Music Broadcast Limited (RADIOCITY) Earnings Call Transcript & Summary

Yes. After 2030 as of now, we will have to invest again in your licensing.

Which means that it's not a free cash flow. It is like -- it's a free cash generated, but then you will have to keep it -- we need after 6, 7 years or in the recent auction, we will need a lot of this cash to be reinvested in frequency, same assets, again, for, say 10 years.

So the pricing will differ because it's a kind of the representation that has happened by the radio industry in terms of the cost. There is -- we believe that there may be a positive side to the pricing that will happen when it comes to the renewal of the licenses. And that is where we possibly don't know what exactly the investment should be. But the government seems to be understanding the challenges that the industry is going through. And we believe some positive news will come from there. But there's still time for us because that's still 7 years away like you rightly said. But yes, some part of that investment still will be there. I mean, we can't deny that. And as you know, we have been year-on-year generating cash. So obviously, when we reach that period, we will have far greater cash results than what we have right now.

Yes, yes. Suppose, we are generating INR 40 crores, INR 50 crores a year, INR 32 crores depreciation on [indiscernible]. So around INR 300 crores plus INR 300 crores we have, so INR 600 crores will be there. But out of that, INR 120 crores will be going into debenture payment?

So INR 500 crores plus is what you can look at comfortably. Of course, the [indiscernible] waiting from year-to-year and from the overall strategic movement, that is happening from an organizational perspective. But yes, if you take that, that's the kind of number you can expect to be having when you end up the period of licenses.

And sir, there are 2 more questions. One is, how do you see the FM radio business panning out after 7 years -- for 4, 5 years, say? Is it a business which is declining or it's a growing business, how do you see it in terms of looking at the alternative media -- advertisement medias, which are available to advertisers also. You're broadly -- because you are there in the field and you have a fairly long experience. How do you see this? And how do we -- the company seems to be aligning with the new prospects which are there in the industry?

Yes. So I'll take this question in 2 forms. One is of course to ask what is the growth that radio is going to go. I personally believe that, even if I don't look at the live the activities that we do along with radio, which is on-ground led event monetization, digital playout monetization, presence in total media which is also monetized through RJ influencers and so on and so forth. The answer is yes, radio will see logical growth that is happening. Whether that growth could be as high as what we have seen in the last 6 to 7 years? Absolutely not, but there is definitely a growth that we see in radio. But the way I look at this core business perspective that we have is that, we have evolved beyond just being pure radio. If you see the way we have been performing in the last 2 to 3 years, we are doing monetization through on-ground led events, which is experiential marketing as far as brands are concerned. We are monetizing through our digital presence in the social media world. We were -- from 3% last year, we moved to 8% of share coming from pure digital revenues. So as that 6 to 7 years, as you rightly pointed out, the radio growth will be one part of the growth. The on-ground led opportunities that we are creating will be another part of the growth and the larger growth from a sure percentage perspective will be from a digital player, which the organization is already seeded in, in the last 2 years. And hence, the combination of all this still makes it clearly viable for us to be in the business.

So next 5 years, INR 500 crore is achievable?

Okay, See 18% to 20% CAGR is something which we are seeing -- I can stick my neck out right now. The exact number will be -- I'll be able to possibly stick my neck out 1.5 years or 2 years from now when my digital play out completely, it gives me a sense of what exactly is that we will do as well as the exact number. But one confidence I can give you that within 5 to 6 years, my digital play out will be roughly 35% to 45% of my overall business.

Okay. Great. And sir, last part is because of this litigation and all, as an investor, we don't see any issues in redemption 2 years, 3 years down the line of this NCRPS.

Absolutely no issues. Positively speaking, we have always been run by professionals, and that's the reason why I believe there will be no interferences also, and you can be rest assured there will no effect happening from whatever little -- the current thing that is happening in the market.

Great. Only one thing was that recently our share was put up in the periodic call auction. So that was a bit surprising for a company like Radio City to get into that. But probably this was because of the issuance of these bonds wherein our price fell subsequently?

Correct. Correct. Exactly right. You've got that exactly right. Yes, yes, that's the only reason. There is no other reason that we should be worried about. And that also is another matter of -- maybe a couple of weeks more that you'll have -- already, you can trade on all the dates right now, but yes.

Yes, yes, yes. This has been a change. Earlier it was once a week and subsequently, probably you guys made a representation, it is all entire week or something. Okay. Great, sir. Good luck.

Thank you so much.

[Operator Instructions] The next question is from the line of Ansh Manek from Equirus Securities.

Sir, I wanted to understand with respect to the government spending. So within the period of next 12 months, the central elections are being lined up. So what's the company expectation with respect to increase in the government spending in advertising metrics?

There will be a substantial increase in government spending for 2 reasons. Wherever the central government has the state government, they will use the state government to kind of talk about the good things that they have done for the state, which indirectly will also mean a better central government elections results. So you will see investments happening about the good things each state has done and that will be the first. So there will be investments happening from state government, and also at the central government level, when you come closer to the election year, you will see that spends will happen from the ministries talking about the achievements that they have done so far in this term of their being in the government.

Okay. Sir, and the second question is with respect to the digital side. So currently, what would be the contribution of digital revenue to the overall revenue?

8% is what our current contribution is.

And we are expecting to reach to 35% to 40% meeting the period of next 4 to 5 years, right?

Yes. Around 5 to 6 years, we should be in that. We would like to surprise you by doing it earlier, but we can be safely saying that, that is the minimum that we are looking at.

And sir, what would be the source of revenue for the digital side? So it would be just the advertising revenue from the social media platforms or are we kind of building any air platform?

