Music Broadcast Limited (RADIOCITY) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Music Broadcast Q2 FY '24 Earnings Conference 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 on 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 Q2 FY '24 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. I'm delighted to share with you the financial results of our company for Q2 and H1 FY '24. These achievements are a testament to the hard work and dedication of our team as well as our commitment to driving growth and innovation in the dynamic world of media and entertainment. In Q2 and H1 FY '24, we experienced significant progress in our financial performance. Notably, our profit growth exceeded our revenue growth, a clear indication of the trend of our business model. During this period, we achieved EBITDA margins of 23.1% in Q2 and 23.5% in the H1, making a substantial increase of 480 basis points and 450 basis points, respectively. These improved margins are the result of our ongoing efforts to control costs over the past few years combined with our revenue growth, leading to the enhanced operational efficiency. It is worth emphasizing that despite the festive season for this year falling entirely in Q3, our Q2 figures have displayed strong growth, which underscores the market's resilience and buoyance. At Radio City, we have been implementing various strategies to strengthen our presence in the radio industry. During the quarter ended, our market share increased to 19%, up from 18% in the previous quarter, according to the AirCheck markets. This growth underscores our commitment to delivering quality content and connecting with our audience. Our omnichannel presence has played a pivotal role in this success, enabling us to leverage our extensive networks and provide maximum value to our clients. This quarter witnessed a positive development wherein the Ministry of Information and Broadcasting has approved new DAVP rates for government advertising on private FM radio stations. These rates have been revised after a gap of 7 years, with the base rate seeing a substantial increase of approximately 50% to 60%. This adjustment likely aims to account for changes in the advertising landscape and ensures effective communication of government messages to private FM radio. In terms of advertising sector growth, we have witnessed development with the real estate industry, for instance, experienced substantial 40% year-on-year increase in the advertising spending. The pharmaceutical market expanded by 30%, while the auto industry exhibited an impressive 56% growth compared to the previous year. The food and beverages sector showed a commendable 21% growth and the government advertising increased by 12% year-on-year. On the flip side, the finance industry encountered a decline of 6%. This insight into the sectoral growth enables us to adapt our strategies and tailor our services to the changing needs of our clients. As we navigate the evolving media scape, characterized by the digital transformation, we are making significant strides to remain at the forefront. We understand the importance of being platform-agnostic, and have embraced digital technology to create, distribute and engage with our content seamlessly. Our digital business grew by 24% in the H1 FY '24 compared to the previous year, reflecting our ability to adapt to changing preferences in the audience needs. Our inventory utilization in H1 FY '24 stood at an impressive 73%, showcasing the efficiency of our operations and our ability to maximize our resources. Radio City continues to be a popular choice for both existing and new clients with 40% of total clients on the radio platform choosing to advertise with us. Amongst new clients, 35% opted to advertise on Radio City, further cementing our position as a preferred advertising platform. We are also proud to diversify our revenue streams, generating 36% of our revenues from various sources such as properties, proactive pitches, digital ventures, sponsorships and special events. This diversified approach continues to add overall financial resilience and stability. Moreover, we have secured the second largest client count share in the industry, standing at 39% in the Q2 of FY '24, a testament of our strong client relationships and the value we provide. Now coming to the financial performance highlights of Q2 and H1 FY '24. For H1 FY '24, revenue grew by 14% year-on-year to reach INR 105.5 crores. EBITDA grew by 41% year-on-year to reach INR 24.8 crores, while EBITDA margin expanded by 450 bps to 23.5%. I would like to highlight here that our operating profit growth have outnumbered the revenue growth. This was mainly on the back of our conscious efforts over the past few years to control costs that has paid off, allowing us to take advantage of better operating leverage, which has led to faster rise in profitability. Adjusted profit after tax, which is adjusted for interest on NCRPS to the value -- tune of INR 3.8 crores, stood at INR 5.1 crores. Q2 FY '24 revenue grew by 8% year-on-year to INR 52.4 crores. EBITDA grew by 36% year-on-year to INR 12.1 crores, while EBITDA margin expanded by 480 bps to 23.1%. Adjusted profit after tax, which is adjusted for interest on NCRPS to the tune of INR 1.9 crores, stood at INR 2.3 crores. This strong performance in H1 FY '24 provides a solid base as we look ahead to H2 and beyond, while we anticipate further growth during the festive season. We are committed to capitalizing on these opportunities and sustain our upward trajectory. Our cash reserves stood at INR 305 crores as of 30th September 2023. Our liquidity position remains strong, as stated previously. This liquidity allows us the flexibility to take advantage of present and prospective future opportunities. In conclusion, I want to emphasize that the evolving media consumption behavior of the Indian audience, influenced by the abundance of content options, have opened up an avenue for the radio industry to embrace digital platforms while still preserving radio at its core offering. Radio City has proactively invested in digital technology to stay in step with the current trends and changing preferences of our audience. With this, I would request the moderator to open up the floor for Q&A. Thank you.

