Shemaroo Entertainment Limited (SHEMAROO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Q2 FY '23 Earnings Conference Call of Shemaroo Entertainment Limited, hosted by Valorem Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal, Chief Executive Officer of -- at Valorem Advisors. Thank you, and over to you, Mr. Sonpal.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Shemaroo Entertainment Limited. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the second quarter and first half of financial year 2023. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's con call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is broadly to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We have with us Mr. Hiren Gada, Chief Executive Officer; and Mr. Amit Haria, Chief Financial Officer. Without any further delay, let me request Mr. Amit Haria to start with his opening remarks. Thank you, and over to you, sir.

Thanks, Anuj. Good afternoon, everyone, and thank you for joining us today for our earnings call for the second quarter of the first half of the financial year 2023. I hope everyone is keeping safe and well. Let me give you some key financial highlights for Q2 FY '23. The operational income stood at INR 147 crores and has witnessed a robust growth of 53% on a Q-o-Q basis and 19% on Y-o-Y basis. EBITDA for the quarter was INR 13 crores, a growth of 57% on Q-o-Q basis and 26% growth on Y-o-Y basis. EBITDA margins stood at 8.75% and net profit was reported at INR 3.4 crores with PAT margins at 2.31% and an improvement of 205 basis points Q-o-Q. For the first half of the financial year 2023, operational income stood at INR 243 crores, reporting a growth of 23% Y-o-Yes, EBITDA stood at INR 21 crores and has witnessed a growth of 21% Y-o-Y. EBITDA margins for the first half stood at 8.64%. PAT was INR 3.9 crores, which has grown by 170% Y-o-Y. Speaking further on expenses on new initiatives for Q2, it amounted to INR 16 crores for the first half. While for the first half, it amounted to INR 31 crores. And if you adjust for this investment in the new initiatives, the adjusted EBITDA from existing operations in Q2 and H1 FY '23 would have been approximately INR 29 crores and INR 52 crores, respectively. Let me take you through the traditional media and digital media division highlights. For the second quarter, digital media revenue stood at INR 64 crores, which are up 36% Y-o-Y, while for the first half of the year, it stood at INR 112 crores, witnessing a growth of roughly 28%. Traditional media revenues in the second quarter stood at INR 83 crores, which were up by 9% Y-o-Y, while for the first half of the year, it stood at INR 131 crores, witnessing a growth of 18%. Now I would like to hand over the call to Mr. Hiren Gada to brief you on the operational highlights for the quarter.

Thank you, Amit, and good afternoon, everyone. In the quarter gone by, the onset of the festive season witnessed a moderate increase in ad spends. We believe that the ad spends will remain under pressure on account of concerns around inflation, looming global recession and slowdown of funding for new age advertisers. Despite these uncertainties, we witnessed an increase in revenue, which can be largely attributed to the broadcasting and digital initiative. Happy to note that the contribution of our -- of B2C revenues in our total revenue has doubled in the first half of FY '23 versus the same period last year. Though the company has delivered strong revenue growth during the quarter, we believe that there is also a bit of base impact of COVID-19 during the same quarter last year. In the broadcasting business, Shemaroo TV delivered higher ratings versus the previous quarter due to a renewed content strategy. In Shemaroo Umang, we launched our original production called Kismat Ki Lakiro Se during the quarter. We also started monetizing this channel through advertisements in the last quarter itself. Both Shemaroo TV and Shemaroo Umang have consistently been among the top 5 channels in the free-to-air GEC entertainment genre. In MarathiBana, we adopted a change in programming strategy to include episodic content along with movies, which helped drive channel ratings during the quarter. On the digital front, we released 13 new titles in Shemaroo ShemarooMe Gujarati during this quarter with content across movies, web series and plays. We released our original web series called Vaat Vaat Ma Returns, which is a sequel to our last year Vaat Vaat Ma, which was well received by the audience. We also did world digital premieres of 2 blockbuster movies, Naadi Dosh and Vickida no Varghodo, both Gujarati movies, which have performed well. On YouTube, Shemaroo FilmiGaane with 62 million subscribers, continues to be the 20th most subscribed channel in the world. On other digital updates, we launched a free ad-supported streaming TV channel, which is called FAST channel on the Plex platform in U.S.A. We also entered into a music licensing partnership with Resso in India. And lastly, we partnered with Seracle, a Web 3.0 technology company to build Shemaroo's own NFT marketplace. In conclusion, we remain focused and confident on our long-term strategic growth plan despite all the headwinds faced. Our diversified business strategy is beginning to bear fruits, although our investments continue. And we believe our growth and profitability trajectory will also continue. With that, I would like to open the floor for question-and-answer session.

[Operator Instructions] The first question is from the line of Shikha Mehta from Equitree Capital.

