Saregama India Limited (SAREGAMA.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Saregama India Limited Investor Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pankaj Kedia, Executive Director, Investor Relations, RPSG Group. Thank you, and over to you, sir.

Thank you. Good evening, everyone, and thank you for joining us at a short notice. The purpose of today's call is to provide you with an update on the recently announced strategic partnership between Saregama and Sanjay Leela Bhansali promoted Bhansali Productions Private Limited, one of India's reputed film production house, details of which were disclosed to the stock exchanges earlier today. Today, we have with us Vikram Mehra, our Managing Director; Pankaj Chaturvedi, our CFO, to elaborate on the announcement. Our management will begin with the opening remarks, followed by a Q&A session where the participants will have the opportunity to ask questions. With that, I would now like to hand over the call to Mr. Vikram Mehra.

Good evening, guys. And once again, a big thanks for coming at such a short notice. Very happy to share with you the much talked about for last few quarters, our restructured way of looking at our video business. Today, we people did a strategic equity deal with India's most respected and more importantly, the most financially robust film production house, Bhansali Productions Private Limited. The studio has delivered some of India Cinema's most iconic and culturally relevant films in the past, including Hum Dil De Chuke Sanam, Devdas, Ram-Leela, Bajirao Mastani, Padmaavat,Gangubai Kathiawadi and the recently super hit Netflix series that did wonders at the global scale, Heeramandi. This investment is structured through primary issue of CCPS, which will convert into equity in October '28, basis pre-agreed financial performance parameters of Bhansali Productions over the next 3 years. These CCPS converting equity will result into anything between 28% to 49.9% stake for Saregama in Bhansali Productions. For this, Saregama will be making an initial payment of INR 325 crores and potentially an additional payment in September 2028. Saregama also retains the right to increase the stake to 51% after March 2030. This investment is going to be funded entirely through our internal funds. What I'm very happy about the way this deal has been structured is, yes, we really respect the equity of Bhansali Productions and absolutely terrific work these guys have done in the past. We have also shared the financials of this company for financial year '25, which are one of the strongest financials of any film production company in India. But the way deal is structured, we are not giving the value for the past. The entire value is predicated how this company is going to be performing over the next 3 years. If the company does as we anticipate the company to go out there and do, yes, this value that we are giving may result into a lower stake, but I think that will leave us even happier as strategic investors. The other very important part of this deal is that now Bhansali Productions will exclusively sell all its future film music to Saregama only basis of pre-agreed formula. That means we are guaranteed a steady pipeline of premium marquee film music, eliminating any competitive bidding. A lot of you people, when I met in the past, have raised this question that, with time, will the cost of content go up substantially as Saregama starts becoming bigger and bigger player in this market. This is the move which is going to ensure right now that a large part of our content is now going to be coming without getting into bidding. So our costs are going to be under control. While because it's Bhansali music, our market share should start going up. Saregama anticipates around 30% of all its Hindi film music content is now going to be coming right now from this particular deal. This number can even go up to 40%. So we have secured to that extent our pipeline. The money that we are putting in Bhansali Productions is going to ensure that the company moves from a production house to an IP studio, which will now create content which is not just directed by Mr. Bhansali, but also directed by other directors but creatively looked at by Mr. Bhansali. With this fund infusion, the most important part is that Bhansali Production will not have to go back and presell their digital rights or their theatrical rights when they start the film. Currently, because of the financial pressures, they end up doing that. They presell all those rights to raise funds. Now with this fund infusion, which is all primary capital going inside the company, they should be in a good position to fund these films themselves, thus ensuring that they sell these rights at a later point, hence, their ability to drive their margins is going to go up substantially. Along with this move of us of taking a significant minority stake in Bhansali Productions, the other part of our strategy is going to get rolled out, which is a gradual exit of Saregama from own produced films. We have a few projects in the pipeline. Our endeavor now is that over next 3 to 5 quarters, we will completely get out of our own produced films, which is going to be releasing anything between INR 150 crores to INR 175 crores working capital, which instead of being there in our own video business, which was -- and I acknowledge it, was a very low yield, low-margin business over the last 4, 5 years that we have been able to do. We get out of our low-yield business and put those funds in one of the most financially strong and creatively, I think, one of the best production houses of the country. So it becomes a win-win overhaul for us. We were in video business to secure a music pipeline. So rather than doing it ourselves, we are saying take those funds and put it out there in other -- the most important production house of the country, which also has the best track record in terms of financial performance. This investment is expected to be EPS accretive for Saregama by financial year '27 because it will help us improve margins, not just in the video segment, but also in the Music segment. Bhansali Productions' immediate slate over the next few months includes one of the most anticipated movie called Love & War, which is directed by Sanjay Leela Bhansali and it stars Ranbir Kapoor, Alia Bhatt and Vicky Kaushal and a studio model movie called Do Deewane Seher Mein, a romantic drama, which is directed by Ravi Udyawar. In financial year '25, Bhansali Productions reported revenue of INR 304 crores, EBITDA of INR 60 crores and a PAT of INR 45 crores, which reflects very strong profitability, disciplined execution and balance sheet strength. Under this partnership framework, Bhansali Productions will retain complete creative control, while Saregama will have a complete financial control over that company. So both from the governance perspective and the business plans perspective and deployment of funds perspective, the control will be sitting out there with Saregama. We believe this combination of the creativity of Bhansali Productions and the financial discipline that we bring to the table and the fact that Bhansali Productions is known for some great music, which will automatically start coming to Saregama without bidding is going to get into a great win-win situation for both the companies. I missed 2 points, which I want to also add, Sanjay Leela Bhansali, the individual is now creatively locked with Bhansali Productions. He will work only and only for Bhansali Productions as part of the deal. Secondly, the entire funding of this will be done through our internal funds, and we won't be picking up any debt for this deal. That, ladies and gentlemen, was the reason and my rationale for we people going out there and doing this deal. We'll be happy to take questions from you now.