[Operator Instructions] The first question is from the line of Amit Mehendale from RoboCapital.

Sir, my first question is on the recent DAVP ad rate change. Now that they have gone up by 50% or so, how much incremental EBITDA can it generate just because of the rate change?

See, the -- you're talking about the DAVP rates, right?

Correct.

See, the current contribution of DAVP is about 7% to 8% to the overall business, with the increased rate possibly a percentage or 2 of contribution that increase. So that increase will be that 10% of the overall revenues that we talk about. So any change in numbers will be reflective of the changed -- increased revenues that you talked about.

Sir, I didn't follow that fully. So out of the total revenue, are you saying that 7%, 8% is due to -- 7%, 8% of the revenue will undergo this rate change?

Yes, generally. Because that's the contribution government is giving. You're right.

Okay. Perfect. Great. And the second question is, there have been TRAI recommendations recently to the Ministry which has 2, 3 key recommendations, including having the FM on mobile, et cetera. On that, there are 2 questions I wanted to ask. If we go back in time and look at previous 5-, 7-year recommendation, what is the rate of acceptance by the government? Is it -- I mean just curious. It will help if you can throw some light on previously how these recommendations were dealt with? And so -- and specifically to these, the newer set of recommendations, how -- what is your old internal perspective, whether they will get accepted? When they will get accepted? And how -- can it expand the market and so on?

Yes. So I'll answer it in a little different manner because anything to say on whether the government will accept it or not, it might lead to speculation because strongly, TRAI has recommended. And this is also going through various interactions with the main industry, with the radio industry, with the other industries and so on and so forth. So both, whether it is allowing independent news to be on radio and also mandating if that comes from the Ministry to have FM radio enabled on mobile sets, is something which the government has to take a call. The Ministry has to take a call. But if it is allowed, then the impact on the radio industry it'll be tremendous because with the reach that is available on mobile. And if that is opened up from an FM tuner, the kind of additional reach and ability of radio to reach across the country will be far more higher, number one. Number two, news as a genre in itself is something which is highly attractive from a consumer point of view because of the various things that consumer looks and that's how news -- India is a voracious news country where news is really taken a lot more seriously. And there are categories of advertisers who believe in news. So if these 2 gets recommended, it's no doubt to say that it will have a huge impact on the revenue front for the radio industry. However, like I said, it all depends on the government to kind of give us the final say on this. So I -- beyond this, I cannot say anything that is tantamount to speculation, and I don't think it will be fair for me to speculate on that.

Well, sir, actually, my first set of questions was actually tackling that in the sense that how -- if you look at history, typically, what is the government has done in the past? Do they accept everything? Or some -- if you can just comment. I understand that you will not be in a position or you don't want to comment on what will happen, but what is the history?

Our -- in the current recommendations, at least on the mobile set, we are a little gung-ho because there's not much of a challenge out there, we have -- the qualifications on which we are asking this to be done is a lot more manageable from a government perspective. But news, there is certain sensitivities the government always keeps carrying on. So one, it's not sure as to what is the current mindset on news to be allowed because this is not the first time the industry has asked for it, and neither was that the TRAI recommendation has come. But the TRAI recommendation, this time has come on independent, which is far different from what it was in the earlier recommendations. So honestly speaking, beyond this, I will not be able to comment. And all I can say is that we'll have to wait and watch. And if it happens, it's great signs, and we should all be happy, is all I can say.

