Saregama India Limited (532163) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Saregama India Limited Q3 FY '20 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Shobit Singhal from Anand Rathi Shares and Stock Brokers Limited. Thank you, and over to you, sir.

Yes. Hi. Thank you, Nirav. Good afternoon to all of you. Welcome to the Q3 FY '20 Earnings Conference Call of Saregama India Limited. From the management side, we have today Mr. Vikram Mehra, Managing Director; Mr. Vineet Garg, CFO; and Mr. BL Chandak, the Executive Director. Now I would like to hand over the floor first to Mr. Vikram Mehra for his opening remarks. Post that, we can start with the Q&A session. Over to you, sir.

Hi. Good afternoon, everyone. A mixed bag quarter for us. Our consolidated income from operations for 9 months if -- was INR 413 crore compared to the -- for the same space right now for the 9 months last year was INR 418 crore, so we are almost close to being flat. Year-to-date PBT margin is around 9.2%. We are reasonably confident right now by the time we end the year, which is after this quarter, this number should be hovering around somewhere around 12%. If I talk on quarter-on-quarter basis, our revenue from operations was INR 129 crore, which is 18% lower than last year, while our PAT is INR 10.5 crore compared to INR 13.5 crores last year. This is quarter-on-quarter basis. The primary reason for the lower numbers this time are lower-than-expected sales for Carvaan, and the other issue which has happened right now compared to last year, where all these festival sales came in quarter 3, this year because of the timing of the Diwali, these festival sales got divided between quarter 2 and quarter 3, and this you can see by the sales numbers of Carvaan too. Our core business from music licensing continued on its growth trajectory. We have been projecting anything around 25% year-on-year numbers. Good news is, on a quarter-on-quarter basis, we people have grown by 28% this year. While if I do on a 9-month basis, we people are at 23%. So we are in sync with the commitments that we people have made. We are obviously investing in Hindi and Tamil content. There is also a lot of focus right now on other regional languages. All our consumer work seems to be indicating there is a huge increase in music listening in local languages, which go beyond the big 3 or 4 languages. So everybody wants to focus on English -- Hindi, Tamil, Telugu, Marathi, but there is a big market checking out of Punjabi, Bhojpuri, Haryanvi, Gujrati, Bengali. There are large pockets of consumers sitting in, and we are now evaluating many of those languages and seeing that should we enter those. The Carvaan numbers for the quarter were 198,000. Across all retail counters right now that -- where Carvaan is retailed from, we were getting this feedback during Diwali the amount of footfalls in the retail outlets was far lower than what they saw last year. There has been -- Diwali was a pretty dull Diwali. Unfortunately, for us, we are still a brick-and-mortar product. Since Carvaan is still relatively a new concept, most people have never seen a Carvaan in their life, they want to touch and feel it. Unlike a mobile phone category, where most people know about the category, they're very happy to buy it through digital and all the e-commerce platforms. In our case, people primary buy it from retail outlets. And if the footfall goes down in retail outlets, it does start affecting our sale, and that's what we people have suffered this time. We people, as we have committed during the last call because -- which was after the last quarter, by that time, Diwali had already happened, and we had given this clear understanding right now to all of you that we will start cutting on our promotional spend to be in sync with where we see the consumer sentiment to be right now. We have gone out there and done that. Also, we have now, post Diwali, cut down a lot right now on our demonstrators, which are there in the field, because if there are no footfalls happening at the retail outlets, there is no point putting up demonstrators in those retail outlets because if there are no people, whom are these demonstrators going to demonstrate the product to, which means right now that our ability to sell down will get affected. But at this juncture, looking at the consumer sentiment, we believe that's the right action to be done right now wherein we are controlling both our sales and marketing expenses, and you will see that impact in the current quarter. The good part for us right now is that we have been talking for the last 2 quarters about a new product called Carvaan 2.0, which is a product which gives you a WiFi-based return path, which allows us to stream much more content. The issue with Carvaan always has been -- in a way, 2 concerns that keep -- people keep on having with Carvaan: one, that it talks only to a 35-, 40-plus age segment; and secondly, focuses only on music, which can't get updated. What Carvaan 2.0 allows us to do is to stream many more -- so we are streaming close to 100,000 songs of ours now onto that Carvaan. So if you buy a Hindi Carvaan, you'll not only get the 5,000 songs which are preloaded, but hundreds and thousands of other Hindi songs, also Tamil songs, also Punjabi songs, you can listen to Ramayan, you can listen to, what, Bhagavad Gita, you can listen to Gurbani. You're no longer limited by only the content which is sitting in. But if you don't want to connect it to a net right now, you still maintain your 5,000 songs. But if you connect to Internet, using the same easy access of Carvaan, one turn of the knob, you get access to much more content, which is there sitting behind Carvaan 2.0. We have now taken recently another call and saying that we should open up this Carvaan 2.0 to consumers at large where there -- where any passionate retail consumer can also start contributing towards the content, which is sitting on to Carvaan. The role model always is the very popular streaming platforms in the world of video called YouTube. The question is, can we do something similar in the world of audio? We already are having Carvaan 2.0 entering the homes of people. Can we open it to public at large, curate the content which is provided unlike other platforms which allow all content to be uploaded? We will be curating the content, so if you have some great content on travelogue or you have a great content on cooking, you have great content on stamp collection, or you have a view on economics