll be operating those stations, right?

Absolutely. They are going to be operated. They are generating cash. They were making lesser returns because of the pandemic. So we have reset and taken the impairment.

The only line, which we'll see some impact...

Sorry, I'm hoping that we'll be able to recover some of the impairment in the future.

Okay. So the only line of the cost item should be like depreciation, which will be actually coming down relatively, right?

Right.

You're right, Utkarsh. We expect our depreciation numbers to come down by INR 10 crores next year and by around the same numbers going forward because of this impairment. So this is only an accounting entry. It doesn't alter cash flows.

I mean I just -- is it not the opening remark regarding the color of the market, how the market is showing -- shaping up. So if you can just elaborate a little bit. That's about it.

Utkarsh, there are more than 110 people on the call. So I will request that we connect later so that I don't have to repeat the points now, okay?

Okay. And lastly, I mean after this impairment, there's nothing left to be seen as a part of this rejig, right?

Well, no, we don't see anything at this point in time. However, remember, the process of impairment means that you evaluate every year. We will evaluate every year, but we don't see anything else coming up in the future.

The next question is from the line of Rohith Potti from Marshmallow Capital.

Sir, again, on the capital allocation bit, you have expressed your views quite clearly. But -- I mean the fact remains that we seem to be valued at below replacement cost today, and our stock price has gone down, let's say, 80% or something from the peak. And while I understand the imperative to invest in new businesses for the future, and we believe that the true intrinsic value will only grow multifold over the next 5, 6 years. In that context, it makes a lot of sense to at least put, let's say, 20%, 25% of the cash for buyback, right? I mean you are increasing the value of [indiscernible] -- the intrinsic value per share for buyers or for shareholders who want to remain invested. So I'm surprised of the sudden change because over the last 3 years, you've been consistent in your view that at one point, we will return the cash or some portion of the cash.

Sorry, Rohith, before Subbu responds to you because he wants to, I just want to say that we have not changed -- we are not saying that we're not going to return cash to the shareholders. However, what we are saying is that there are exciting investment opportunities and surely the investors of ENIL expect ENIL to generate better returns through its investment. So we will focus on that. And you know the opportunities over there and the...

So it makes sense that you're investing. My confusion is it would have made sense to, let's say, use 20%, 25% of the cash that we have to do a buyback this year when the value of the share is so below its intrinsic value.

So Rohith, you would have noticed from the investor presentation, I think we've put it over there, that against a normal cash generation of about INR 100 crores a year that we do, this year, there has been a small depletion, right? So there's been a small negative, I think, maybe INR 9 crores. So this year has been -- has put a lot of pressure on the cash position and our cash forecast that we had in the company. And hence, the things that we -- that you're talking about, which is returning money at this point in time, is probably not the right time to do it. This is the time when we should be investing the money and protecting the company in case another round of pandemic attacks happen in the next 12 months. Nobody can say no to that. So this is a time for the company to conserve its cash for its protection and to invest in opportunities that will give higher returns for shareholders in the years to come. Like I mentioned, the Board has still to consider this matter. It will take a call on this in the months to come. And it may well decide at that stage that we have exhausted all our investment opportunities, and it's a time to return the balance money to the shareholders, to the investors. Like I mentioned, we will, hopefully, be generating INR 100 crores a year in the future as well. So the cash will continue to build.

So second question is on -- you mentioned new opportunities that we're going to pursue, which is both start-up investments as well as building our own digital platform. So it would be great to get a sense of the cash outlay you look at for each of these investments over, let's say, a 5-year period. And do you have a sense of when they -- when you expect them to be profitable, et cetera? And the reason I ask is, from my understanding of the space and I have been following a few of these even private companies, is that I don't think any of them have been or very -- maybe 1 or 2 of them only have been able to figure out a subscription model for India or a profitable digital model in India as far as the subscription model is concerned. So if you could talk about the business model more in depth that you're looking at also would be helpful.

Well, Rohith -- see -- okay, I'll just tell you very briefly before we move on. See, Rohith, when you set up your own platform, many areas of opportunity open up. You are mentioning about subscription, that certainly is one of the opportunities that one can look at. I mentioned the spell bee competition where we can try converting it into a game, putting it on the platform and trying to enlist subscribers to that service. There are many other entertainment products that we can put out, and we can use the freemium model to get subscription revenue. So that is certainly one of the routes, which is open, once you own a platform and once you own 50 million customers. But the other option, of course, don't forget, is also transactions. And there are several transactions that you can consider doing once you have a base of -- a homogeneous base of users, right? I mean just to give you an example, I mean, let's say, if we take music -- headphones or you take very fancy -- like the earlier days when the iPod came about, there are so many such fantastic, very well-designed items available, which you don't know where to buy right now. Now the logical place somebody should come to should be a Mirchi platform. I mean I'm not saying that we are going to do this, but I'm just saying that such kind of opportunities also open up. So there are areas that we believe are very core and very tightly knitted with our business that we will keep directly under us, maybe in our subsidiary, like I mentioned. And there are some which are adjacent to our businesses and which require a different operating style, which completely has a different management style, that we will keep externally -- let external promoters run it and only consider it as an investment opportunity over there.