Great. And my last question, if I may, is on the ad rate. How was this quarter? I mean if you look at ad rates, are you seeing some upward traction or they're flat? How -- if you can comment on that.

Yes. So currently, even if you -- I don't know if whether you're part of the last con call that we had. But until the time the inventory saturation doesn't happen, rate increase usually doesn't happen because there is a room for you to increase revenue through volume load. So I can clearly say across the industry for this quarter, everybody has taken the volume load because there is still bandwidth for additional revenues to be generated with the volume that is available, cut across market that we talked about. So marginal increase or no increase is what I would say from a rate perspective for the quarter.

[Operator Instructions] The next question is from the line of Riya Mehta from Aequitas Investment Consultancy.

My first question is in regard to what are the current ad timings for us?

Ad timings, you are saying?

Yes.

See, we are all running around an average of 14 to 15 minutes advertising, which is the standard that has been running over the years. Peak season time, those numbers can go up by about 10%, 12%. But otherwise, it's about 14 to 15 minutes that we talk about.

And what is the maximum we can stretch this amount up to?

Overall, if you want by logic, there's no ceiling on how much you can take because unlike television. So you can contest it. If need be on a very extreme point of view, we can always -- you can even take 60 minutes, but that's not how the -- how it works because there is content that has to be given. But there is room and flexibility still to take more if it is required. I'm not getting exactly what question you're asking because in radio, there is no ceiling that how much you can take. So there is bandwidth if you want to. But we all take our calculative understanding of content, consumers, advertisers and the balancing of that is what we normally do when we do because there will be markets where you are oversaturated in a few markets. So we are very clear about how to go about those so that there is disconnect with the listeners when it comes to content.

Sir, my question was more in regard to after a particular bandwidth of advertisement per hour, we might see loss in market share for us. So what is that particular -- or I mean if...

Well, sorry. I didn't get your point. Could you repeat that, please?

One second. So my question is in regard to the kind of bandwidth or the amount of advertisement per hour, which we can totally take. So currently, it's 14 to 15 minutes per hour for us. So until what extent can we increase this so that it does not impact our audience and market share?

No. See, if you ask me honestly, if you really give good content for 40 minutes in an hour, it is more than enough for you to have an engaged audience. So in that sense, there is still room. But those are understanding over the years that we carry. There is no empirical evidences in terms of research to prove it, but we know that, that is the kind of flexibility that is there for any radio channel to carry the ads. That's number one. And market share losing because even at the current level of inventory utilization, we are managing our market share. So if we increase, we'll only increase the market share, but you want us to do a fine balance, as I said, between how much of ads you want to take and how much of content you want to give.

I understand. My second question is in regards to auto. So we see some 56-percent-odd growth in the auto advertisement across. So going forward in festive season, do you think we will get to the pre-COVID level here?

See, the pre-COVID levels, honestly, the volumes have already been reached in certain categories. So the challenge is to pre-COVID levels of revenues, and that is directly connected to the yield. Again, it's a catch-22 situation. Once your inventory is full, then the rates get increased, and then inventory full unfortunately cannot be led by one station. That inventory full situation has to happen at least with 2 or 3 of the leading stations, so that -- then everybody knows that everybody is in the same plan. Because if you still have other stations which have enough or more inventory to take and advertisers beyond the point would want to balance themselves by taking those channels because it comes at a lower cost, you will have the challenge. But given a period of time, when inventory saturates, you will see that the yield increase happening because that kind of yield in the past has been paid for the medium. So there's no questions asked on that. This is the current situation for which, unfortunately, each one of us are operating possibly at lower yields as compared to pre-COVID.

So what would be the current percentage compared to pre-COVID, prior yield?

We have reached about 85% of the pre-COVID level across. So yes, that's a 10%, 15% improvement to pre-COVID levels is still available.

And how much improvement in inventory levels can we see across?

We have moved from a pre-COVID level, if I just gave the average, we almost moved by about 20% higher than the pre-COVID levels, inventory utilization.

It is 20% higher than the pre-COVID level.

Yes, yes.

