Music Broadcast Limited (RADIOCITY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Music Broadcast Q3 FY '23 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on 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 Mr. Ashit Kukian, CEO, Music Broadcast Limited. Thank you. And over to you, sir.

Thank you. Good afternoon, everyone, and thank you for joining the Q3 FY '23 Earnings Call for Music Broadcast Limited. Joining me on the call is Mr. Rajiv Shah from our IR team, and our Investor Relations partner, Strategic Growth Advisors. Beginning with the macroeconomic factors at play, the COVID scare at the start of the year has fortunately not materialized into anything serious and India has been fairly insulated from the same. Recovery has been agnostic across all sectors. And with the multiple tailwinds, whether in terms of government policies, strong demand or easing of raw material and other input prices, we are fairly confident of allaying any fears of recession in the near term. Talking about the radio industry, volumes grew by almost 19% in Q3 over Q2 volume and by 26% over Q1 volume. This is extremely encouraging as the same metric for other mediums are not so bright, with TV remaining flat and digital de-growing by over 30% in display and about 8% in video content. Even when compared with print, the growth is significantly higher with print registering a 11% growth over Q2 and 19% over Q1. In an era of numerous media and information sources, radio has always held high credibility and trust rating, thereby maintaining [ its superiority ]. Utilization levels stands at 71% in Q3 FY '23 as against Q1 -- sorry, Q3 FY '20, which is pre-COVID, which is a healthy sign and provides a sense of optimism for higher utilization in the times to come. Digital revenue contributed 8% of the total revenue amounting to INR 4.03 crores. We are confident about the previous guidance, which indicated that digital is a key growth driver and accounts for major chunk in the total pie of our revenues. Our digital offerings are quite broad and provides the clients an omnichannel, end-to-end solutions for their products and services. Across multiple platforms, Radio City commands a total reach of 274 million, which helps brands reach a large audience and maximize returns on their ad spends. Radigitalization strategy followed by the organization leverages or RJs and the strong social media presence has resulted in a more effective and meaningful engagement with our audiences, aiding broadcasters in generating higher revenue. Talking about market share and client counts, Radio City has continued to maintain a sizable 19% market share in the Q3 of FY '23, up from the 18% in the Q2 of FY '23. We serviced 40% of the total clients advertising on radio. Further, radio also bagged 38% of the 955 new clients who advertised for the first time on radio in Q3 of FY '23. Coming to the sectoral ad spends, we observed growth in some of the major sectors, signaling strength of these sectors and indicating the prospects we can expect going forward. Real estate, which contributes 17% to the industry, grew by 24% year-on-year, while auto, which contributes 9%, grew by 12% on a year-on-year. A staggering growth was observed in pharma as well, with this sector growing by 33% and contributing 9% of the volume of the industry. Food and soft drinks is one high contributing sector and contribute 8% of the volume, that witnessed a [ ad-free ] growth of 13%. The negative trend observed in the government sector continued this quarter as well, with this sector de-growing by 19% and contributing to 6% of the industry. The most unexpected results were in the finance sector, which contributed 7% and degrew by 18%. Approximately, INR 15.6 crores, that is 31% of our revenue came from created business opportunities. In line with our internal forecasts that we have shared over the past few calls, we continue to believe that these revenues will continue to increase. Coming to the financial performance of the quarter gone by, we netted a Q-on-Q growth of 64% in EBITDA, or INR 14.5 crores in Q3 of FY '23 against INR 8.9 crores earlier. The top line growth is 12% Q-on-Q, and increasing our top line from INR 48.6 crores to INR 54.7 crores. The financial performance for the 9 months is a strong, is on a much stronger footing with the top line growing by 20% from INR 122.4 crores in the 9-month period last year to INR 147.5 crores in the 9-month period this year. From an EBITDA of INR 21.7 crores in the 9-month period last year, we have managed INR 32.2 crores EBITDA level in the 9-month period ending FY '23, indicating of 48% price. Lastly, in terms of PAT, we moved from a loss of INR 3.6 crores in the 9-month figure last year to a profit of INR 4.2 crores in the 9-month figure this year. The size of our present results aided to the fact that the company has always placed a high premium on maintaining a sound balance sheet. As an evidence of a strong liquidity position on December of 1st 2022, our cash reserves climbed to INR 288 crores from INR 264 crores in the end of March 31, 2022. These [ proceeds ] offer us leeway needed to take advantage of the current and potential future opportunities. However, with the issue of this preference shares, there will be a component of debt in our book with additional finance costs pertaining to the sale. Lastly, with regards to the bonus issue of the nonconvertible noncumulative redeemable preference shares, the scheme was approved by the Honorable NCLT on the 23rd of December 2022. The company had fixed the record date as 13th of Jan 2023 to determine the eligible non-promotor equity shareholders to receive Bonus NCRPS. The Bonus Committee has allotted the NCRPS to the eligible shareholders on 19 January, 2023. As per the terms of the scheme, the shares will be listed at both the stock exchanges and will be readily tradable. Further, the NCRPS shall be redeemed at the price of INR 120 per NCRPS after the period of 36 months from the date of allotment. With this, I will request the moderator to open the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Bajrang Bafna from Sunidhi Securities.