[Operator Instructions] We'll take our first question from the line of Pallavi from Sameeksha Capital.

Just wanted to understand in terms of the pipeline, I guess, for Bhansali, I guess, it's 10 movies or so. Over what period do we see those releasing?

These 10 movies expected to release between next 3 to 4 years. One out of 2 of these movies may also take the form of a series.

Right, right. And this in terms of just -- would we have done the same analysis that we do for other movies when we acquire song rights for these 10 in the pipeline because we've seen some big names like -- I just take one name here, Rajinikanth in the South, seen a series of flops from that end. So just wanted to understand the thought process a bit better.

I have to acknowledge this, this is a world of creativity where there's always going to be ups and downs. All I can share with you, and it's there in public domain right now, all the films that have been done by Bhansali Productions, I may just repeat it for everyone, movies like Hum Dil De Chuke Sanam, Devdas, Ram-Leela, Bajirao Mastani, Padmaavat, Gangubai Kathiawadi, even if I include films like Black to this entire list, all these films that he has done, even the studio model of films like Rowdy Rathore or Mary Kom, all of them are profit-making films. What really attracted us towards this studio is the financial discipline with which these guys go back and attack their films. From outside, it looks like these films are very grand. They are very grand, but there is a serious amount of financial discipline that's going in and which resonates with the philosophy that we people have within Saregama as for IP creation is concerned. That's what is exciting to us. Second part, the nature of the deal structure is this, that the value of this company is going to be finally agreed at the end of the 3 years because these are CCPS. The actual value of the company will be decided after 3 years depending on the actual operating margin performance. So in the worst-case scenario, everything fails, we may end up getting this company at a very, very low price. We don't want that. We much rather prefer the company does very, very well, and we end up getting at the lower part of this stake between 28% to 49.9%. I hope I've answered your question, ma'am.

Next question is from the line of Shlok Mehta from Nuvama.

I have two questions. First, why particularly have we chosen Bhansali Productions as I believe there are many production houses out there. And my second question is, we talk about EPS accretion by FY '27. So what kind of EPS accretion are we looking at?

So let me just answer the first part here is, we have done our homework on all the production houses of the country. We always maintain the stand that we wanted to take a position on the video side to secure a music pipeline. We were looking at trying to do it ourselves for the last 4 to 5 years and not in a very, very successful fashion, which prompted us to start looking out and see who are the people we can go back and work with. I don't know any other production house, which meets both the criteria. Creatively is known for some of the best films and music coming out and this kind of financial discipline is there. I've given the numbers right now at a revenue of INR 304 crores, a PAT of INR 45 crores for a film production house is really, really good. It's far better than what people were faring at, which got us really attracted towards these people. Creatively, they fulfill what we are looking for. Financially, they are completely wired the way Saregama is.

Okay. The second question on EPS accretion.

See, at this juncture, this is all I can go back and share. With time, I'll share more information. All we have seen the numbers. Obviously, my valuations depend right now how they perform. But [indiscernible] everyday the numbers are falling at this moment. Remember, because there's a large amount of my money, which is stuck in the video business at this juncture, not giving me returns. So I'm just moving that, winding down my own video investment completely to the tune of INR 150 crores, INR 175 crores and moving that money from our own film production businesses, making it 0 on to Bhansali Productions.

Okay. Just two follow-up questions on that. One, do we see any regional music content acquisition going down because we won't be doing any regional movies now? And second...

