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

Ladies and gentlemen, good day, and welcome to Entertainment Network (India) Limited Q3 FY '22 Earnings Conference Call. We have with us on the call today Mr. Prashant Panday, Managing Director and Chief Executive Officer; and Mr. N. Subramanian, Executive Director and Group CFO. [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 call, dear investors. I will take a few minutes to introduce the company's results to you, and then we'll be happy to take any questions that you may have. As you may have seen from the presentation deck that was sent to you, Q3 was a strong quarter for ENIL. Overall, revenues were up 17% to INR 98.9 crores. Within this, the radio component of the revenues was up 23%. And within that, if you take the top 8 markets, the revenues were up 28%, clearly on account of a lower base effect. But the solutions business, which is the second part of the company's revenue stream, was down 0.7% or let's say it was nearly flat. And the reason for that has been always that the on-ground dependence of that business. And the fact that even though Q3 was relatively very open as far as COVID is concerned, but government permissions and regulations on holding on-ground events was largely not available. And that is why the solutions business continue to report lackadaisical numbers. But the change in the company's results have been visible over several quarters and that is visible in this quarter as well in terms of the profitability of the company. So if one were to look at the underlying EBITDA of the business, the underlying EBITDA of the company was INR 28.4 crores, which is a growth of 125% compared to last year. And compared to -- I will compare all numbers with 2 years ago in just a moment, but right now, I will stick to just GOLY numbers, the growth over last year was 125%. The EBITDA margin this year was 29%, underlying EBITDA margin, compared to 15% last year. Coming to PAT. The PAT for the quarter was INR 11 crores, which represents a margin of 11%, compared to a loss of INR 2.7 crores last year if we do not include the exceptional item that we had in the same quarter last year. So this is all numbers with respect to last year. But we know that last year was a COVID-affected year and worst-affected year, and therefore all growth numbers are fairly obvious. So it's important to compare the performance of the company with results from 2 years ago. And if I were to do that, then the company's overall revenues compared to 2 years ago was about 32% -- are still 32% down in revenue terms in which the core radio business is down 21% on a GOLY basis of growth over 2 years ago basis. And the solutions business is down 53% on a 2-year basis, which means that the revenue performance of the company is still affected by COVID-related factors. Now as you know, the radio industry was the worst affected by COVID. And the reason for that is that radio is dependent when retail advertising is the highest. And even, let's say, during Omicron when the impact on health was relatively limited, various governments took precautionary measures in either shutting down shops early or taking weekend curfews or similar steps and, therefore, the sentiment of the retail industry was badly affected, the same thing we saw in the whole period of time compared to 2 years ago. And therefore, the radio industry was probably the worst affected media segment because of COVID. And that is the reason why the recovery from -- or up to 2 years ago has still not happened. Revenue continues to remain almost 1/3 below the pre-COVID third quarter numbers. But here is the interesting thing, that if you were to look at it from a profitability point of view, the underlying EBITDA on a 2-year comparison basis is down by only 10%. Now remember, revenue was down 32%, but EBITDA is down only 10% compared to 2 years ago and reported PAT is actually higher than 2 years ago by 3%, which means that the company has fundamentally changed in its cost structures. And basically, it is now a lot more leaner and meaner in the way it actually does conduct its business. So that's something that is sustainable. We believe that even going forward, the cost structure will be controlled tightly. And that is what I wanted to bring out over here. Talking very specifically about costs, the cost growth compared to last year has been only 4.5%, this compared to last year. Remember, compared to last year, the revenues grew 17%, but the costs grew only 4.5%. And compared to 2 years ago, the other operating costs are actually down still by 25%, which means that all the cost initiatives that we had taken 2 years ago during the pandemic period, we are still very tightly controlling those. And I can mention, even going forward, we will continue to control the costs very tightly. Some other things that I may mention with respect to the revenue performance and the profitability performance, all the stations phases-wise are profitable. So [ regional ], the vintage 35 stations are profitable, the batch 1 stations of Phase 3 are profitable and even the batch 2 stations of Phase 3 are profitable. Now I just want to spend a moment on the solutions business, and I mentioned to you that the revenues of the solutions business were badly hit by the lockdowns and by the on-ground restrictions. So I want to give you some data points on that. So 2 years ago in quarter 3, we had done INR 45.5 crores of revenues. And this year, we have done only INR 20.7 crores of revenue, which means that the revenues are down by 53%, which I mentioned, compared to pre-pandemic times. So this is a drop of approximately INR 25 crores. And out of INR 25 crores, as much as INR 18 crores was at account of on-ground events which could not take place this year because of various restrictions that I mentioned. So you will appreciate that the revenue drop which has happened in the solutions business has happened largely because of COVID restrictions on on-ground [ activations ]. But what we did is that we actually converted the business model from more on-ground to more digital, with the result that our profit margins in the solutions business have dramatically increased and the investment we make in the solutions business is also dramatically reduced. So the EBITDA margin, the EBITDA revenue -- the EBITDA generated in the solutions business on a INR 20.7 crores revenue this year is INR 9.3 crores, while 2 years ago, on INR 45.5 crores revenue, the EBITDA was INR 6.3 crores. So you will appreciate that the margin this time is 45% compared to the margin 2 years ago which was 14%. Again, the same thread runs through, that in the 2 years we have managed to control costs very tightly, but at the same time, even as the revenues of the