Congrats for finally the preference issue has got approved and hopefully, the minority shareholders will get the advantage. So sir, coming back broadly on the trajectory that we were seeing pre-COVID, where the company has been continuously growing, both in terms of top line and bottom line. And post-COVID, we are still yet to go back to the earlier profitability trajectory. Yes, this quarter has been a little better as compared to last 2, 3 quarters. But going into future, what sort of utilization that you are looking at and when we can perhaps go back to the trajectory of INR 40 crores, INR 50 crores kind of net profit that we were looking before COVID. So if you could guide on that sense. I think we are quite seeing the delayed profitability coming to our way, though, the top line is moving up, but because of the costs which has also moved up, we are yet to see the real impact of operating leverage playing out for us. So if you could guide us in terms of next year will be really helpful.

Yes. So, as we've always been maintaining that ours being a fixed cost business led overall numbers. So obviously, the last 2, 2.5 years, for reasons, we all know has been a tough period for media per se, including radio. So that's the first point I would like to make. So keeping in mind hereon, going from the results that we have seen in the third quarter, now hopefully that we've managed a decent fourth quarter, we believe it's going to be an upside for us for the next 1 year because currently, from the way the businesses are poised, we believe we should be able to show a continuous quarter-on-quarter growth, both in terms of top line and bottom line, with the fixed costs being taken care of. Yes, our investments on new business and the inflationary-related cost escalations will be there. If you ask me, when are we going to reach the pre-COVID level profitability and bottom line figures? I think at this point in time, it will be too early for me to commit anything. All I can commit is quarter-on-quarter growth, which will, hopefully, in a near period of time, reach the erstwhile numbers that we are seeing. 2, of course, we, as an organization has very clearly directed ourselves also for things that the world is looking at, which is book beyond radio. That is where the current investments are happening, whether it is digital outlook and the investments that we are doing. And we believe once that starts giving results much more than what it is giving to us right now, we should be hopefully closer to the numbers that we have in mind, which we saw at the peak of our operations 2, 3 years back.

Okay. Got it. And sir, in terms of utilization, where are we right now, vis-a-vis, pre-COVID? I think you've spoken, but I just missed that number.

No problem. We are -- actually, at the utilization level, for the Q3, we are actually at more than the utilization level than pre-COVID. Pre-COVID, the utilization level was 61%. We are at 17% right now. So, this brings to the same story, which I have been saying in the past 2 meetings is that the challenge now is moving the yield for the business. Once the utilization level reaches peak, moving yields become easier because that's how the correlation between increase in effective rate versus utilization of inventory. So yes, to answer your question, our volumes are much more than what it was pre-COVID. But it is a value which is dependent by the yields is which is what we are working towards.