So let me answer the first question. Regional -- our normal music acquisition will continue. We are looking at a scenario where some of our competitor music labels over time have taken a position in the films business and whichever films they were producing or financing, music of those films was not coming out in the open market for bidding, which was bothering us a bit. Hence, we got into our own video production business, not been very, very successful at that. Hence, we have got out and said, let's tie ourselves with somebody who is very, very successful and work with them. But we will continue acquiring. Bhansali Productions is going to give me only 30% of my Hindi film music. The regional market is still very much open. Even in Hindi film music right now, we will go and acquire other movies music also.

Understood. And second question was on Bhansali Productions revenue. So I see FY '23 and '24 numbers just around INR 10 crores. And then FY '25 figure suddenly going up to INR 304 crores. Any particular reason why we see such a huge variation in revenues?

See, it is somewhere -- the way these guys function is they don't make movies for the heck of making movies. They come out with movies only if they believe right now, they will be able to go out there and have a healthy enough operating margin coming out of it. So they had gone slow during the COVID time. Movies typically take -- these kind of movies Bhansali Productions makes, these are all 18 to 24 months projects that are going on. So they had gone slow. They were -- but with this kind of money infusion coming in, and we have seen the pipeline they're working on, we believe that the numbers are going to be reasonably big as we go forward. Also remember, Love & War was a movie right now that was supposed to come much earlier, which has got delayed for various reasons. Hence, those numbers have gone out there and shifted. But again, I'll repeat. What we enjoy right now is the structure of the deal. If for whatever reason they are not able to go back and do enough work here, the valuation of the company will go down dramatically. And we'll end up owning a large chunk of the company at a lower price. We don't want it that way.

Understood. And just lastly, on this 18%, like you had earlier guided that 18% of the capital deployed will be towards nonmusic businesses, if I'm not wrong. So do we revise that or that still remains?

So that guidance remains. Just like Vikram mentioned that over the next 4 quarters, our existing monies in the video vertical will start winding down. So once that amount is wind down and you include the amount that we have invested, we'll come back to our original threshold. This may be a temporary blip that you will see in a particular reporting period because we have invested this money, and it will show in our balance sheet. Otherwise, our long-term guidance remains the same.

Next question is from the line of Kunal Bhatia from Dalal & Broacha Stock Broking.

Sir, just one clarification in terms of the valuation you have given. So like you said, if everything goes as per your expectation, the amount currently paid of about INR 300-odd crores would be for a bare minimum of 28% stake. Am I right on that?

No, sir, you're not. The amount paid is INR 325 crores. And if everything goes at the top most level, then there may be an additional amount of money that we may have to pay in September '28.

Okay. So the INR 325-odd crores is not even for the 28% if everything goes well. So we'll have to pay an additional amount to get that.

If the upper -- if the numbers are there -- yes, I've shared with you the financial year '25 performance. The parameters we have put on them on the operating margin numbers are far higher than that. If they achieve those kind of numbers, then yes, there may be that number that we have to pay more is a smaller percentage of this INR 325 crores. But yes, we may have to pay some more amount of money.

Okay. Sir, for clarity purpose, if you could give us some sense on, say, for that bare minimum 28% stake, what is the number which you have in mind? And secondly, also wanted to know that, yes, I agree that the last 2 years' numbers were on a lower side. In the last -- since you would have analyzed the numbers, in the last 10 years, what is the kind of peak revenues has Bhansali Productions achieved?

At this moment right now, I can go movie by movie and almost every major movie of his is INR 100 crores plus. And you're talking about 2015, '16, '17, '18. But let me answer your first question, give you a little more color there so that you get comfort. We are talking on the total range of the valuation of the company will be anywhere on the lower end at INR 650 crores and on the higher end at INR 1,590 crore. Does that give you answer to your question?

Okay. Okay. Yes.

Right? If we are looking at -- so let's -- you were talking about some of the movies. When Padmaavat came out, the box office numbers of Padmaavat were INR 585 crores. This is 2018. So [indiscernible] money. When Bajirao Mastani came in, its box office numbers, which was 2015 was INR 335 crores. [indiscernible], which was a relatively smaller film by Bhansali Productions standard, which is 2022, did INR 217 crores. So they have a track record. What is going to happen is that now we'll not only be making films which are directed by Sanjay Leela Bhansali, but also films where he's going to creatively oversee it, but directed by other people, too.

Okay. And sir, my another question is on now whenever you are -- or say, Bhansali Productions is coming out with the music content. So how does the deal work in that place? Does Saregama -- I understand that there would be no bidding, but does Saregama pay sort of a fixed cost for that content or we get the share only to the percentage we hold?

