Music Broadcast Limited (RADIOCITY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Music Broadcast Q1 FY '21 Earnings Conference Call. We have with us on the call today Ms. Apurva Purohit, Director, Music Broadcast Limited; Mr. Shailesh Gupta, Director, Jagran Prakashan Limited; Mr. R.K. Agarwal, Group CFO; and Mr. Jimmy from IR team; along with Payal from SGA on the call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Apurva Purohit. Thank you, and over to you, ma'am.

Thank you very much. Good afternoon, everyone, and thank you so much for joining the earnings conference call for quarter ended 30th June 2020. I do hope you and your loved ones are safe and protected in these struggling times. Before starting my presentation, I would like to state that due to the unprecedented impact of COVID-19, the performance of quarter 1 FY '21 does not represent normal quarter operations, and it's not strictly comparable the previous quarter. As you're all aware, with the pandemic continuing and the lockdown norm easing and then tightening repeatedly, an environment filled with fear, insecurity and economic hardship has become our current reality. And as a company, we are also learning to adjust to this. In the quarter under discussion, we know that COVID-19 pushed the world economy into a tailspin, and the Indian economy and all sectors suffered hugely in this period. The media and entertainment sector was badly hit by the sudden stoppage of supply as well as consumption of goods and services of advertisers during the long term. The radio industry, like the rest of the media industry, registered a degrowth of more than 75%. I'm happy to report that Radio City was able to perform better than the industry, which resulted in us improving our volume market share by 2% from 19%, which was the market share at the end of FY '20, to 21% in quarter 1 FY '21, which helped us regain our leadership position amongst all operators and their main frequencies. This was possible due to several concentrated efforts put in by the Radio City team, and I would like to share the same with you. Firstly, there was an increased focus on tactical deals like the coronavirus awareness campaigns that we run, special day promotions, et cetera, which helped us garner more than 30% of quarter 1 revenues across nearly 980 clients. During this quarter, the radio industry itself witnessed a new client base of 1,000 advertisers using the medium for the first time, which augers well for the entire industry. And we, at Radio City, were able to capture the higher share of 36% from these new clients. Due to the aggressive efforts put in by the team, Radio City has also locked in long-term deals, aggregating approximately 25% of our last year's business, which gives us some decent visibility for the coming quarter. We continued our further initiatives to reduce costs, to make ourselves more agile and actually reduce the large element of fixed costs, which will not come back. During the quarter, we were thus able to reduce our operating costs by INR 17.8 crores, which is a reduction of 38% as compared to the similar quarter of FY '20 and 29% as compared to quarter 4 of FY '20. Coming to the financial numbers. The revenue for quarter 1 FY '20 are INR 14.4 crores, with an EBITDA loss of INR 15.2 crores and a net loss of INR 13.9 crores. On the balance sheet front, again, we worked very hard to improve our collection efficiency. And I'm happy to say that we have improved our collections by 9 days, which was a very significant feat by the team given the liquidity issues that are being faced by everyone in the market today. The overall result of all these has been a strengthening in our cash reserve by INR 19 crores from INR 220 crores as on 31st March 2020 to INR 239 crores as on 30th June 2020. You will also remember that after our last loan repayment made in March '20, we are a completely debt-free business. I'm sure you will agree that there are very few businesses currently, which are in this position and have such a strong balance sheet. Finally, when confronted with these unprecedented and difficult moments, I think it is a matter of emphasis and important for me to mention once again to all of you that we, at MBL, have strongly believed that a bottom line and margin-focused approach creates maximum stakeholder and shareholder value, and we have been ardent advocates of this approach all through our business journey. Earlier, this led to us not spending on high-cost multiple frequencies or unduly focusing on building low-margin businesses like events and activations. There were a few critics of this prudent approach. However, I think the events that have unfolded over the last 2 years and especially during this crisis have only proven that it is always better to be an ant rather than a grasshopper. The annual results, which you would have all seen, of '19/'20 have proven this strategy works without doubt. When compared to our national peers, while our revenue may have been half of theirs, our PAT was better off by 2.5x their PAT. Equally, our low fixed cost in terms of depreciation, which is just about 38% compared to people who invested in multiple frequencies, will most certainly help us move back to profit faster and quicker. As we move towards the festival period, what gives me hope is the fact that month-on-month, our inventory utilization is improving. And even in June as compared to May, we had an improvement ranging from 19% to 200% in different markets. For the radio industry as a whole, the inventory utilization did improve, and the degrowth fell from around 80% in April, May to approximately 60% in June, which augurs well for the future. With this, we will open the floor for questions and answers. Thank you.