Okay. And what sort of yields that we have achieved, if we try to compare with pre-COVID numbers?

We are at about 72% of the pre-COVID numbers.

Okay. Yet, a long way to go. Okay. Got it. Got it. And just sir, last question on the digital front. We are already at, let's say, INR 4 crores kind of run rate on a quarterly basis. So we are moving towards, let's say, INR 15 crores to INR 20 crores kind of yearly run rate. Where do you see that? Because you always highlighted that this is a segment, which is going to grow far faster as compared to the traditional channels. So if you could just highlight what sort of steps that we are taking and when we can see some sort of profitability also flowing for us from this segment of the business?

Yes. So profitability is, yes, even now flowing in, but to the extent that we would want to see, which is what we are aiming towards. So to answer your question right now, I personally believe, our percentage if you know last year, we were about 4.5% of contribution of digital that moved to 8%, 8.5%. Next year it will be in between 12%, 15%. So, this percentage will continuously grow and that growth is coming on the back of a 50%, 60%, 70% growth over the earlier numbers. Of course, the base is small as against the 12%, 14% regular radio business growth. So that's the first point. So once the base increases, the percentage growth that we are talking about anywhere between 50% to 60% is how the whole number stacks are going to play out in the next 2 to 3 years.

Got it. And all the very best for future good performance.

Thank you so much.

[Operator Instructions] The next question is from the line of Apurva Mehta from AM Investments.

Just wanted to know that how is the ground reality when you go to, say, pitch for the new advertisement and everything? And how is the pricing front?

Sorry, Mr. Mehta. Sir, we are not able to hear you clearly. Can you use the handset?

Can you hear me now? Hello?

Yes. Yes. We can hear you now.

Yes. So just wanted to know the -- to check with you, how is the ground reality when you go to pitch for new advertisers or things like that coming? And how are the pricing fronts? We were trying to go for quality than quantity. And still we are -- our utilization is now 70%. So are we back to the levels that we would go for quantity and not the quality that we were guided a quarter back that we will not go down on prices and we will fight for it?

So yes, I'll answer this question in 2 ways. As we continue to stand by our position that it is always quality over quantity because in the end result, the inventory at some point in time will be limited. The rates are not limited because it's where we want to take, we can take it. That's the first point. The second point of inventory utilization is the larger challenge at the overall level. So financing 70%, I'm talking about the industry utilization level itself is at that level. So unless and until there is a saturation of volumes for all players, any change in your rates will not be easy because the movement you try to push in for a higher rate, there are options which becomes far more attractive as far as an advertiser is concerned. Answering your first question about the sentiments of advertisers, I have already in the earlier note said that almost 38% of our clients in this quarter have come in new. So that means there are lot of newer players or newer entrants into the radio investment market, which is coming in investing in radio, which is an healthy sign, where people believe that radio still works. In fact, just last week an independent survey kind of put up a record saying that 8 out of 10 people believe, especially in the Tier 2, Tier 3 cities that radio works for them and most of the time is spent on radio. So, that itself is a justification of the fact that if you divide India into the metros that are Tier 1, Tier 2, Tier 3 cities, there is a lot of radio play still existing. And we are gung-ho from the fact that newer advertisers are coming in and hence, we believe that the optimal utilization level should reach in the next 4 to 5 quarters. And then the ER play, which is the effective rate play will be easier when you are at a saturated level of utilizations.

Sir, the trend of higher prices, we are seeing any trend like we were at maybe, 2 quarters, we were at 60% of our peak rate. Now we are at 65%. Now we are 70%. Is that trend changing? Are we seeing some changes in the trend or no?