traditional business model was dropping, we have managed to convert it to a different type of revenue stream, a lot more profitable than in the earlier case. I also mentioned that the investment has reduced as a result of this change. The investment in the solutions business this quarter was only INR 3.4 crores as against that we've generated an EBITDA of INR 9.3 crores. So you will appreciate that the big strength of the solutions business is that it is able to generate business without much investment and acts as a buffer to the radio business which is high on investments early on. Moving on, we launched several stations recently in the international market. We are now present in 2 cities in the U.S., which is New Jersey and -- the state of New Jersey and the state -- and the area of what is called Bay Area in California. In addition, we are also present in Qatar. We are also present in Bahrain. And we are also present in UAE. Put together, the revenues from these 4 countries in the quarter was approximately INR 7 crores, which means that on an annualized basis, it is -- we are talking about revenues of INR 28 crores. And this number is going to grow stronger as we go ahead. So the international operations are now starting to develop a certain size and strength and stature of their own. Because most of these stations are still in their first year, there is still a loss in the international business. And the EBITDA loss -- the underlying EBITDA loss on international operations was INR 0.9 crore, just under INR 1 crore, on a revenue, as I mentioned, of approximately about INR 7 crores. So it's early days, but we are confident that the international business will also start adding strength to the domestic business of the company. In terms of other questions that investors typically have, the ER or the effective rate dropped further by about 5% this quarter compared to last year, which means that the price, rather than building up from last year, has actually eroded by 5 more percentage points compared to last year. Compared to 2 years ago, the price is down almost 1/3, which is the real challenge which happens in any media segment, that the revenue -- the pricing tends to crash under any situation of crisis or emergency that faces the industry. We have seen that happen in the Lehman period earlier, and we are seeing it happening now during the pandemic period. But the good news, of course, is that the volumes are very strongly up in the radio industry. On a 2-year basis, the revenue has grown by -- the volumes have grown by 22%. And the capacity utilization this quarter was 99% or 100% nearly in our 35 stations and including batch 1 and batch 2 about 66%. So there is still a long way to go in terms of volumes, but there is a growth in volumes. There is a -- the advertisers have come back to radio in a big way compared to 2 years ago. Pricing has taken a hit. But as you know, it's a supply-demand equation. If supply -- if the demand for advertising was to increase even more strongly as we enter into better year coming ahead, then pricing also should start to firm up as we go into the next year. In our estimation and in the estimation of most people in the country, FY '23 is likely to see a smaller impact of COVID. Or probably, if we are very lucky, then no shutdowns and lockdowns will happen even if a minor variant of COVID were to come about. If that were to happen, I think FY '23 will be a year of full rebound for the radio industry. And as I've mentioned to you that ENIL has placed itself very well because it has managed to contain its costs very well. And therefore, it's a highly operating leverage business, as you know. And therefore, if revenues were to gallop in FY '23, I'm confident that the -- all the margin numbers, whether it is EBITDA, whether it is solutions margins, whether it is PAT numbers, all these metrics will shoot up sharply in FY '23, provided, and I mentioned that as a caveat, there are no further lockdowns in FY '23 even if there is a minor variant of COVID. Now the last and most exciting thing I want to share about is that finally 2 days back, we have launched the Mirchi app. It's our rebirth, as I keep telling my team. 21 years ago, we were born as an FM radio company. 2 days back, we were reborn as a digital upstart of our company. The app has tremendous advantages, and let me just explain this to you. If you are anywhere in the U.S. today, you can listen to radio Mirchi stations of New Jersey and San Francisco. You can listen to the online radio stations of New York and the Telugu station of San Francisco. Plus, you can also listen to 11 more radio stations from Mirchi in India. So if you are from Mumbai and you're living in San Francisco, you can listen to Radio Mirchi Mumbai time adjusted to your time zone. If you are a Telugu person living in California, you can listen to Mirchi Hyderabad. If you are a Punjabi-language person living anywhere in America, you can listen to Mirchi Chandigarh or Mirchi Delhi. If you are a Bhojpuri person, you can listen to Mirchi Patna. Likewise, we have stations of Bangalore. We have stations of Chennai. We have stations of Kochi. We have stations of Ahmedabad for our Gujarati crowd. We have Pune Mirchi for our Maharashtrian audiences. We have 11 radio stations of Mirchi from India available to audiences in the U.S., in Qatar, in Bahrain and in the UAE on the app. So this is the first major advantage because it helps the people in those countries connect back on a daily basis with their country again. You know that all of those people have access to television stations of India, hitherto they did not have access to radio stations. Now they can get Mirchi on their app day in, day out, anytime they want on their app. So that's a big, big development for us. The second big development of the app, of course, is that in addition to radio stations, it carries hundreds of hours of audio stories. It is -- we are specialists in audio stories. We carry stories in multiple languages. We will keep adding to these stories. We will open the platform up so that there can be external contributors. We will have content growing manyfold in the days and months to come. And the Mirchi platforms will become a place for all Indians and all PIOs, and I dare say people of South Asia, to actually congregate and make a community. So the Mirchi entry into the digital platform business is like a rebirth of Mirchi, it's like Mirchi 2.0 or Mirchi -- or a digital-first Mirchi, but it is like the biggest story. We will launch this app in India by the end of the March. With that, I would like to open up the line for questioning and would be happy to take -- and Subbu is also available on the phone, you can ask questions to any of us. Thank you, Nirav.