No, nothing to do with the percentage we hold here. I think that's a separate issue. My equity participation in [indiscernible] is different from the rate at which Saregama is going to be buying the music. The music now will be a percentage of the cost of the film. And we have negotiated a deal which we believe right now is a great value for us.

Okay. So the content cost sale will be decided at the time when it is available, if I'm not wrong.

Yes. So there is always -- since we are there in this particular market for a reasonably long time, we have a very decent sense that typically what should be music cost as a percentage of the cost of a film production. Based on that, we have come out with a formula. And the good news is we will be having complete oversight on the financial part of Bhansali Productions. So we note all the data is proper data and the music will get transferred across to us on a percentage of that. So it's a very clean, transparent deal that's happening in a fashion where we believe in the long run, we will be able to reduce our cost of content.

Okay. And sir, what you will be paying would be the cost of the content or will be a relative market price?

We will be paying -- so the cost of content, typically, when we go and buy a movie from any producer, we bid. So we also put a value. We understand the cost of production of that -- every film. Every film we are going and bidding for, we have an idea how much did that film cost. So we go back and say, okay, for buying the music of that film, we will pay you X. The other party says, I will pay you extra 5%. We may have to say extra 7%. All that goes away because now there is a formula on which in a guaranteed fashion, every album that's going to come out -- film music album that's going to come out from Bhansali Productions, the music will automatically get transferred across to us and the value at which it will be transferred right now has been pre-agreed.

We'll take our next question from the line of Jyoti Singh from Arihant Capital Markets.

Sir, just wanted to understand 2, 3 things, like you mentioned on the music side. So under the pre-agreed music right formula, how does the effective cost per song compare with the recent marquee music acquisition in the industry? And second, I wanted to understand that should investor expect any near-term P&L volatility from content amortization? Or will this remain largely balance sheet led until monetization kicks in? And third, I wanted to understand about INR 1,000 crore investment that we are doing for the content, when it will go into over.

The 3 very different questions you have asked for. On the amortization, the policy that we follow in our existing video business also where we have close to INR 200 crores that is locked at this juncture as part of working capital sitting on my balance sheet, we people charge off the entire cost of the film or any other video content in the year it is released. Same thing is going to be continuing right now with Bhansali Productions, too. So can there be a lumpy nature? We have the lumpy nature problem currently also with the INR 200 crore investment. The value of the investment has gone from INR 200 crores to INR 325 crores. That's the only difference that is there. But we will continue with the policy of charging it off in the same year. That's part one. You asked how will the cost of the music be out here? We believe in a short to medium run basis, this will help us improve our music margins because we will be getting the music without getting into a bidding war by competitors. You had a third question about INR 1,000 crore investment. All our music that we people buy, we have an internal benchmark. That's the guidance I've given to all of you also that a block of content which is bought during a financial year, that means all the music that we buy in financial year '25-'26 will have a payback period of 5 years. So we should be -- if we are spending INR 100 in FY '25-'26, by FY '30-'31, we should be able to get that INR 100 back. And we are tracking on that positively.

And one last question on this side, like you mentioned, we will be cutting down on the video side and putting the money towards this acquisition. So initial also, we cut down on the retail side. Now we are cutting on the video side. So how we are taking our strategic decisions then every time we have to enter into the newer segment and then we have to cut down our existing business.

Not cut down on the video. Our video investment has gone up from INR 200 crores to INR 325 crores. We are just making a strategic call that instead of making all this content ourselves, and we have tried for the last 4 to 5 years, our numbers on film production are not that great. We much rather go back and partner with a company which has got a stellar track record of making great films and having a very strong financial performance. I thought you will be happy right now that instead of we people putting money on video in-house where the margins are not that great, we'll give you far better margins.

Yes. Obviously, that is the good thing. Just whatever investor concern, I just put it in a word. So yes.

I thought the investor concern from your side was that our video business is not making money. Now we are cutting down our exposure in the part of the business which was not making money. Continuing with the video part, we're working with a partner, hopefully, which will give more margins to us so that both you and us can be happier.

So what kind of margin we can expect further, sir, if you can guide it?

I think it's a good indicator of what financial year '25 numbers that I've shared with you of [indiscernible]. They had a revenue of INR 304 crores and a PAT of INR 45 crores. That will give you a decent idea right now that how well run Bhansali Productions house is. A INR 45 crores PAT on a video IP business is a very good number.

Next question is from the line of Harshit from Premji Invest.