On the rate fronts, from our perspective, there is a marginal increasing trend that we are seeing. That is because that is directed, and we believe that's the way forward. On the inventory front, I have already told you that there is an increase front from a Q1 to Q2 to Q3, the utilization level is increasing. And we believe if everything settles down, our utilization level will increase and that will allow us, and I would want to believe competition to kind of somehow push for rates because without that, revenues will be at a struggle for most players because after inventory, it is just the rate that which will play around when it comes to final revenues.

And on the -- there will be lot of government spending will come because of election and everything. There is state election. There is central election coming. So what is your assessment of how much of that will come to the ad spending, which the election will be there? Any ballpark figures that you have envisaged that next year, there will be some big ad spend income?

See, unfortunately, what will happen is it all depends between now and the time when the election comes, how bullish is the present government because unless and until the present government is not pushed from a perspective of losing their elections, that much prudency from the end because even in the state election when there is a confidence, the investment has really not been as high as it was normally in the erstwhile period. So if competition is not there, we don't see huge investments happening. But having said that, without a doubt, government spending vis-a-vis what it was this year will be higher next year for sure. Now the percentage of growth over this year will completely depend on the mood of the nation, if I may say so, and the confidence of the present government. Because if the present government doesn't invest much because the others hardly have any monies to invest, to be passed and [ honest ] because it has to be led by the government because that's where they want to. But typically, what happens in an election year is that they use that last 4, 5, 6 months to kind of talk down on the achievements of the things they have done in their tenure. That's what their confidence will come to us in form of radio investments also as in other mediums.

On the previous year, have you any data that last election, how much maybe the central was there? How much was we -- have you got any ad spent? Any data parts, which we have and...

Honestly speaking, any data of the past will have no reference because that past was very competitive. At least the top 3 political parties had to aggressively invest, expecting a favor for them in terms of the elections. That has changed. And I'm not -- we can argue on that, but that has changed. So hence, our data may not have relevance. But if you see and ask me and you want me to kind of put my neck out and say, I believe if all goes well, then say INR 8 crores to INR 10 crores of additional play, that will be there, that can come from the current base as we go forward for the next year.

Okay. And on the fixed cost front, license will be roughly around INR 20 crores. Employee cost will be around -- roughly around INR 60 crores for next year and other expense will be roughly around INR 100 crores. Can we take all this ballpark figure?

Yes, yes. So, you are saying the combined cost of anywhere around INR 195 crores, INR 200 crores, is that what you're saying for the next year?

Yes. INR 180 crores to INR 190 crores.

INR 180 crores is what possibly we'll end up this year, a little here and there. Nominal inflation cost and a little bit of marginal employee related costs and the additional investment will be the additional that you are talking about. But like, as always, we'll be prudent about our top line versus bottom line and our investments and cost increments will be as per that. And we can be rest assured that we'll keep a close eye of not exceeding current cost by the basic requirement that will be there from a year-on-year perspective.

Okay. And the additional costs which we are talking about, can you ballpark tell us what kind of -- which area we would like to spend, which will help our future growth to go? And are you spending on that kind of area where we want that future to grow substantially on the digital side?

All cost investments, to answer your question, is only on the future growth business. When I'm saying that, I'm talking about digital, whether it's increasing the digital ecosystem in this whole solution providing business that we do for brands and clients is that we are investing. Any major investment, which we'll look at for ourselves will possibly come out of CapEx, if that's the way we are looking at it, or acquisitions as opportunities come out to us. And it will be in the digital part of our business per se. And the traditional business will be only in a growing and growing efficiency management is what I believe.

[Operator Instructions] The next question is from the line of Mohit Khanna from Banyan Capital Advisors LLP.

Sir, I just wanted to...

Sorry to interrupt, Mr. Khanna, sir, your voice is sounding very muffled.

Hello. Is it fine now?

Yes. You will have to be a little louder. We can hear you now. The last statements we could hear you.

Okay. Sir, I just wanted to understand a little bit better on the advertising front, right, and within different sectors. So what sectors are you seeing advertising should now pick up because as you highlighted finance, unfortunately, didn't, actually de-grew in this quarter?