Thank you very much. Participants, from the management team, we also have Mr. Sanjay Ballabh, Head of Finance. We now begin the floor for questions. [Operator Instructions] The first question is from the line of Sidhant Mattha from B&K Securities.

So congratulations on a very good set of numbers. Your cost cutting has been like really, really good. And just wanted to talk about numbers. Here you had mostly -- excluding the production cost, you had saved around INR 85 crores in FY '21. And earlier you had told you'll save around 75% in FY '22. And you are -- we are targeting that amount only as we can see in the 9 months FY '22. What's your outlook for FY '23? Like basically how many of that INR 85 crores savings which we did in FY '21 is something like a permanent in nature? Or what is the guidance on that?

So I'll give you some numbers, Sidhant. So in the quarter 3 of 2 years back, our other operating cost was INR 66.3 crores. And in this quarter, this year, it is INR 49.6 crores. So that's approximately a saving of about INR 17 crores. On an annualized basis, that comes to approximately INR 68 crores or INR 70 crores. So if you remember, Subbu and I, when we had spoken in earlier conference calls -- the earlier investor calls, we've said that from that INR 85 crores or INR 90 crores of savings that we had effected in FY '20, we plan to carry forward, I think, 60% or thereabouts, we had said, in the future. We are well within that guidance. And Sanjay, you want to add?

We generally don't give expenditure on our revenue guidance.

We don't give guidance, but this is within the statement that we had...