Okay. So I think we are very nearby the breakeven level where we can increase the ad yields as well.

Yes, yes. Yes.

That [ kind of stand ] to INR 10 crores incremental advertisement, if I'm right.

Yes, yes. Because once you increase the rate, that kind of revenue generation is on the cards. It's on the cards, you're right.

Right. And for the festive season, so far, have you seen such kind of scenario happening where inventory is taken out and we could increase that yield?

So yes. So that will be tactical. We will be increasing rate for the period for sure because inventory will be -- will increase. It's already showing signs of increase. And the best part is that we are very nimble in our decision-making. And we would assume that the market, which is saturating, we will see that increase in rates.

[Operator Instructions] The next question is from the line of Sanjay Kumar from ithoughtpms.

Sir, when will the recommendation of the authority be implemented if government approves it? Is there any time line to take a decision, it could be in favor or against, but is there any time line?

One way the DAVP rate was part of the same TRAI recommendation, which has gone into DAVP. They have already given us the rate increase, which should be up any time now because the entire recommendation has already been approved. The other 2, obviously, will depend on the Ministry to have their understanding as to when they can clear it. So if all goes well, a month or 2 is max that they will need. If not, given the fact that we are getting into an election year, the priorities of the government may decide on the fact as to when these things can be implemented, if it is even a yes or a no for that matter.

Okay. And if the ALF recommendation is implemented to 4% of gross revenues. Let's say, today, I think our ALF is at 10% to 12% of revenues. So if it comes down 4%, this incremental INR 10 crores will flow through to EBITDA directly, right?

Directly. Clearly. Clearly, it will flow back to the EBITDA.

Okay. And second, on the DAVP, let's say, today, government business is INR 12 crores, 50% increase will mean INR 18 crores of revenue. So this incremental INR 6 crores will again flow through to...

For INR 12 crores, we -- government revenue will be around INR 22 to INR 23 in the -- at the yearly level. INR 12 crores is just going from a H1 level, is it?

Yes.

Okay. Yes.

Yes. So 50% increase will be INR 18 crores. So this INR 6 crores again will flow through to EBITDA?

In the second half?

Yes, in the second half, or whatever is the increase, the 50% increase will directly flow through to EBITDA, right?

No. Ideally, it will directly flow into the EBITDA because if there's any other costs involved, it will be that -- netted of that, but largely, everything will go into the EBITDA.

And any guidance for how much the government share can go from the current say 6% without...

I think if all goes well, it can touch to a 10% to 12% contribution from the current 8%, 9% -- 7%, 8% that's the government.

For H2?

Yes.

Okay. And last question, sir. What will be the current utilization for us and also for the industry?

Yes. I would see percentage in all India, level that to 73% to be precise is the kind of utilization level.

From the industry?

For the industry, no. For us. Some of them will be at much lower because our shares are higher. So somebody who's at 8%, 9% share as in some of our competition, will obviously be at much lower.

Okay. Okay. And what point of utilization do you think the ad rates can start increasing?

See, I don't want to really stick my neck out here because everything depends on how the inventory situation happened, and now jointly, the rest of the people also go into the same inventory situation for them to even take a call because it cannot be an isolated case. But in our case, if suppose, given the fact that we cross the inventory that we are wanting to take from a ceiling perspective, then marginally we'll start increasing the rates, which like I said in the previous question also, if you see that, even in the current quarter, if the inventory in certain markets will increase, we will increase our rates accordingly, and we are doing that.

Okay. And finally, if I can ask one more?

Please.

Yes. So if the license period is extended by, say, 1 year or 2 years, 3 years because the authority hasn't mentioned any duration, what kind of monetary impact will we get because of this extension, say, 1 year or 2 years?

So yes. So whatever the license fee we pay for the year, if it is 1 year, that license fee cost will be saved for that particular year. While, for your information, we have asked for the 3 years extension of the renewal of the license. So whatever the license fees that we are paying for the year, that license fee will be saved from our perspective.

Okay. So it's -- so INR 20 crores per year of extension roughly?

Sorry? Come again. Sorry, I didn't get you.

INR 20 crores of ALF fee roughly for 1 year will be saved.