out here, please -- or you have a view -- content on parenting, you can submit the content to Saregama, we curate it and we put the content up. Whenever we start making money from that content from our advertising, we do a revenue share with the guy who is contributing the content. Podcasting is showing a huge upswing all over the world right now. And we believe if we can build a platform, where the content creator in a transparent fashion can get a share of the revenue that we're making, we may be able to unleash the power of podcast to the fullest. Something I want to share with you guys. When we opened this Carvaan 2.0 to consumers for the first time, on an average in the month of October, the average amount that a user was using the podcasting content, not the preloaded content, was 28 minutes -- sorry, 25 minutes, which went up steadily from 25 minutes in October to 33 minutes in the month of January. You can check out, this is the average time spent by a Carvaan 2.0 user listening to podcasting content. This is over and above the time the same customer uses to listen to the preloaded content. Now, Carvaan 2.0 very clearly is our attempt to move Carvaan from being a standalone product to a platform. From a platform perspective, when I am saying 33 minutes is comparable to the -- on an average time, people are spending on a Facebook platform and only marginally lower than the time spent by an average user on YouTube as a platform. Now the numbers are very different. The numbers out here are still very small in terms of average number of users who are tuning daily. But the good news is people who are tuning in are spending a reasonable amount of time, which in future opens up a great advertising opportunity for us as a platform. As mentioned earlier, again, we people knowing right now the imagery that the Carvaan enjoys in the market of being the 3 big pillars Carvaan is built on, music, nostalgia and premium value, we have realized right now that Carvaan has got position as the single most unique and differentiated premium music brand. There is no other music brand in the country today. There are some streaming platforms, but they are not differentiated from each other. Carvaan has got a unique identity and a premium image. We want to extend the same thing right now to touch the customer in different aspects. So we made an attempt right now in the last quarter to launch a digital property on YouTube called Carvaan Lounge. What is it? Nothing very different right now. We take some of the biggest retro songs, reinterpret these songs using the new-age singers like Papon and Benny Dayal and Neeti Mohan and Jonita Gandhi. They redo the songs, we put it up as a YouTube property. How do we make money? We get sponsorship revenue, we make money through advertising on YouTube, and the same content starts going to our partners like Gaana and JioSaavn and Wynk and Hungama, and we make money out of that too. So the Carvaan brand is getting extended from being preloaded music, hardware to a digital property. On the other side, in the month of January, we are now experimenting and saying, can we also get into fast-moving products like earphones? Each of these properties get no additional marketing spend. We go back and work right now, leverage the equity of Carvaan out here and get to additional categories. What this is going to go back into -- if I can just spend a minute out there on this Carvaan earphones part. Carvaan earphones also is an attempt from our side not only to further extend the equity of Carvaan, but also get an entry in the retail outlets, so smaller retail outlets, which till now were not going out there and keeping Carvaan with them. We get an entry through Carvaan earphones. And that will over time allow us to also start introducing Carvaan Mini in this particular market. The big other additional advantage of this entire thing that starts coming in right now that the brand starts keeping relevant to more and more younger people; Carvaan Lounge, which is a digital property; Carvaan earphones or recently, we have launched Housie on Carvaan 2.0, is making the brand getting more relevant to relatively younger people, that should not become a brand of 50-plus, but should be an equally relevant brand for a 30-, 35-year-old. On the TV serials side, our serial, Roja, continues to be the #1 show of Tamil Nadu. It's a matter of great pride because in the 19 years, we have done lot of good content on Sun TV, we never had a program of ours which was the #1 rated program right now across channels, across time bands. And this is in -- the show is not even there in the prime band, it's a 7 o' clock show. That continues, which also means right now our ability to liquidate inventory on Sun TV remains steady and strong after, what, 2 years of we people not writing that great numbers, Sun TV business of ours is looking pretty decent. On the films side, it was a quarter which saw no activity. As I mentioned last quarter, there was a bunching that had happened right now. We had sold 2 films to Hotstar, 2 films to Netflix in that particular quarter because of which there were no movies that came in out here. And if you see my quarter-on-quarter numbers, the primary difference is an impact of this only. It's a bunching of movies that happened in quarter number 2 with quarter number 3 going blank out here. That kind of a phenomena keeps on happening out here. It all depends on which date is the agreement signed right now, and we people start recognizing the revenue only when the agreement gets signed, and hence you have the saving issue which happens. On the other part, right now, which is great news for us that we were able to go back and keep our debt under control. We started right now -- we were able to repay around INR 33 crore of debt during the last 9 months. Our debt has come down to INR 28 crore number, because this is a concern which was getting raised out here, and we had given the assurance that we will pay this debt out here, and we have been actively going out there and repaying our debt. Also, we had committed right now that the stock appreciation rights that the company has that we are coming out with a scheme right now whereby we will be killing the stock appreciation rights, and we have been able to go back and cancel 200,000 stock appreciation rights as of 17th of January. And in a phased fashion, we will be going out there and canceling the remaining stock appreciation rights too. That will be all from my side, ladies and gentlemen.