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

So in 1Q, industry volumes were down by 75%. How has the performance been so far in July until date? Is there any sign of recovery?

So as I just explained that on an average, the industry's degrowth was around 75%. And you're absolutely right in that figure. However, if you see April to June itself, so in April and May, when the lockdown was at its most severe, the degrowth was around 80%, which has now fallen in June to 60%. So clearly, even in June, we are seeing a recovery. Similarly, if you see Radio City's performance, again, the degrowth is steadily going down. So from the 80% approximately in April, May, Radio City is down to around 50% to 53%. And obviously, we expect this to continue even in July and so on. And as the festive season comes closer and more of the lockdown easing happens, we are sure this number will only better.

Okay. So in 2Q, do you expect the volumes to be better than what they were in 1Q? Because the degrowth was 75%. If you can just call out a number or give some indication as to how the performance explicitly was in the month of July until date, that will be really helpful.

So again, I'm repeating the same point. I'm saying that April and May, the degrowth was 80%. In July -- in June, it fell down to around 60% for the industry and around 52% for Radio City. This trend is continuing. So as of now, what we see is clearly yet another 10% improvement in the volume for the industry and for Radio City. I hope that is clear.

Yes. And secondly, are the yields on the long-term deals that we have signed in this quarter lower or similar to the pre-COVID levels?

So we have signed around 25% approximately of long-term deals if you look at the total number last year. But clearly, the whole year, it is expected to be muted in terms of the risk. So broadly, one can anticipate that on an overall basis, the rate of degrowth, which is -- which has been approximately 8%, is what will play out both for the long-term deals and for tactical deals.

Okay. And one last question. Our total operating cost in this quarter was approximately INR 30 crores odd, if I'm not mistaken. So will this rate sustain going forward? Or are we headed back to the INR 45 crores to INR 50 crores kind of figure, which was prevailing pre-COVID?

We've saved approximately INR 17.8 crores in quarter 1. Half of that has been fixed, and half of that saving has come from variable cost. If the situation improves, then the variable cost will come back, but the fixed cost is a permanent saving. If the situation doesn't improve, then even the variable cost will not come back.

The next question is from the line of Sachin Shah from Emkay Investment Managers.

Yes. What I would like to know is that you did mention that we have seen in the month of June industry down by about 60% and probably Music Broadcast at around 52%. Compared to the -- I know that you talked about the radio industry. But if we see the other media, say, particularly the television media, have they recovered better than the radio overall as a market in the last June and July per se? And did they drop also less in the months of April and May?

Broadly, if I were to separate out all the media performance in terms -- and I'm talking specifically only of ad volumes, I would say that television and digital degrowth has been approximately 50% to 60%, whereas radio and print has been around 75%. So both digital and television have done marginally better than print and radio in terms of volume. The degrowth was lesser. Within television, the ad volume went to mostly the news channel because the GECs were running repeat content and not original content. On digital, most of the ad volume went to again news wherever there were gamification side because that's where there was more reach and partially to education. This was the way the volume degrowth and spread happened.

Okay, okay. Just one thing on the similar lines kind of interconnected. For radio, we generally do not have too many of national advertisers, whereas -- it's more about region-specific. Whereas on the television, probably we will have more like national advertisers or large companies. From what we are seeing at the ground level, probably the large companies are not so much affected. And probably the regional players or the MSME sectors will be more affected or even some of the sectors, like the real estate, which are more region-specific, will be more affected. So do you see that trend that the television media will actually be faster in recovery versus the radio because of this -- because of your customer challenges -- customer profile challenges, I would say?

Actually, there are 2, 3 assumptions you are making, and I would like to just correct those assumptions.

Sure.

Firstly, on radio, 60% of advertising has traditionally come from national advertisers, 40% has come from local. In the last year, with government not spending, this proportion has shifted to around 55% coming from national and 45% coming from local. So the dependence of radio is equally on national advertisers as it is on local advertisers. That's the first correction. On television, around 65% to 70% comes from national advertisers, 30% comes from local advertisers. Within television, on news channels again, local advertisers are far higher. So around 60% for news channels comes from local advertisers. Therefore, as I clarified earlier, this time, the ad volume in -- lesser degrowth that we have seen in television is largely due to news channels. And this volume came in from local advertisers. Similarly, for the radio industry and for Radio City, a lot of volume has come from local advertisers. As I told you, 1,000 new advertisers got added to the radio industry. Most of them were local. What really has happened in quarter 1, and that is the third assumption of yours that I would like to correct, is national advertisers did not spend. The spending has come both for television and for radio and for digital mostly from local markets and local advertisers. I think what has happened is local advertisers have seen an opportunity. They have seen that there was national advertiser supply chains that were broken, they were getting their act together in terms of how they themselves would work, production had come to a standstill, and the local advertisers were far more agile and far more willing to spend. So I would say that quarter 1, whatever volume has come, it's mostly come for every medium from local advertisers.