Okay. So there will be multiple. Right now, what we are doing is we are monetizing our presence in the social media platform. However, as you know, because we are coming from a content-rich background, we are also parallelly creating content. And I'm sure there will be platform for value content that they believe that will add to their platform, like syndication of content. So not just the social media platform, but even syndicating content and creating content for platforms or for creators is something which we are looking at because we have a lot of resident talent, creative talent, which we would like to exploit. For example, 2 years back, we had done the deal with Fourtyfive. We were giving them original content which was commissioned by Fourtyfive with us. So similar options of syndicating content, we will be looking at and we'll be constantly trying to get our monetization done across various verticals that we want to pursue.

So the expenditure or capital realization would be purely on the content side. It won't be only developing of any app or platform of our own, right?

See, right now, there is no such reason why we believe we should go into an ad because there are other ways of getting your distribution done. As far as the platform is concerned, we are evaluating a few areas technologically in case of increasing our reach. And whatever suitable options come, we will not mind investing in technology, if that is the need for us whenever that time comes.

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, revenues grew 20% year-on-year in Q1. So are we saying that for coming quarters also, we should be growing 20% year-on-year.

See, it all depends on how the market performs. But expectations to have between 17% to 20% will be fair, I think so. And because we are building ourselves up to ensure that there is considerable growth in our business. So yes, we should be looking at that kind of a range, I would say.

Okay. And with respect to margins, sir, what kind of EBITDA margins do we expect in coming quarters?

See, right now, we have a 24% margin. And as you know, this is the kind of average you can expect from us as we go forward. And we'll see because -- which I've been telling in the past telecons also that there will be some investments that we would want to do as we want to foray as a larger digital play that want. So some investments will happen and we'll try and keep our margins within whatever the period that we are talking about. And this is something which I need should be a healthy margin to look at.

Okay. And sir, regarding the government contribution, which is 5% currently, what was it during pre-COVID levels?

Pre-COVID, it was quite, quite high. I would say it was possibly the -- it was our largest category, in fact, about 10% to 12% was the kind of spends government would have deemed, and election years it will be a little more than that. So yes, we are a good way away from -- even if I look at the absolutes from the investment pre-COVID to what it is now.

Okay. Okay. So when we say sir, that we are expecting to grow like 20% year-on-year. Are we building the additional government spends into it, that are we building that the government spend will be from 5% to 10%, 12%, something?

See, as you know, the percentage of growth is usually a combination of our pure business, which is our radio business which government is also part from a category perspective. We are also talking about on-ground led for monetization. We're also talking about digital. So in the combination, I'm talking about 17% to 20%. The playout will be depending on the opportunities from time to time. So you can't really pick it up. But yes, when I'm talking about this 17% to 20%, I am expecting at least for the next 1.5 years, the marginal increase that needs to come from pure government business being lesser in the last 2 years is something which I think we are all sure about it will happen. There's no ifs on that part.

The next question is from the line of Riya from Aequitas Investment.

Thank you for the follow-up. My question is in regards to earlier, you had said that after INR 200 crores turnover, since it's a fixed cost business, whatever incremental revenue would come down directly to PAT level. So why would you guide for something similar margins going forward with the 20% growth?

Sorry?

The 17% to 20% revenue growth guidance, why would you guide for a similar EBITDA margins, while our -- like close to INR 200 crores turnover, the entire incremental revenue should ideally fall down to the bottom line?

No. There is also a future prospect that we are looking at. And I've been timing again saying that the digital play out -- I mean if one is expecting 35% to 45% of the revenues to come from digital means you'll have to invest on people, on content which will give you that digital play out, right? So that will be the play out that we will be doing. Exactly when we are saying the growth will come, it's not that everything will go down because there will be some investments that we'll need to do from time to time. And that is only a percentage that will be off from the margins that we are talking about.

Okay. So more or less, the current margins will sustain even with the incremental revenue?

We have to improve it and that's the endeavor, and that's the constant endeavor from the team. And we hope that we will be able to improve margins, so that is healthy for all of us. But we are in a juncture where there is a simultaneous investment happening for the business to be long-term perspective. So that -- it's the short-term and long-term perspective in which we'll have to bear with this kind of margins. Once things get settled, hopefully, you can look at improvement of margins.

Got it. And in terms of digital, how much CapEx have you already done? And how much have we...

Hardly anything. There's no CapEx at all right now. If at all, the CapEx investment will happen, will happen when we are evolving technology for distribution of our content. But right now, for the scale of the business, there is 0 CapEx, I would say, at this point in time. It's only the people-driven business that we are investing on.

And in terms of margins, how would be the digital versus our radio business?

Sorry, sorry.

In terms of margins, how would be our digital business?

Yes. So margins will be much more assets now because there is no investment beyond people and content that we are looking which is in-grown right now. But to answer your question, I believe my digital business will be a better EBITDA booster than my radio business, given the nature of our radio, as we go forward.

Got it. Also in term advertisement, apart from the government, maybe we will see some increase. Which sectors do you think would...

So auto and electrical and electronics is definitely going to grow, for sure. We're also seeing a lot of pharma and health care increasing in expense. In fact, this quarter, pharma and health care are actually the second biggest category. So, we see some of these categories. Education has become big. So we believe it is going to be across categories. But yes, to answer your question, real estate, pharma, education and auto, for sure will be adding more sort of business. And as we go into the second half of the year, finance will take over and have its investments coming in.

[Operator Instructions] Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Thank you. We sincerely appreciate your participation in today's earnings call. I'm confident that Radio City will continue to deliver on stakeholders' expectations and live up to the trust reposed in it. The presentation, earnings release and results are all available on the corporate website and stock exchanges. If you have any further queries, please get in touch with any one of us or with Strategic Growth Advisers, our Investor Relations partner. Stay safe, take care, goodbye.

On behalf of Music Broadcast, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.