Yes. Yes, yes. And my second question is on production costs. So it has been -- it's down 30% Y-o-Y. Was it -- there were some one-offs. There was something which was -- because the third quarter and the fourth quarter amount last year was a very big number and then it fell because of the pandemic [indiscernible] because of the second wave and all. So was there some one-off in the base? Or is it -- also why the cost has reduced in production cost despite solutions business being [indiscernible]?

Sidhant, when you say production cost, you mean other operating -- or do you mean DVC or direct variable cost?

Yes, direct variable costs.

Okay. See, DVC is obviously dependent on my solutions revenues. So when I do an on-ground event, then the cost that I incur against in producing that event is called my DVC. So when my solutions business reduces, my DVC also reduces proportionately. So I have not mentioned DVC numbers of this quarter because that's a variable that depends on the revenue, right? But what matters there is the solutions margins, right? I mean, how much revenue I make on solutions is how much I spend and the difference is the margin. So let me just give you the solutions margin number. I mentioned that during the call that the solutions margin is up to 45% this quarter compared to 14% 2 quarters back. So that should probably answer your question as to why the -- what you call production cost, but I think what you mean is DVC, why it is down in this quarter compared to 2 years back.

Okay. Okay. And my last question, what was the margin or what was the EBITDA margin for the digital business? Because last quarter, you gave us a number. So if you can give me for the digital business what was the margins?

Sidhant, please stay on the call. My team member is getting it, and I will announce it in the next minute. Okay maybe just wait for a second. How much is it? Yes, on the digital business, we -- the margin was 51% in this quarter.

[Operator Instructions] The next question is from the line of Rohith Potti from Marshmallow Capital.

Congrats on an excellent performance. The cost cutting and the control on cost is phenomenal to see. I mean if you could just talk about -- is it -- I mean, do you worry about if it is coming at the cost of creativity in the company given the nature of your organization is creativity itself? How are we balancing cutting costs while at the same time keeping the employees motivated to produce the content that is necessary for us?

Well, the good thing, Rohith, is that the cost reduction has not come on the expense -- on the employee cost. In fact, the employee cost is up compared to last year because of -- obviously, because of the pay cut reversals that we did and also because of the increment that we gave to our people. So therefore, the pay cost is actually up. However, the overall costs are down because of very strong action taken on cost lines like rentals, electricity, traveling, right, admin costs, unnecessary legal costs, many of those items which actually exist in the company with relatively less contribution towards value creation. So those costs have been dropped quite significantly, while employees have been fully protected and given raises. So no, the creativity has not suffered. Now another data point, that in the digital business, because we are converting so much to a digital-first company, we today have close to 90 employees working in the company. And this was just about 55 employees last year. So we have added a lot of people on the digital side of the business, mostly creative or revenue people. And therefore, the creativity in the company continues intact.

Perfect. So the second question is on the last portion of your speech, where you mentioned that we have launched the app internationally and we have all the content that you described in your speech. So just curious to know, like you give I mean the profitability or the cost base for the international business. Is it possible for us to give some metrics -- quantitative metrics for the app business? So like what are the costs right now? How do you see that progressing in the next financial year? What is the kind of investment that you're making? And what are the metrics that you will disclose and what, as investors, we are supposed to keep an eye out for?

Well, Rohith, the first thing I just want to clarify is that the entire digital platform business, which currently is an app and will soon evolve into a web publishing business as well, is housed in the domestic company. So the app belongs to ENIL in India. And therefore, all the costs will be borne by ENIL in India. And even though the markets will be international, including India, of course, the app belongs to ENIL in India. That's the first thing. The second thing that, as you know, in all platform businesses is that the metric that is most common or most important to look at in the initial part of the launch is the consumption or the usage of the app, which is basically what in the industry is known as monthly active users and then daily active users or the MAU and DAU numbers as it were. So that's where the most important focus of the senior management of the company will be. Now MAU and DAU is a function of many things. One of them, of course, is content. And we believe that we have strength in content. We have strength in languages, et cetera. But there are other variables also. One other factor on which MAU, DAU depends is, of course, the user experience on the app or the UI and UX, as it is called. And initially, of course, the informal anecdotal feedback we are getting from global markets in the last 2 days is that they're very happy with the touch and feel of the product, the ease of navigation, the very intuitive nature of the design, et cetera. But that needs to still be tested over millions of people. The third thing it depends on, of course, is marketing. And that's where actually the big bucks are involved. I think to an extent, that's an advantage for us because we have in-house traditional media and the digital assets which we can leverage to build the app. But it will still need a substantial amount of investment. So you will see that in the coming years, the investments that we make in the digital platform business will be significant. But it's not just the marketing piece which is expensive, even the app development and the continuous upgrade of the app does take a lot of involvement of people that you hire and when you work with your outsourced vendor. So in the digital business going forward, you should look for usage metrics, which is MAU, DAU, et cetera. You should look for revenue metrics, of course, because ultimately the MAU, DAU needs to be monetized. And then you should also look at the costs that are being incurred in maintaining and growing the app. These are the metrics that you should look for. And I think we will be able to provide you this after a few months that we have launched the app in India.