Good afternoon, sir. I have a couple of questions. First, could we be taken into details about your operating cash flows? At similar levels of PBT almost a quarter apart, we had reported an operating cash flow that was positive of INR 44 crores last March. This September its negative INR 12.8 crores. So if you could help me understand that better. And also our tax expense because for FY '22, our PAT for the full year was INR 5 crores, but the tax expense in our September cash flow statement is INR 6 crores. So is this due to arrears or could you help me understand that?

Yes, Amit.

So with respect to tax expense mentioned in the cash flow, it is the TDS deducted. The tax expense per se is what is reported [ BNS ].

So of this TDS deducted, will you get the refund later? Could you just help me understand effective -- your effective tax rate for the year?

It would be in the region of 26%, 27%. And with respect to the cash flow that you mentioned. The bulk of it has gone towards the increase in the receivables?

Right. So what is that due to, the bulk in receivables?

Due to the increase in broadcast business.

So is this a onetime thing? Or is it expected to normalize?

It will kind of normalize going forward. This will be into…

So as the broadcast business scales up, there is -- so broadcast typically has a 90-day receivable practice. And as it scales up, it will definitely have some impact on the receivables on the -- so it's, in a way, a reflection of when the turnover [indiscernible] that working capital got released because of shrinkage of receivables, but now that the top line is scaling up again. So with that scaling up that certain receivables of our broadcast business receivables will be at a 90-day as per the industry norms.

All right. And sir, again, on the tax spend, last March the tax outflow in the cash flow statement is INR 18.9 crores. So again, what is that attributable to PAT, like I said, was INR 5 crores?

Like I said, Shikha, both the tax amount mentioned in the cash flow is towards the tax deducted. Whereas P&L is the actual tax, which is payable by the company.

Right. So for this TDS, we'll get the refund, right, later?

Yes, yes.

Yes.

Okay. And sir, if you could help me understand our ad rates better. Have we moved up this quarter? Or what are we witnessing now? And out of our total inventory, how much commercial time are we selling? And how much currently has been occupied by us?

So in terms of selling, as per the various norms, we are following as per the various norms in terms of how many minutes we can sell. So that is fully being sold. So that is fully being sold. So there is roughly 13 minutes as per the TRAI guidelines, TRAI or [ IMV ], whichever is the relevant government body guidelines and it is promo time. So that, as per the guidelines, we are following that. So that's the answer to your second question. What was your first question?

I'm so sorry, 13 minutes per hour?

Correct.

And how much would be promo time?

I think roughly 2 minutes or so.

And also my first question was about ad rate, whether we've increased quarter-on-quarter and what trend we're seeing for Q3?

So ad rates follow essentially ratings. And since the ratings have been going up, the ad rates also have been going up.

So sir, to understand this better, in order to increase our TRP, do we have any strategy in play? Are we increasing our original content? In your opening remarks, you spoke about the one TV show. Do we have anything else in the pipeline?

So at this point, between the 2 channels, we have 3 original shows running, which we've progressively been launching. So we launched -- we have a crime show called Crime World which is a 1 hour daily show and with repeats, et cetera. And then there is another show, which is the [ Hasya Kavi and Kavi Samelan ] show is called Waah Bhai Waah, which is on Shemaroo -- both these are on Shemaroo TV. And Shemaroo Umang, we have launched in September, we launched Kismat Ki Lakiro Se, which is Umang's first original. And yes, we have many more shows in the pipeline, which we will be launching over the next 3 months.

And sir, what is the accounting policy for these shows? How do we write it off in the P&L?

We write off -- 80%…

On the first telecast.

First telecast, on the day of the telecast.

The next question is from the line of Dhwanil Desai from Turtle Capital.

Yes. Sir, the first question is, I think -- congratulations for good numbers. The first question is, so if I look at the operating cost as a percentage of revenue, that number has been fluctuating. So last year at the same quarter, that was around 27%. Previous quarter it was 36%, this quarter it is 30%. So I assume that this fluctuation is majorly because of the content cost. So if you can clarify on that? And how should we look at this number going forward? Is there a steady-state range that we should be having in mind for this?

Yes. So bulk of that cost is definitely on account of content. And going forward, as these businesses scale up, that trajectory should be coming downward because margin and operating leverage should be available. That's a premise on which we are also operating and looking to scale the business. And that will -- that should -- that would be our effort to put it in that trajectory.

Right. Because the question I'm asking is because last quarter, with INR 90 plus crores of revenue, this cost was around -- our margin was around 36%. And this quarter it is around 30%. So what is the delta coming from? I mean have we spent more on content? Why this number is going down? Because ideally, as you are saying, it should have gone up, right, because ad rates are better? We are monetizing Umang also. So why this number is coming down rather than going up.