Sir, should we open the floor for questions? Hello? Sir, should we open the floor for questions?

Yes, please.

[Operator Instructions] The first question is from the line of Ravi Naredi from Naredi Investments.

Okay. So Carvaan story, you have told -- tell in the details everything. So now the number is 6.67 lakhs for 9 months. So what is our target to revise this year?

We are still -- our last projection was 1 million right now. It's a very stretched number. At this juncture, I will not change anything. We will continue with those kind of numbers. But, yes, it's a stretched number in front of us right now.

Anyway, it is very low-margin business for us. Now we talk about the movie. How is it going on? And how much movie -- more movies are coming in this quarter -- current quarter?

So movies right now all -- at this juncture, high likelihood that we will be able to close one more deal this quarter. So the way the movie part happens right now as the movie starts getting ready, we keep on start opening a negotiation both with the digital guys as well as cable and satellite guys. And typically, you will find 1 movie to 2 movies moving out there in a quarter. Q2 was an exception with suddenly bunching of agreements happened and all 4 got released in that particular quarter. But let me go back to the point that you raised on Carvaan, that's a very low-margin business. Please do understand right now we are moving Carvaan from being a product business to a platform business. As it starts moving into a platform business, and you start getting more and more users, then it will no longer be a business where you make upfront margin. It will start becoming a business where you start making advertising money from every new user who becomes part of Carvaan. It will be very similar to any platform that you know, which is based on advertising. It's a very -- all that we are moving right now from being a onetime product business, where you make margin upfront and you never make money from the biz -- customer, to a platform business where you make some money upfront and then you start managing money from the consumer in the long run also.

Okay. And one more thing. We are planning 20 movies every year, is it right?

But that's the target we people are working on, but we are very clear consciously. We are slowing down our earlier plan of making -- first making movie and then finding a buyer. We more and more right now are working on the model where we -- first, the buyer says he wants a movie and then we start making the move.

So this financial year, we will be finished with how many movies this year, current year?

We have done 5 deals already right now, till now. And hopefully, we'll be able to close 1 more in this both -- quarter.

So this will be 6 movies this year, right?

Yes, sir.

And how much money we expended to acquire the new rights of music this year, films music?

Till now, right now, the total amount of money we people have spent right now is INR 32 crore odd.

INR 32 crore. And any more in pipeline this current year -- the current quarter?