Yes. So for us, auto will definitely increase now because more or less, things are falling in place, so we believe, although real estate is definitely increasing for the projects that is in aisle. And the other sectors that we are looking at the top 5 will be your pharma and health care, which I have said is also increasing. And in the coming years, I also believe government should increase, given the reasons where we mentioned about the state government going into the final Lok Sabha elections. So, this normal 4 or 5 top categories will increase as we go forward.

Right. And if I compare your numbers year-over-year and if I remove the other income fees because that's the interest income that you earn, the operating side has not delivered as much in the festive quarter of third quarter as it was, what are the probable reasons, where did it go wrong with the market that the advertising didn't come through?

So clearly, I don't know if you've been observing media closely, November has been an aberration month across media industries, and we're all trying to figure out what happened. A good Diwali and then, normally, there is -- after Diwali, but this was a complete watershed moment for the media industry, with absolutely no recovery post the first 10 days, 18 days after Diwali. So, that is the only place where we believe, like in our case, we had a great quarter last year unlike some of our competitors. And we had actually increased our percentage share in the business from a revenue perspective. That really didn't play out because if you see, we are at about roughly around 7%, 10% -- 9% down over the last quarter, primarily given from the fact that November, we were completely down. So yes, to answer your question, that is the only place where possibly things have not played out and that has been an aberration month if you look for the quarter for us. Otherwise, on a quarter-on-quarter basis and our bottom line to top line numbers are more or less been efficient enough, I would believe.

Right. And one more thing. When you talk of utilization levels at 71%, can you give us a breakup of what exactly the numbers for Tier 1 cities and Tier 2 and 3 cities?

So yes, it's a nice question that you have asked. The challenge is that the top metros are actually lower than the 71 -- at the 70% utilization level, and that is where the revenue is getting hit. Because typically, what happens is -- and in the quarter 3, where you have the peak quarter happening for media and for radio also, you end up at anywhere around 85% to 90% of utilization level. And the average of all markets put together because if you see the top markets traditionally are the ones like the top 8 metros that we talk about. They are anywhere in the Q3 of any normal year will be around 90%, 95% utilization level. The next set of markets, even markets, low [ B2 ] markets will be around 70%, 75% and the rest of the market fall anywhere between 55% to 60%. Now what has happened is that 90%, 95% that you are getting in the top market is stagnated still at 70%. And that is the reason why the overall increase has not happened in a utilization level as against the erstwhile numbers that we are talking about.

Right. So just for us, are we still going to stick to the strategy of pulling in more volumes? Or now do you think when the utilization levels of products starts at 70% level, so do you think it's a better strategy from hereon to go for price increase? Or maybe...

Right from quarter 1 of this year, I've already stuck to my first clarity as price increase, even when the market was not saturated. Because that's where I believe it's a better play when it comes to media, especially when you're talking about businesses which have finance inventory, unlike in print where you can have DTC, plus costs and increased [ pagination ]. So, I've always believed that it has to be a price-based, quality-based strategy, which I've continued in all the 3 quarters. Only difference being that in the first 2 quarters, if you have observed, I was at a 18% volume share. In the third quarter, when we saw that the erstwhile 90%, 95% of inventory utilization is not being seen, we said let us do a change and take a little bit more than what we would conventionally do, which means a little hit on your year from what it was and ensure that, that additional 1% will offshoot the little bit of erosion of year. But our strategy will still continue to be riding on quality-based ER-led strategy because that's where the future of the business is.

Fair enough.

The next question is from the line of Nimish Maheshwari from RSPN Ventures.

Hello? Can you hear me?

Yes, we can. Little louder, you can be a little.

Sir, I just want to understand what is the rationale behind distribution of these INR 90 crores via preference share using Section 230 rather than simply giving the bonus to the shareholders?