Yes. So could you explain...

Sorry, we can talk about it a lot more, Rohith. Again, there are -- like I have to repeat there are more than 100 callers on the call. So let's give everybody an opportunity to ask the question.

The next question is from the line of [ Shikhar Mundra ], an individual investor.

Most of my questions have been answered. So just wanted to understand 1 thing about the Mirchi Love and Kool businesses. So how many stations are contributing to the Mirchi Love and Kool businesses out of the 76 frequencies?

Well, there are 7 Mirchi Love stations and 1 is Kool FM, which is our third frequency in Hyderabad. So there are 7 second frequencies and 1 third frequency. So 8 stations.

8 stations. And so after impairment, what is the total asset value of these 8 stations on the book? So any figure for that?

It will be around INR 150-odd crores -- no, INR 52 crores, yes.

Shikhar, the value of these stations after impairment on the books will be approximately INR 52 crores. What Subbu was referring to was the pre-impairment value.

Okay. All right. And in your opening remarks, you had mentioned that some sectors are not doing well like e-commerce, the government sector. So typically, how much percentage of our ad revenues are contributed by these sectors, which are not rebounding well?

Well, at the -- well, 2 years ago, government used to be our biggest sector. And between central and state government, it used to contribute as much as 15% of our revenues. Today, it must be down to 6%, 7%. It was 17% -- no, how much revenue is it -- okay. So basically, it has come down significantly from where it was, Shikhar. It used to be about 15%, 16% in the earlier days. And in terms of -- because many of the other sectors are also fallen because of the pandemic, so the share in this year has again climbed back. But in general, it has taken 2 big -- 2 years of continuous drop. Like I mentioned, it dropped 41% last year and another 26% this year. So its value has fallen off significantly.

The next question is from the line of [ Manan Patel ], an individual investor.

Can you hear me, sir?

Yes, we can [ Manan ].

And first of all, I would like to congratulate you all on the fantastic work that you have done in terms of cost cutting. So many congratulations there. So sir, I want to continue from the -- one of the previous participant. You mentioned that we have depleted cash. But if I look at your cash flow statements, you have generated almost INR 30 crores of operating cash flows in the quarter -- during the year. So -- and Mr. Subbu also mentioned that by FY '23, we are looking at way better numbers than FY '20 also. So I am assuming that we would be normalized, generating at least INR 100 crores of cash flows in those years. So I fail to understand, sir, why are we reluctant to invest in our own company which has such phenomenal brand and the team and operations that we have?

Okay. So [ Manan ], first let's get the data right. The cash position last year was INR 228 crores, okay, FY '20. That number is down marginally, as Prashant said, now it's INR 218 crores. So there is a INR 10 crore decline because of the fact that we have had losses in the current year, okay? On your second question of dividend, we are not saying that we are not going to distribute the money. There is a detailed plan that the management has worked out. The Board needs certain additional details on digital transformation, which is an absolute must for the company. When we drew up the plan 2, 3 years back, we did not expect the growth rates in radio to slow down as much as it has now. We were talking about -- we were certainly not talking about double digit growth rates, at least internally for our forecast and things like that, when we were looking at about 8% to 9% two years back when the first wave of slowdown started in the radio business. But that number has now come down to a low single digit, right? So when you have a lower growth rate in radio, the amount of cash generation that can happen from radio will also decline. And remember, digital businesses, you tend to incur expenses early on. So we -- so the amount of cash that we have today will have to be deployed in digital businesses. That doesn't mean radio will not generate cash. Radio -- even in the current year, FY '22, when we drew up the plan in March, we were looking at a 70%, 80% growth rate in our AOP. Today, we are very -- we would be very happy if we do a number close to 50% of that number in the current financial year. So the cash accretion in the current year also will be very, very limited room, but we have to also invest in working capital because a lot of working capital drawdown has happened last year because of the lower revenues. So that investment in working capital will also happen. So sum total of all of these things, plus the need, there is an additional need today to build in contingency. We never anticipated a cruel second wave like what has happened this year. So God forbid, there's no third wave, but we don't -- we want to be prepared for a worst-case scenario. We want continuity in many of our core businesses. We can't have a situation where our cash reserves are inadequate to fund our future requirements. So the short answer is that we are not saying no to dividend, et cetera. All that we are saying is that there are plans that management is working on. Once it is cleared by the Board, we will -- Prashant would -- and I would be happy to share what's the sort of investment plans that we have, how this will sort of translate into returns to investors over a period of time and what's the amount of cash that we will generate. Today, we don't have that high level of clarity that we want to sort of share with you. That's the position.

[ Manan ], thank you for your question. Ayesha, can we continue? Ayesha?

Just a moment, sir. The next question is from the line of [ Nitin Gandhi from KIFS Trade Capital ].

I would like to know what are the CapEx which you plan to incur for the 2 new territories, that's Middle East and USA, which you're supposed to start operating revival? And second question is out of consolidated balance sheet, what is the sum of effects that's lying either in subsidiary or directly in the books are likely to generate about 13% hurdle rate post impairment, which you have laid out?