Congratulations on the deal, sir. I think the question was more, so for example, after this transaction, Bhansali films, if I'm assuming INR 320 crores being the primary capital, their balance sheet would have INR 300 crores, INR 350 crores of capital. And if I just do some math around, say, for example, if INR 100 crores is the cost of the film, INR 100 crores, INR 150 crores and a 12-month time line, would it imply around 2 films per year is the kind of budget which we have in mind. So one probably can be SLB himself and the other one can be co-partnership. But should we -- do you as an investor look at it in that format that how much working capital they have and think that how much films and songs we can get a year around 10, 15 from there?

See, valid and very fair question. I think the right way for you to look at should be 2 non-Bhansali films -- 2 to 3 non-Bhansali films and one Bhansali-directed film coming every 18 to 24 months.

Exactly. So right. Around 3 to 4 per 2 years, basically 2-3 -- 2 films a year kind of [indiscernible].

Five in 2 years. 5 films for 2 years, minimum you're looking at right now.

Understood, sir. Got it. And sir, then would it be right to assume that we will be having the IP for all the 5 films, not just SLB sir's film. So our deal on the songs will be applicable to the films, all the 5 films.

Yes, sir, absolutely. So the deal is that any film which is produced, not directed by SLB sir, any film which is produced by Bhansali Productions, which may be directed by Sanjay Leela Bhansali or may be directed by somebody else, but creatively supervised by Sanjay Leela Bhansali, music of all those films will now automatically come to Saregama without bidding for it.

Fair point. So right -- no sir, I think it makes a good sense because [indiscernible] pipeline of 10, 15 songs a year.

And you are talking of films [Foreign Language], but if Hum Dil De Chuke Sanam and Devdas and Ram-Leela and Bajirao Mastani, they are like iconic films from the music albums perspective. I wish all this music was sitting out there with us. I only have one album of his, Gangubai Kathiawadi, and that also does very, very well for us. So he has an amazing knack for giving music that does very well and has got a very long shelf life.

Right. No, no, sir. I think I completely take your point that at least -- so I just wanted to understand that my numbers of, say, 10 to 12 songs a year pipeline we are getting in a way through this deal is it matches with your assumption at this point of time in terms of [indiscernible].

But 10-odd in the pipeline, you're looking at 2 to 3 years for this, I'll say more 3 years for these 10 films to come out.

Yes. No, I was saying 10 songs per year, like 5 songs into 2 films a year kind of a run rate.

What happens is there like in any particular year, say, if we talk about Hindi, there are only 2 or 3 marquee films that we end up picking. So if I take the example of financial year '25-'26, the only marquee album that we have picked up in Hindi this year, one is Dhurandhar, whose performance, I'm sure you guys are tracking. And then there is a new movie coming up called Tu Meri Main Tera Main Tera Tu Meri. So during the year, in Hindi, there are only 2 properties that we have taken. Last year, [indiscernible] Stree 2 [indiscernible] also had bad news. So we don't go for more than 2 to 3 very big budget films. Rest of the ones right now either taking smaller or we get into artist-driven music and not film-driven music. So though I said 30% of my film music is going to come from Bhansali Productions, that's my commitment out here, but I think the number will be closer to 40%, maybe 50% because all his films are marquee films. A Dhurandhar today, you give me good excuse to talk about Dhurandhar here. Dhurandhar today, a single film has got -- we have got 11 songs in the album that we have received from Dhurandhar. Each of those 11 songs today is sitting on Spotify charts. Never before in the history it has ever happened. So that's the power of a marquee album. It is generating between 60 lakh to 65 lakh streams on a daily basis on Spotify. We had a similar experience if we pull last year. So there are a few albums that do very well during the year. The fight of all the music labels is to grab those albums. So those albums only result into bidding war. Rest of them don't have this kind of a bidding. Sanjay Leela Bhansali is one of the biggest names that everybody wants to go after because his music always does very, very well. We have secured that pipeline.

Sure. If I have the liberty, if I can just have one more question, sir. Sir, this is on the INR 140 crores, INR 150 crores of lease of capital which you mentioned. Firstly, that number was actually a large one. I didn't know that the video business is consuming that amount of working capital on our balance sheet. So can help us that what would have been the corresponding some kind of a revenue on to it? Or basically, is this sitting entirely in the inventory piece right now, INR 140 crores, INR 150 crores?

Sir, right now, end of Q2, we had a INR 200 crore plus number sitting out there on our balance sheet against the Video segment, which is over 90% of that is only films. As stated, we are going to wind that down as films keep on getting released. There is enough in the pipeline at this moment. So we can't shut down this part. We will just -- as the movies keep on getting released, all those funds are going to get released right now and will become part of the equity infusion for Bhansali Productions.

Will this also help in reducing our OpEx? If I look at my overall OpEx, roughly around INR 200 crores odd per year. So will a large part of the OpEx, obviously, that includes everything from songs to IP, everything, but is this also reduced?