So just to get a clarity. So does this mean you'll get these metrics that you've mentioned in the next financial year? Or will it be further away than that?

No. Every quarter, we will give you usage metrics on the app.

Okay. So starting next financial year, is it?

Yes. But it will just be only launched by end of March. So we will be able to share the first set of numbers by the April, May, June quarter, when we do the conference call around July.

Perfect. I mean, that does make sense and that will be very helpful as well. And so the last question from my end for now is, so if you see -- if I see -- I mean our competition Music Broadcast has seen a 50-odd percent growth in revenue while our revenue growth is around 20-odd percent. So I know it's a little bit because of solutions business, but could you give us a comparative for radio performance and how our revenue growth has been?

Okay. So the -- when you see the revenue numbers of any company, please, in these times, please look at the revenue growths over the last 2, 3 years, because different companies have reported different numbers in the last 2 or 3 years. I'll give you an example. In the case of one company, and I don't want to name companies on this call, they had actually a very low volume base 2 years back in Q3. And then, therefore, obviously, from that low base, they have reported a higher growth today, right? And that low base was there last year as well. In other words, they reported a lower revenue -- relatively low number last year. And therefore, this year, they reported a higher good. But a company like Mirchi did not have a low base 2 years back and therefore you have to look at numbers from that point on. That's one factor. The other factor that you have to look at is the composition of the markets. So there are players who are in the metro markets, who are heavier on the metro market, there are players who are heavier on the smaller markets. Usually, in so far, the players who have been in the smaller markets have seen faster growth because the impact of COVID has been lesser in the smaller markets, while the bigger markets have usually suffered more lockdowns. But remember that because of the fact that the bigger markets face more lockdowns, they have a lower base. And therefore, in the year coming up, you will actually see faster growth happening in the top 8 markets or the bigger markets. So you have to keep this factor in mind as well. And the third thing that I would like to mention is that various radio companies are now trying to play catch-up and trying to get into the solutions business. And even though they cannot do on-ground because on-ground is still shut, many of them are now starting to do videos and package it with their social media accounts and their RJs' social media accounts and offer it as a solution to clients. Something that we started about 10, 12 years ago is something that is now starting to be adopted by various radio companies. So there will be an initial spurt of revenue, but the base effect will kick in from next year.

Yes, this is very helpful. Sorry, I mean, I just have one last question. So you -- in the beginning of the conversion, we spoke about how we are going to retain around 65% to 75% of the cost savings. But then right now, we also discussed how digital and the app itself is going to see a lot of investments. So could you reconcile both of them? So will we see a material increase in cost base offsetting the cost saving that we have and will that impact the margin? Or how should we see it for years down the line?

Let me -- I should clarify that, and thanks for bringing this point up, Rohith. The business as is will see cost control very tightly. And like I mentioned, we should be able to control a lot of the -- maintain a lot of the savings that we [ expected ] 2 years back. But the investments on the digital app will be extra and additional and quite significant, if I may add so. And therefore -- but we would like to look at the digital businesses as a new business ring-fenced from the older business, almost treated like something that is being nurtured separately in a nursery. So therefore, to that extent, the costs will be shown within that business. But the core business, which is what generates all the cash and the profitability in the company, will see a tight control on costs.

[Operator Instructions] The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.