Okay. So 2 questions. Sufal, you want to answer the international?

Yes. So to answer your first question, we have already invested in U.S. and in the next expansion for the Bay Area, we are expecting around $0.5 million investment. And for Bahrain and Qatar, we have already invested in March '21 itself, around INR 3 crores in Bahrain and INR 4 crores in Qatar.

In the UAE, we don't have any investment of our own because it's a brand licensing agreement.

Okay. So on the hurdle rate question, let me answer. If you look at our stand-alone, there is about INR 805 crores of net worth, right? And there is about INR 220-odd crores of cash. So the balances are all business assets or even you take your deferred tax and all that stuff. So even if you let -- so on the business assets, we will comfortably earn more than the hurdle rate of 13%. The entire impairment, we do this assessment every year to look at what our assets yield. And if it is not in that threshold, we do the impairment. It has never happened in the history of the company. Unfortunately, this year, we had a set of assets where we realized we should not return that level of hurdle rate. And so the answer is that the total share capital of INR 805 crores minus the cash will certainly return the [ decimal ] return of 13% on the cash, right? It will all depend upon our digital asset planned, and there, clearly, the hurdle rate return expectation is also in the vicinity of what you'll see. So it's not going to be any lower than what you are stating. So -- but that return will accrue only when we start investing that in those businesses.

Good to hear that. But if possible, can you share what is the intangible out of that total asset side?

So in the balance sheet, you will find there are 2 components, right? There is about right of use of assets, tangible and intangible. Right of use assets in the adjustment that we have on all our [indiscernible] tangible component is the fixed asset. Sufal, you can give the intangible component, which is the license fee post adjustment of that impairment. You can share the data.

Yes. The current value is INR 440 crores.

So if you look at our balance -- [ Nitin ], if you look at the total number on assets, it's INR 658 crores, which is INR 506 crores of tangible plus intangible and right of use assets of INR 152 crores, which is that Ind AS accounting adjustment. Out of that INR 506 crores, Sufal, you can share, what is the tangible component and intangible component.

Okay. So tangible component is around INR 66 crores, and intangible is INR 439 crores.

And I suppose there is no need to cash because anyway, you will be hitting 75% within less than INR 50 crores of your funds.

Yes. So let me also explain. There have been questions on about buybacks. See, our promoter holding is very, very high, 71.3%, right? Our ability -- we really don't have a flexibility to do a buyback because of the 75% rule and our promoters also don't want to dilute. So around on buyback, there's very little flexibility that we have as a company. And also, you know our stock is [indiscernible].

Yes. Yes. I understand. Less than INR 50 crores, and you will be up 75%. Anyway all the best, I'm sure you will be able to work out the best.

Thank you.

Thank very much, Nitin. Ayesha, we can take 2 more questions.

The next question is from the line of [ Vivek Kumar from Shivsagar Investment ].

My questions have been answered.

Okay. Can we have the last question then?

The next question is from the line of Rohith Potti from Marshmallow Capital.

So just curious to know on the new initiatives that we are beginning, what is the cash investment or what is the investment that you're looking at over the next few years? And if it's not planned out yet, by when can we expect a more detailed presentation on the same that we intend to do?

So we will be able to give you some sort of a flavor by the next Board meeting. We've -- management has worked out some numbers. We need a Board clearance. And so that process will have to be -- that doesn't mean we are holding back all of our investments. Some small investments, we are doing INR 10 crore, INR 15 crores, et cetera. That will also help us to test out whether our larger strategy makes sense. But I think we will give -- we'll be able to give you a lot more color than what we have done in this meeting in the next conference call.

So would it also be possible to give a more detailed presentation on the business model as well?

Prashant?

See, so Rohith, many of these investments will fructify over the coming months. It's not that it's all going to happen at the same time. But Subbu, when he said that he will lay out more detailed plans by the next Board meeting, was referring to the investments that we plan to make in our own platforms. And like I mentioned earlier in the call, we plan to launch by around December of this year or so. And therefore, yes, by the September, October, we should have fairly robust numbers, and we will be looking at how much of that we can share with the investors certainly. But when it comes to external investing that we mentioned to you, as and when opportunities come up and we develop it and take it to the Board, we will, at that time, share with the investors as required. But today, there is nothing that we have ready that we can share right now.

No, sir, I was not talking about the external. So not just the numbers, but -- so you mentioned that we own -- we will be owning the customer and that will allow us better opportunity to take economic value. So would you be able to give us a better flavor of what is the business model itself going to be?

Yes, I thought you wanted to know specific numbers. That is what...

So that too, that too, but also the business model as well.

We can certainly share with you the broad plans in the next conference call.

Ayesha, can we call this meeting to an end?

Sir, would you like to add any closing remarks?

No. Thank you very much, investors, for your interest in our stock, and it was a good opportunity for us to share with you our plans. We haven't been very open with our expansion plans in the past. They have now started getting frozen and we will share with you, like Subbu also mentioned, in the coming months ahead of us. In the meantime, please feel free to contact us. Our information is there on the presentation deck, and we would be happy to answer questions that you may have. Thank you.

Thank you. On behalf of Entertainment Network (India) Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.