OpEx [Foreign Language] real stuff is music.

It is not as if some -- video is not a large contributor for OpEx.

[indiscernible] Video segment is a very small team, but I am acknowledging that on the video, our margins have been very checkered. So rather than invest that kind of money in margins, which are not so great, much rather go out there and take the same money, put it in a production house that does very, very well. Creatively great, financial great performance has been there in the past. So that we get the -- our end objective that we want to secure the music through video. That has always been the objective of getting into the space of films. We secured that, then there's no need for us to stay in producing our own films.

Fair point. And sir, one last thing on the -- beyond FY '30, the clause that we can have a higher stake. Is that also -- if you can -- it's too far away, but the probability, the pricing, et cetera, will be a later fact itself. But do you think that we'll do it only in case if this does well? Or we plan to do it irrespectively?

No, no, absolutely. See, I know I'm repeating, I think the third or the fourth time is the beauty of this deal that the -- we are not paying for past glory. We are respecting the past glory. We are paying for future performance. The better those guys do out there and do the performance, better their valuation can be and happier it will make us.

Next question is from the line of Govindarajan Chellappa from CMS Investment Managers.

A couple of questions. First, has the Board decided any maximum cash outflow that you're willing to employ in this deal? Because there are -- I mean, the stake is unknown depending on performance, et cetera. Have you fixed the ceiling on how much cash you're willing to put behind this?

Let me answer the question the other way. The valuation of the company is after the end of 3 years can be anything between INR 650 crores to INR 1,590 crores. And at this stage, we will be happy if they do extremely well and they go to this INR 1,590 kind of a number. We'll be happy sitting right now at whatever stake that result into, which will be close to 28% stake, we'll be happy doing that.

Yes. So based on these numbers, if you pay INR 325 crores and the valuation turns out to be INR 1,590 crores and you decide to exercise the option to increase the 28%, you will have to put in an additional INR 120 crores in 2028. That's correct?

Yes, somewhere there, yes.

Yes. And we are done after that?

So at this juncture, yes, we are done. We are very happy. See we have got what we people wanted. We have got a business of video, which is going to go back and give far better returns. We have gone -- went out there and secured our own pipeline of music. We are very, very comforted that way.

Yes. No, my question is we are done as and when that 51% doesn't arise.

At this moment, we don't see the need. Again, you're asking me a hypothetical question, which way things are going to go 3 years later, 5 years later. Right now, we are very, very comfortable. I'm repeating the driving factors of our decision-taking process is not to get majority of the film production business. The driving factor is to secure the music pipeline. To do that, we had our own films business, which we were not doing a great job. Instead of doing it ourselves, we have taken a position in the most reputed production house with a very strong financial history. What it is going out there and doing us that while it secures our music pipeline, it also improves the margin profile of our video business. And that's all we want to do at this moment.

Okay. Just to summarize, the best case for you is you pay INR 445 crores for a 28% stake at the best case valuation and nothing more than that.

Yes.

Okay. Secondly, all these music rights that you've secured, is the structure of rights similar to what you have normally have in other commercial transactions in terms of...

Yes. The value will be different, but the structure is the same.

And the value you said is a percentage of the film's cost.

Yes.

Okay. What happens to the IP of the past library, not the music, I'm talking about the video. The films that Mr. Bhansali has done, do they all reside in this?

Yes. So many of the films, he has got part ownership sitting there. Most of the films, he did not own 100%, but there is ownership of some of the bigger films of his, part ownership sitting out there in the same time.

Okay. And last question, I'm taking this opportunity to ask you. There have been significant changes in pricing by some of the OTTs in the last 1 month. Any thoughts on that?

The beauty is -- good you raised this question. Yes, there is a pricing -- you're talking about video OTT, right? The acquisition prices by video OTT.

No, no, no. I'm talking about the OTT.

No, no. So audio OTT, the subscription part, we have been saying all throughout subscription story is building bigger and bigger. And we are seeing the impact of the subscription story going back [indiscernible]. And the beauty is when you go out there and get films like Dhurandhar, even India story is great, which is building up, still a small base, but the story is building up. The international part, the numbers are coming out very, very decent for us. So overall, the play and the belief that we people have that music will eventually end up having per stream yield is going to be improving [indiscernible] subscription is playing out. It's playing out at a slightly slower speed than what we would have wished, but it is playing out.

Okay. Actually, my question was specific to a particular OTT making major changes to prices. I'm not taking names. I'm asking what does it do to the industry.

So the subscription revenue is going up for all of us.

As a result of the price change? Sorry, I was asking -- as a result of the price change, your subscription revenue going up is what you're saying.