It all depends right now if the movie gets released in this quarter or not. And with the Bollywood, the problem is we don't know, movie's release keeps on changing here and there. Understand right now, we have said this earlier that we would like to spend close to INR 200 crore on movie acquisition -- on music acquisition over 3 years. This year has been much lower compared to that because some of the movies just didn't happen. But directionally, that's where we want to go back and move. We believe that music is a huge growth segment. Whether it's the TV business, whether it's digital business, live events business, everybody ends up using music there. And as more and more video content is coming up, more and more scope for music to get integrated in it, and hence we will continue investing heavily right now in our core business of music.

Okay, okay, okay. So Vikramji, all the best. And any land monetization development is there, you want to share or nothing is there?

Whenever something comes up, it's -- we will share with you.

[Operator Instructions] Next question is from the line of [ Akash Shah ] from AMS Securities.

Like you were saying that you will open up Carvaan 2.0 for advertisement revenue, but will it not affect the image and the USP of Carvaan of being advertisement-free and of being the laid-back music experience that we all...

So laid-back remains the same part out here. So the core part of Carvaan, which is 5,000 songs which are preloaded in it, advertising will never enter that area, right? It's the streaming content, which will go in out there, which may be nonmusic content. So music content is going to be kept free from advertising. The nonmusic -- so today, already we have BBC channels there on Carvaan, you have MoneyControl channel on Carvaan, you have Anupama Chopra's Film Companion which does movie reviews channel on Carvaan, you have kids stories, kids nursery rhymes, kids learning tables for all the grandchildren, those channels on Carvaan right now. That kind of content, at some juncture, either we can charge advertising money or we can charge subscription money. It's too early. Right now, the entire focus is to ensure that more and more people end up consuming content using this platform. That's the data I shared with you right now, how the number has gone up substantially right now, average number -- amount of time people use listening to nonmusic content. Music remains advertising-free.

So you are basically saying that it is not firmed up. It will evolve as the data evolves, of the strategy of doing advertisement or subscription.

That -- [Foreign Language] it can always be a combination. It would be wrong at this juncture if hard code it. There may be some channels that are better suited to advertising. It's the same work right now which happens on a DTH platform. Some channels are free-to-air, some channels are paid, free-to-air get advertising. So we are saying the focus right now in the going time is use the power of Carvaan and its retro music to first push more and more Carvaans and build a platform business on top of that.

So currently, are we charging anything to the other content creators who are putting up their content on Carvaan?

No. We are not charging a carriage fee, if you're asking. No, we are not charging. Our commitment in many of the premium content guys is that please give your content free to us. And as and when we make money, we will share that revenue with you.

[Operator Instructions] The next question is from the line of Jaideep Merchant from Janak Merchant Securities Private Limited.

Vikram, I had 2 questions. One is, there has been a sharp jump in the salary number in this quarter. If you can tell us what has happened there? And secondly, you -- in the start, in your comments, you mentioned that you're still sticking to a 12% PBT for the whole year, okay? That will come from lower expenses or there's going to be some movie launches in the quarter 4?

It's the lower expenses that's going to be happening and some kickers you're going to get on licensing income because it's -- the way agreements function right now is some of the agreements get into their second year, so doing a 2-year deal right now, there's a 1 year rate hikes in the second year may be a delta jump. Some of that is going to be kicking in and lower cost structure. On the salary front, let Vineet clarify it.

So salary is -- actually there's SAR impact in quarter 2, there is a reduction of around negative SAR of around INR 5 crore. And in quarter 3, there is a positive INR 2 crore. So I think that is the difference. If I net out that, then salary is actually reduced by close to INR 1.5 crore, which is a reduction of the manpower.

I am sorry, Vineet, I was unable to understand that. Can you just explain that?

Salary numbers, if you see for quarter 2 and quarter 3, quarter 2 number, we are showing an INR 11.5 crore. We need to increase that number by INR 5 crore because that is the SAR credit we got in quarter 2 because share price has dropped substantially in quarter 2. So INR 5 crore negative in quarter 2. Quarter 3, price has gone up, and there is a INR 2 crore jump in -- that would be actually in quarter 2, so INR 17.23 crore, you need to reduce by INR 2 crore.

And the -- so the -- now in quarter 4, of course, there's no SAR, so now this variation will not come.

We have total 300,000, out of that 200,000 we already canceled, right? Rest, I think we should be able to cancel in the next 12 months' time.

Okay. And one more question, sir, the average sale price of the Carvaan, can you just give us a Y-o-Y and Q-on-Q number?