Sir, I have a question on the corporate presentation which we had published some time back. So in that presentation, we had stated that by FY '22 end, we intend to achieve about INR 400 crores in top line. And so far in 9 months, we are at about INR 207 crores. So I just wanted to cross-check whether that guidance still stays or not.

So Jinesh, I think you're referring to -- right, when was this? December. Yes. Okay. So this is, I think, the presentation that we had made in December of last year. And since then, of course, the whole impact of the Omicron has come in. And while Omicron has had a mild effect on fatality, it has had a significant impact on retail sentiment and retail shutdowns and all that. But we don't provide revenue guidance, as you know. Therefore, I think that those numbers would probably be -- will have to be tapered down.

Got it. And secondly, you also highlighted that you intend to launch this digital app in India by end of March. So while I understand the content which you mentioned in your opening remarks that the people in U.S. and other parts of the world will be able access Indian content, but when it comes to India launch, the content is really available on other platforms as well. So how will we position that app as far as India launch is concerned?

Well, in India, we are very early in the game, Jinesh, because if you notice the number of people who use podcasts as a platform, I think that number is probably 10 million, 20 million or thereabouts. It's not a very big number. Compare that with, let's say, any other large format digital app, the numbers would be 400 million, 500 million. Or even if you compare the whole video OTT business, that would be upwards of 100 million people, right? So audio and even music OTTs are upwards of 100 million. So podcast business is very small right now. It is very, very early days. And while there are several players in the market, I don't think anybody has caught the fancy or imagination of the public in this country. Most people are not aware about what they can get, where they can get and how exciting it can be. So our job -- remember, when we launched Mirchi 21 years ago, it's not like radio did not exist in this country. There was All India Radio in 500 cities. But when Mirchi launched, it actually created the whole radio movement. Our job before us and our ambition before us is that while a few players exist in the podcast space, we have to change the experience that we give to our people. So that's what our attempt is. I'm not saying that we will be able to deliver it fully, but that's what our attempt will be. And we're very early. I think that most reports say that in a couple of years or 3 years' time, there should be 150 million podcast users in India. And if there are just 10 million or 20 million today, it's very early in the game.

Sure. Just one follow-up on this bit. So if it's a podcast, then will it be a subscription model? And secondly, do we intend to launch any video content anytime soon in the near future?

So all of this is an evolving strategic story. Our current attempt and the first attempt is to make it available to people so that more and more people can consume it, experience it. So our first focus is on increasing the reach of the app, growing the MAUs and the DAUs. But absolutely, as a revenue opportunity, subscription exists, subscription exists successfully in the video OTT apps, if you see. And remember, many of the video OTT apps earlier was free. And all of them, almost all to my notice, have converted to subscription-based. So it's a distinct possibility. But currently, our focus is on increasing the reach and therefore, to begin with, it is all free. The app is completely free. That's what I would like to say. But going forward, it can be anything.

Sure. And on the video content piece, if you can just highlight.

Yes, sorry, of course. Yes, we are launching as an audio platform, and we will devote as much time as required to making the audio platform a success. But remember, Mirchi is also a very big producer of video content. I mean, on YouTube, we have 13 million subscribers across our channels. We delivered [ 750 million ] views last year. We make celebrity shows. We have put shows on television. So we have a very big video product experience last 4, 5 years. We made original content. We put it on MX Player. We put it on YouTube. We put it in many places. So absolutely, yes, the app will definitely carry videos, but we will position the launch of the videos at a suitable time once the audio product has stabilized.

One last question, sorry, if you don't mind. Can you just highlight the quantum of investment in the digital app space which you intend to incur in the near future?

Jinesh, at this point in time, we will not be able to give any details. It's a small investment. Remember, I mentioned that large investments happen in marketing and content and other things. But in subsequent quarters, we will be happy to share it. It's very early days yet.

[Operator Instructions]

Good. I think, [ Kiran ], if there are no more questions, then we can call this meeting to a close.

Sir, we don't have anyone in the question queue. Would you like to make any closing comments?

No, that's it. I think we will be happy to receive your questions over e-mail. So the contact numbers or addresses are given on the presentation, please feel free to call us, and we would be very, very happy to meet you. Thank you very much.

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