Subscription revenue for us is going up. You're getting into very specific. I can't. They are my partners. I can't comment on their strategy. But subscription revenue is going up for the entire industry, including Saregama. Since we are acquiring a larger market share compared to other people, we are the biggest beneficiary of this.

Next question is from the line of Pallavi from Sameeksha Capital.

I wanted to understand in terms of Mr. Sanjay Leela's age is 62 years. So is there any -- if something were to happen God forbid to him tomorrow, is there any insurance -- is there any -- how does it work?

I can't get into these specific deal details. But all I can go back and say that we have taken enough -- there are enough checks and balances all throughout the deal structure. Beyond that, I can't comment on this.

Next question is from the line of Sanjay [indiscernible] from SR Investments.

Someone has already asked the question which I wanted to ask. Congratulations once again.

We'll take our next question from the line of Jaideep Merchant from Janak Merchant Securities.

Vikram, just wanted to understand if the video rights of these songs, which will be released, will they also be part of this deal?

Yes, I absolutely. See, it is like any music that we are acquiring today. Like Gangubai Kathiawadi has been acquired by us. Love & War, we had already acquired the music of Love & War a year back. So that deal is already in place with the Bhansali. With the money that I'm paying them, I will end up getting a share of that back into my own system because of the equity ownership. But the structure of the deals don't change that when we pay, we end up getting audio rights and the music video rights in perpetuity global territory. Nothing changes.

Second question, we have tried -- we attempted one more deal earlier in the year as per the Dharma and that didn't happen. Was there a pressure to do a transaction with the next largest or the third largest and to secure -- to put capital on the table to secure the pipeline.

Jaideep, where is the question of pressure coming in. We will do what's in the best interest of the company. You're forcing me to repeat myself, other people are going to get [indiscernible] by me. But we were very, very clear. We got into the films business because we want to secure a music pipeline. All our big competitors now also have a film production business going on. And we are a little scared of the fact that it shouldn't happen that we are not able to get enough marquee film music albums because if my competitor is producing the film, they don't release that album in the market. That's the reason we got into films. When we got into the films, we also took a call, we will not take big budget bets out there in this entire film business. We were going with the smaller films. We have not done a great job right now of that entire process. But the need to secure music pipeline is very much out there. We were talking to one production house. The things were not working out the way we wanted to things go back and work. With this production house, what we loved is the nature of the deal. It's nothing dependent on the past. It's completely dependent on future performance. So that's the reason we have gone out and done that deal. If there was any pressure, we may have done deals earlier with other production houses also. This question doesn't come up. It is part of a strategic play for us to secure our future.

All right. And lastly, related to this question, does this have an exclusivity on our side also? Because since Mr. Bhansali can't do anything, does this restrict us from doing another transaction with another production house? If something comes along, say, after 1 year?

No, there are enough -- we have enough leeway right now to do whatever we want to do. That's all I can [indiscernible].

Next question is from the line of Raghav from Dhamma Capital.

Congratulations. Just a couple of questions from my side. So how do we think about Bhansali Productions Private Limited's sustainable revenue and margin trajectory? Like FY '25 was INR 300-odd crores with, say, INR 60-odd crores PAT. But when I just look at '23, '24 or '22, the numbers are quite different. So maybe if you're missing something, what is the profitability of the business on a sustainable basis?

So again, the question always comes right now, but where the question is coming from is that if they end up doing performance like '23 or '24, are we overpaying? I'm assuming that's the underlying thought. So the beauty is, firstly, it will not happen. But even if it happens, that means we will end up getting the company right now at the lower end of the spectrum, which is INR 650 crores. So it's in their interest to go back and drive the top line and in a fashion because multiples are on operating margins and not just on the revenue side. It's in their interest. We have gone back and seen their pipelines about how many stories, what level are the stories. Many of them have reached the screenplay level and also have a cast attached to it. We know how things are going to roll out. They had this issue that every time they had to do a film, they needed to raise capital for which they needed to presell the rights either to digital and/or theatrical also, which they were very uncomfortable with. All that is going to be history with this primary capital infusion, which is happening in that company. So they'll be in a much stronger position to go out there and play it on the front foot.

Makes sense. So to clarify, the net revenue numbers of the entity, which is INR 5 crores, INR 10 crores over the last 3 years each and then INR 20-odd crores in '19, '20 and '21. You are saying that captures the full essence of the business. There's nothing being done outside the entity's financials. So we're not missing something.

So now the way people are going to go ahead. Give me a second, let me see [indiscernible].

See, Bhansali Productions Private Limited and if there are any affiliates, all are under the controlled supervision of Mr. Bhansali. There might be different structures of doing businesses. If I can just simplify, their entire business consolidated into one entity is what we are going to enter into. If you have any more questions around it, you can ask me because there will be structuring of deals. I can't reveal each and every in a smaller detail on that. But if that is your question, we are entering into Bhansali Productions Private Limited. That's the legal entity.