Okay. That's very helpful. Just one last question. Is that -- has the advertisement rates dropped more on the television versus radio? And does that make that more attractive relatively?

The difference between radio and television advertising rates have been typically 7:1. So whatever drop anybody does, radio is always the most cost-efficient.

Sure. But has the overall -- like we've dropped about 7%, 8%. Would the television would have dropped more?

I would not be able to answer specifically whether television has dropped. What I definitely do know is that the large volume that we saw on television was a mix of, as I said, the local advertisers and a lot of the follow-through of previous year's volumes coming here. So people had many volume deals on television. Part of it got extended into this quarter. So that will -- when the numbers come out, that will clearly show that there has been a rate drop. But I would say that it has really been the bonus volume that has come through in quarter 1. So it will be not right to take calls for anybody on what has happened on rates looking at this particular quarter.

Fair enough. Just one last thing, and I'll take a little liberty on asking you this because it's a little bit of a peer group comparison. But the last quarter, which was the March quarter, one of our peer group companies actually delivered a little better results than us. Any particular reason for that?

So I think the way to look at it is you can turn around and look at growth figures and say, Radio City degrew by 20%, our peer group degrew by 14%, et cetera, et cetera. I would not go by those quarter figures. The point that I repeat is to look at it at an annual basis and to look at it from the perspective of what are the profits that we are delivering. Top line, buying, anybody can do. I can get INR 100 crores more added on top line at 0 margin or 5% margin or 3% margin. But as I have maintained that our game never has been about increasing our top line without being able to deliver the margins that we are used to. So I would request you and urge you to look at the profit figures especially in this case, what are the numbers that Radio City has been delivering over the past several years and what is the expectation on these numbers and how quickly we will be able to ramp up and any business which has low fixed costs as we do. I mean just look at our depreciation. It's just INR 30 crores. It's barely 40% of any large player. So who is likely to come back to profit faster? I think those are the factors I would look at.

The next question is from the line of Jayesh Shah from Ohm Portfolio.

Apurva, nice job in a tough environment. A couple of questions. So the first one is this locking in the new advertisers to the extent of 25% of last year revenue. This is for what period? Is this for the balance 2 quarters or for the entire 4 quarters starting now?

Jayesh, thank you for your feedback. The long-term deals that we have signed, which I said are at approximately 25% of last year's numbers, are for the full year. And mostly, they will start playing out -- a bit of them have started, but mostly, they will start playing out from quarter 2 when the advertiser itself is more confident that he has a market of consumers out there. So I would say 90% of this will actually play out in the balance 3 quarters.

Okay, okay. So mathematically, Apurva, if you get another 25% locked in with any of these other advertisers, you would hypothetically cover your entire fixed cost for the year?

Yes, yes, yes.

Yes. And I think if you bounce back to, let's say, 50% utilization, then, effectively, this lock-in will allow you to go to 65% where you start seeing your normal EBITDA increase, which we have seen in the past. And I'm just talking pure mathematics.

Yes.

Okay, okay. Nice to know. And on feedback, and do you see any green shoots in terms of national advertisers or others getting more in 2Q in terms of cost cutting pressure?

The degrowth, Jayesh, has clearly started going down. We can see that in June, and we can see that in July also. In fact, the markets that have bounced back very nicely are the smaller markets. So that's a very -- if I see the visible green shoots, they are all there in the smaller markets, which is a very good sign. The bigger markets have started growing over April, May certainly, but the growth is much lesser, which is for 2 reasons. One is that the bigger markets are still under a lockdown situation as compared to the small market. So whether it's a Bombay or a Chennai, which have shown the least growth for us, they are the ones who are continuing with the lockdown, right? So once the lockdown opens, we anticipate that the Bombay market, et cetera, also will bounce back nicely. So my answer to your question is green shoots are visible mostly in the smaller markets where the lockdown situation is not there, not so much in the big markets. Again, it's mostly visible in the local advertisers who continue to spend even in these hard times. So the 1,000 advertisers that I'm repeating, which came in for -- came in as new advertisers for the radio industry or the 1,000 advertisers that we did tactical deals with, 80% of them were local. National advertisers, we've seen a bit of resurgence coming from specific categories like finance and auto, not so much from consumer durables and FMCGs.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Apurva, so you said in the month of June, you have seen around 80% -- 60% below normal in terms of revenues. How are the number trending for July?