So there are multiple factors. I mean, some of the costs also come from some of the legacy costs on syndication. So that is also one of the things. But on an operating, as I said, directionally, this is where our attempt to bring it down is going to be.

Second question, sir, I think we, I think, had guided that this year we intend to invest around INR 50 crore in new initiatives. And most of that would be front ended for the last 2 -- last second half would be having lower bond. So we already spent around INR 30 crores. So do we assume much lower burn now rather than INR 15 crores, INR 16 crores a quarter in next few quarters?

Yes, I think that's what we -- we are -- directionally we are very much on track for that, both, I mean, INR 30 crore overall and higher front-ended and lower back-ended numbers.

And the last question, I think you alluded to this that the receivable increases because of the broadcasting business and the reflation from base. But if I understand correctly, our syndication business had much higher receivables, right? So compared to that, this should be a better business, isn't that understanding correct?

Sorry, I got the background, but what was the final question that you had?

No. So I'm saying that in terms of working capital, in terms of receivables and inventory required for broadcast business vis-a-vis syndication business. It is less working capital intensive compared to syndication business. Is that understanding correct?

Yes, yes. I -- that is -- in fact that has been one of the key reasons also to get into this business because the working capital nature of the business is significantly better than the trading business. Firstly, the whole inventory that we need, that itself comes off significantly. And second is the receivable day is restricted to 90-odd days.

And sir, last question, you mentioned that our B2C revenue has almost doubled. And if we look at our digital part that also the growth has been pretty decent. So if you can give us some sense as to what percentage of our traditional media revenue is coming from B2C digital, how much is coming from B2C? Some sense on that would be helpful.

Well, right now, unfortunately, I'm not in a position to give you that, but let me -- so I mean, what -- so just to reclarify what I said in the opening remarks is that the share of the B2C business in terms of revenue contribution has doubled. So we're now on a good and clear path on the B2C business. So sorry, but right now I'm not able to give you those -- that granular detail at this point in time. But yes, what -- therefore, since we wanted to overall give a color of the fact that the B2C strategy is fairly on track. We kind of gave this number, this indication.

The next question is from the line of [ Darshan Jhaveri ] from Crown Capital.

Congratulations on the amazing set of numbers. So my question is, one, regarding what do we see as our revenue going forward because you've had a good bump in revenue. So could you just share what our revenue growth are we looking at in this year and next year?

I mean, unfortunately, I'm not yet able to give forward-looking statement because anything that I say to this will be forward-looking. But what I want to differently, give you a sense is that the underlying digital piece has typically been projected to grow in terms of the industry, the underlying industry, depending on, if you look at various expert reports and all of that or industry reports, they are talking of approximately 20%-odd growth in the digital business for the next couple of years. And our effort always has been to do better than that. And on the traditional front, on particularly the broadcast piece, at least we have been fixed a very low base to begin with compared to what is the overall industry size. So there, it's more a story of market share gain or, I mean, not even market share at this point in time, it's just a certain tale of the pie, which share of the overall pie that we would aspire to take. So we are currently at least in a good position in terms of the setup and how we've grown these businesses and set these businesses up for a good trajectory.

So another question would be regarding our new initiatives. So if we remove that, our EBITDA margin increase significantly. So we've indicated the spent for this year. But could you give any sort of spend that you're expecting next year? Or has the investments been peaked in the current year? So going forward, what kind of an EBITDA margin? Previously you've done about 25%. So that could come back as our initiatives come down and our revenue growth is coming in.

2 things I would say. One is right now, so our next year's [ AOP ] isn't yet finalized, it's too early to do that. So it's very early for me to give any indication of what could be the investment amounts for next year. But having said that, on the margin front, I would say there are 2 things. One is, at this point, once, say, the TV business reaches its operational breakeven point. The margin on that is still relatively lower. And over a period, it will scale up on the margin front and get a better operating leverage. Now how fast that will be is anyone's guess. We also are obviously trying to do that. But it will have its own growth trajectory and other things. Secondly, in terms of, so as far as investment is concerned, we would -- as we've said in the past also, we would definitely look at expanding the network, adding some channels, et cetera, over a period of time. So that investment thing will kind of continue going forward till we are -- till we see those opportunities to add good profitable proposition and grow the network to a respectable and healthy scale.

So could I -- if I can squeeze in one more question, I would just like to know what is the difference between our digital and traditional margins in general? So what do we get that? Like was it the -- I'm assuming digital will be better than traditional. So could you…

Digital margin have been better typically. The only thing over there is right now the investment in ShemarooMe, which is, obviously, all of it going through the P&L. So that is pulling down the margins on the digital to that extent.