Got it. Makes sense. And the second question, it's amazing that we will get exclusive sort of rights to all the music that Bhansali's production produces. I was just curious to understand how do you value -- say, if we were going to pay INR 100 and then the bidding war happens, it goes to INR 105, INR 107, as you said earlier in the call. So how do you value this money that we save from the absence of bidding? And to your mind, how do you value this strategic and have you sort of included that value in the deal that we have done with Bhansali?

So let me answer the second part of your question first. For every movie that we people have purchased over the last 5 years, which is the new Saregama, which buys movies very aggressively, we have a clear-cut linkage back which is going in that which kind of movie, and we typically define movies right now depending on their star cast and the kind of directors that are attached to it, that the marquee films typically go at what percentage of the cost of production. Those things benchmarks are all sitting there with us. So when we are going out there and bidding and we are in the industry, we have a very decent idea when a film is being made that what is the rough cost of production of that particular film. Marquee properties typically go at the higher percentage cost, regular films go at a lower percentage cost. So not only is there cost of production, even if the cost of production is the same. If it's a marquee property, that means there are 2, 3 really big directors who are known for their music sensibility. There are a couple of stars that are known out there for creating great music videos. If those guys are present in a film, typically, the music cost as a percentage of the cost of production will be on the higher side. So the benchmarks are all sitting there with us for category of film for each of the languages, which makes it easier for us to decide that what should be paid. And obviously, when we have negotiated a deal, we have kept that in mind that what we are paying out here should be lower than what we would have paid typically had we gone for bidding. You with me? And this was one of our preconditions for doing that deal because we are doing the deal. We are doing video to secure a music pipeline. Without that, there is no deal.

Right. Makes sense. And this x percentage of production cost, is it fair to say that this x percentage would have been going up over the years as everybody is more optimistic about subscription revenues picking up?

So typically has not gone up over the few years, but what happens is the issue always are the marquee properties. I'll again repeat myself. During the year, Saregama only had 2 -- and that's a normal thing for us in any cycle that we take only 2 or 3 marquee properties in a year. There are typically in any year, 5, 6, 7 best in Hindi language, in Tamil, Telugu, there typically are 4 or 5 marquee music albums that come out. The bidding becomes stronger for them. Bhansali music albums are the ones where large fights end up happening because his track record is very good for music concerned. He shoots it visually in the most amazing fashion and has got very strong sense of music and [Foreign Language] it's very easy, it's in public domain, and you will realize that the music is extremely well. So we knew that we need to take our marquee properties can we lock majority of our marquee properties through Bhansali Productions itself at maybe a lower cost than what we would have had to pay had the bidding been there.

But does the valuation multiple benchmark us against the present and the past? Or is it subject to evolving if, again, the paying economy takes off and there's more -- the cost of content goes up in the future, then is the valuation multiple that we are agreeing on today also subject to being upgraded?

No. So again, you are looking at this juncture a 3-year structure. We don't think the cost of production is going to go up that dramatically in a 3-year period. I can ask you, I'd say the reverse part also. If subscription starts moving at a slightly faster pace, somebody may turn back and say that the deal at which it was done is not good enough right now. We should increase -- the music content should be at a higher percentage of cost of production because the recoveries are becoming better. So it applies on both sides. But anyway, it's a relatively shorter arrangement for the first 3 years. Though our deal is in perpetuity, if need be, we can always have a conversation. But right now, we are protected -- unless we have an issue, we are protected from our side in perpetuity that we can keep on securing all the music at that percentage. And that percentage is extremely attractive. Otherwise, I wouldn't have said right now that in short to medium run, this will help us improve the music margins.

Thank you. Ladies and gentlemen, we'll take that as the last question for today. I would now like to hand the conference over to management for closing comments. Over to you, sir.

Thank you. Thanks once again for joining this call at such a short notice. We are very excited about this deal. We have finally been able to crack what we have been wanting to do for the last 5 to 6 years is to secure a film music pipeline so that we are not susceptible to these bidding wars, which may at times end up increasing the cost of marquee properties. We are very confident also of the financial discipline, which is there in Bhansali Productions and the fact that the finance department out there is going to be completely overseen and controlled by us also gives us comfort that we will be able to sustain the profitability at the Bhansali production house. Need all your blessings. And I again request all of you guys that if you have not seen Dhurandhar yet, please go and watch the movie. The music belongs to Saregama and the music is doing extremely well. Thank you, ladies and gentlemen, good evening.

Thank you, sir. On behalf of Saregama India Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.