As I answered in my earlier question, I think one can assume that there still will be a degrowth, but as compared to the previous month, which is June, it will be a 10% improvement in utilization.

Understood. And secondly, in terms of your operating costs, so this license fee has remained more or less constant. So any work on that front? Or is it going to be like this only for the remaining part of the year?

You mean license fee as in what we pay to the government?

Yes, which is captured in your P&L.

Yes. So that is -- see, that is a fixed cost kind of a payment that we have to make to them. We have been pleading with them to give us a waiver as an industry. As AROI, we have been writing to them, talking to them, meeting them. And while they have been very sympathetic towards our call, as of now, what they have done is given us 2-quarter waiver -- postponement, a 2-quarter postponement. We are pushing for a complete waiver for a full year.

A 2-quarter postponement mean it is just a cash flow impact, not a P&L.

Correct, correct. That's right, that's right.

Understood. And any updates on the RBNL deal?

There are no updates as such. The status remains status quo from the MIB side.

The next question is from the line of V.P. Rajesh from Banyan Capital.

The first question is on a couple of slides that are talking about audience growth and the time spent on listening to the radio. So could you comment on the trends on those? Meaning during lockdown, obviously, the numbers went up, but are the audience sticking around? Or are you now seeing them sort of move away from the radio channels?

So during the 3 months, as you would have seen across various researches, the time spent on all media went up. Television went up by approximately an hour. Radio went up by around 30 minutes. Digital also went up by around 30 minutes. Print went up by around 20 minutes. So with people having more time, they did spend that much more time on media. This trend -- as of now, the latest data suggests that this trend is still on. It may change later, but right now, none of the media have lost its increased reach.

Great. My second question is on the categories that you have mentioned in one of the slides. So why did finance jump so much in terms of volume growth? And are you seeing any of these degrowth categories starting to come back? Which one is sort of coming back faster? Education, now that we are sort of in the season, is that bouncing back? Or other trends that you're seeing in different categories?

Finance, I would actually attribute it more to specific clients, which increased their spend. And a lot of increase actually happened from insurance clients, so LIC and SBI insurance, et cetera. So that was the -- that's the finance category got really from life assurance. We are -- apart from the categories that have spent in quarter 1, which has been finance and e-commerce and auto, July, I would say auto has increased a bit. FMCG has marginally increased, and pharma and health care has gone up. So these are the 3 categories. Finance continues to have high spends in July. Pharma, health care and FMCGs have increased. Marginal increase in education also and in government.

The next question is from the line of Srinivas Seshadri from Mirabilis Investment Trust.

The first question was regarding the pricing. So you said that the -- there's 8% difference between the volumes and the reported revenues. So if you could talk about the difference of about 8%, how much is it driven by, say, permanent reductions in pricing, some temporary kind of volume-driven incentives and see maybe some mix impact because of the type of advertisers you're getting in these circumstances? That's the first question. And on that basis, like a prospective basis, will the volume and revenue spread remain similar? Or do you expect it to contract a bit?

You're absolutely right, Seshadri, that it's a mix of the local clients who typically would work at marginally lower rates and some of the volume deals that -- the tactical deals that we have given, so the corona awareness campaign. So whichever advertiser chose to spread some awareness about corona and what needs to be done, they were given special rates. So certainly, there has been some part of it coming from tactical and such advertisers. Going forward, I would certainly assume that the rate decrease will go down from the current 8%, 9% to around 5%, 6%. But I definitely expect that through the year, when we look at the year in its entirety, as compared to the previous year, there will be a dip of 5%, 6% in rates. So that is there to stay.

Okay, okay. Sure. And the second one was like you reported a good kind of a cash balance increase of about INR 19 crores despite the EBITDA coming negative at about INR 15 crore. So I understand that I mean, about INR 4 crore, INR 5 crore of it comes from the deferral of the license fees. But even net of that, there's a good INR 30 crore kind of increase in the -- there's a difference between the operating loss and the change in the cash balance. So is it largely because of the receivables being collected compared to the fourth quarter?

Yes. In fact, the collection which we have done is better off reducing our debtor days by 9. So we collected approx INR 50 crore or so in such a given scenario, which helped basically gain these INR 19 crores of additional cash flows. In fact, the entire quarter, the focus, including the revenues being lower, was largely on to getting this collection in place.

Okay. You said 5-0, is it, INR 50 crore?

Yes, yes.