Okay. So here the bonus was not supposed to be -- we, basically -- so this is basically -- see under Section 230 to 232 typically, we share to the shareholders and through the NCLT approval, we have selected this Section 230 to clear the fixed. So that's the main reason the NCLT approval route have been taken.

No. I just want to understand why you were not using the bonus issue directly, like you can distribute the money directly to the shareholders rather than going through the preferential route. Because if we have INR 200 crores of mutual funds as an investment in the balance sheet, we can directly sell and distribute to the shareholders.

So if you remember, in 2019, we have issued the bonus and this was in 2020 when we have done this NCRPS. Unfortunately, due to COVID and NCLT and all the approvals got delayed by 2, 3 years. So at that point in time, we wanted to give the value to the shareholder over a period of time because there was a buyback in 2018, there was a bonus in 2019 when the split has happened. And the decision was there, which we have continued. And in a [ staggered ] manner, the money can be distributed to the shareholders, at the same time the investment required in the business can be continued.

Got it. And why there is a 3-year time period for the redemption of INR 90 crores when company currently have more INR 200 crores in the balance sheet? So why it should not be in the 1-year time period?

So -- okay. When the scheme was launched, it was COVID period and that is the reason to -- cash had to be saved, and we gave this bonus over the [indiscernible] provided, we get out of the COVID period. Unfortunately, the regulatory approval took time. Other is if that approval had come in time, we would be -- in the next year, we would be actually redeeming the NCRPS.

And one more thing on the business per se. Can you little bit explain about your digital offerings and how the revenue will be coming into the P&L from the digital front?

So very clearly, I've been saying that we have been increasing the digital contribution to the overall business from a 4.5% to 8% to 12%, 14%, what we are looking next year. Our offerings are very clear. We are right now offering the -- we are playing in the social media influencing place, which is where marketplaces are currently putting almost 25% of your investments, unlike radio, which has 3% of the advertising pie. Within the digital, 25% of advertising investments are happening in the social media influencer marketing space, largely led by influencers. Our advantage here is that with the RJs that we have who are influencers and I've already spoken about the reach that we get, our play is very clear. We are using a mix of our RJs that are influencers in the social media space. We're using our radio inventory and wherever needed on ground ongoing event is required, we are clubbing all of them and giving this as holistic solutions to brands. And to answer your question, we are looking at anywhere between a 12% to 14% contribution coming from digital as we go forward.

Got it. Got it. One more thing in the -- from the investment per se, is there -- how you are thinking to use the investment going forward? Like INR 100 crores, we can see that we can expect for the redemption of the preference share. Other than this, how we are planning to use the money to better our ROE and ratios?

Yes. So like while we are exploring various opportunities in the digital space, as you know, the digital space in our scheme of things means 2 or 3 things. One is, of course, the influencer marketing space that I spoke about. The other is this whole content creation and distribution that happens, which includes creation of audio, video formats. It also includes creation of podcast and distribution of podcasts into various platforms. So as we go forward and as we see the whole evolution of the digital industry in terms of marketers needs, we may, at times, also look at acquisitions of existing players who would want to kind of be part of a larger game plan. Clearly, when it comes to us, we will see from a perspective of what value it adds to our future game plan in terms of solutions -- the ad solutions that we are giving to our clients. So that's the way we're looking at it. It will be investments from things that we have told to create on our own and also possible acquisitions of platforms or businesses, which is complementary to the digital play that we are looking at.

Any other -- any plan in the pipeline right now?

See, our discussions are happening at 2 or 3 different levels. They are 2 early stages. It will be -- possibly, you'll have to give me a couple of more quarters before I really -- things squeeze out for us and we really make the game plan for me to share anything. Otherwise, it will be just a good thought from our end. But to kind of give you the confidence and this, we are exploring multiple things. And unfortunately, I'm in no point to kind of at this point in time to kind of disclose that.

Okay. So, we can expect this in next year?

Sure. For sure.

[Operator Instructions] The next question is from the line of Hiten Boricha from Joindre Capital.

Hello?