Shemaroo Entertainment Limited (SHEMAROO) Earnings Call Transcript & Summary

On the content side, so your operation costs have actually gone down -- gone up, rather, this quarter, right, pretty much doubled over the last year. So some idea how it will play out? Will it remain the similar level for, say, next 12 months? Some understanding on it will be very helpful.

So as I said earlier also, so we launched -- actually, we launched 3 TV shows, 3 more TV shows. So we had 2 earlier and now we have 5 daily shows amongst 2 channels put together. So we launched 2 more shows -- sorry, these 3 shows have added to the content cost. While they have delivered on the viewership, the commensurate revenue did not kick in. So I believe that -- so if we have to grow and invest in growth, there is an attendant content investment that is obviously going to happen. It's just that once a business crosses its breakeven equilibrium, then the operating leverage kicks in. And for that, the lever is definitely one of the lever is going to be -- are we making commensurate revenue to the operational metrics, which this quarter has fallen short.

So I'll just add 1 more thing. I think when you're comparing costs of last quarter to this quarter, remember last quarter, we had 1 channel left. In the last year at the same quarter, we did not have Shemaroo Umang, whereas in this year, this quarter, we have Shemaroo Umang. So obviously, there is a completely -- the story on the asset base is also very different, right? We have a different channel. We have a new channel, and a new channel having 3 new shows, of which 2 shows of that out of the 3 shows have come in this quarter. And also remember the shows -- the 2 new shows in this quarter have come in the month of November and December. The viewership shares coming out of that are coming out, are coming up, and it will keep going up. The shows keeps strengthening, if you know how it works. When you launch the show, the strengthening of the viewership keeps happening over a period of time. And if you look at all the big players in the industry, they are the best shows, are running over 2 years, 3 years and so and so forth. Whereas our shows started in a month, 1 month back. So the costs have come in, the viewership shares have gone up, but it will significantly more go up, and we will keep maintaining that trend. Monetization is something which, as Hiren said, we have very strong belief in the economy. These are momentary trends which have been swapped in the last quarter, and we expect some softness to continue going forward in this quarter as well. But we have strong belief that it will all come back. What we are doing is in terms of investing and making ourselves future ready to pick up those investments in -- pick up those ad spends in the market really turns. So that's where we are, actually, if I can just add. So the costs of last year quarter and this quarter are not really apple to apple because we have a new channel, which was not the last year's same quarter.

[Operator Instructions] The next question is from the line of Maan Vardhan Baid from Laurel Advisory Services.

Just wanted to understand, do we have an intent to add more channels, or are we done with adding channels?

No. I think every network keeps adding channels on a regular basis, and so will we. So definitely, in fact, it's a stated intent. Every quarter I have reiterated that we would be adding more channels. But to kind of add to that, this addition of channel is only when, a, cash flow permits; b, within an overall investment discipline that we have seen. I mean if you overall see the way we have built this business and as I said earlier, our B2C revenue is now more than 1/4 of our top line. This entire thing has been built over the last 2, 3 years in spite of all the COVID challenges and everything. Channels have been launched, et cetera. Our overall balance sheet has not kind of gone out of whack, or we've kind of maintained that financial discipline. And that, I think, is something that we are very cognizant of and we'll continue. I don't think that mindset or thought process changes.

I just wanted to add something here. I think one is, as Hiren said and have been saying, we will definitely be looking at adding channels coming in the future. It will be, of course, prudent and well thought out from a financial prudence point of view. At the same time, it has to also gel in with our overall operating strategy. To be a relevant and continue to become more and more relevant as a broadcast player, you need to have a network. And the network needs to be a combination of multiple things. And how -- so any additional channels will be only to complement our current bouquet and add to our strength overall as a network in a very prudent and thoughtful manner. But yes, definitely, we will be adding channels in the future.

What has been the ROCE of our channels? I mean, if one looks back 4 years, 3 years, 2 years, 1 year, I mean, as the content ages, how would you break that up from a channel to channel perspective?

So I don't think one can look at it at a channel to channel level. I think it's the overall business that one has to look at because broadcasting, we were never a broadcaster. We entered this business, literally...

So actually what happens is the overall business that gets diluted because of 1 portion of the revenue coming from maybe the social media side or that kind of thing. So and what I want to understand is the return on the incremental investments that you are making.

I was alluding to that only. So I'm -- so therefore, I'm saying when should not look at it as a channel to channel level, one has to discuss it or look at it at an overall business point of view. I think what this does is, so let's take a step back and understand the context of why this investment was made and what was the thought process and where we are in that whole journey. That kind of will give a better understanding of where things are and what is going to happen, or what -- how do we look at the whole thing. So I mean, we were largely a B2B aggregating content kind of a player. And what it ended up doing was created lumpy revenue streams. And also, it had a heavy balance sheet impact in terms of the investment that one needed to make to acquire stock for trading the content. And very importantly, the brand, which was at many years back of a significant B2C brand, that was a call that we have taken. And this we have shared consistently through the quarters that this has been a journey of transition from B2B into the B2C business. And which is where I today shared also that now more than 1/4 of the revenue is coming from B2C revenue streams. So TV business, we identified as an opportunity that has scale, that has a national footprint for the brand. It has a financial scale. It's a large revenue pie in terms of advertising spend, which is at about INR 35,000-odd crores -- sorry, INR 25,000-odd crores is estimated, growing to about INR 35,000 crores in the next about 3 years. And therefore, that's a business that we cannot stay out of, and we have to do the business. Now how to do it in the most cost-effective possible way, how to do it in the most prudent and best possible way, that's how we set about setting it up. We obviously were badly hit by COVID. So that set us back by quite some time because literally, our channel, we launched, got a signal. And within a week, the world went into a lockdown. So we obviously were heavily or badly impacted by that. Having said that, I think happy to see the progress that we have seen of this business. And if you see and compare the operating metrics of -- or the financial metrics of various broadcasters, I think you will fairly understand the potential in terms of the cash flow, the operating leverage, operating margin and the scale that this business offers. And that is something, while I understand that there are big established broadcasters, we are a new player, et cetera, et cetera, and which is why the relevance of reaching a certain market share and being a relevant player or the importance of that gets highlighted. And I think we are very much on the way to that whole aspect. And in that context, I think this has been a very, very low-cost entry strategy compared to what a typical [MBVC] would probably need to spend in this industry. And I think that's really where we are. We are at that point where we know that it is now reaching the payback time. And from here onwards or at some point onward, not here, but some point onwards, the payback will be visible in many ways. Let's also understand a couple of more things only. One is the content pipeline that is getting added in terms of creation. -- has a multitude of monetization. If we see the reports of various industry reports, one of the highest category of content consumed on the digital platforms, on OTTs or even on many others, including YouTube, is what is called catch-up TV. So TV shows because of various reasons when people are not seeing on TV, that those shows are actually consumed heavily on digital media. Now this is all optionality that is getting created for us as we progress on this. So in fact, in a way, it actually helps us cement the whole digital future. far more strongly. So I think one has to look at it in that context and where we are in that context, I think we are fairly in a very, very strong position in terms of the journey.

Fair enough. So I understand the qualitative aspect and the rationale that you have put forward. So I also wanted to weigh this with the quantitative aspect, especially from an ROCE angle that when we approach the, let's say, setting up a channel or when we approach, so what is the payback period? Or what is the -- because -- I mean, see, this is -- such is the nature of the business. I mean, it's almost like -- I mean, like a child in a candy store. One is spoiled for choice, one can keep spending on content and to achieve that number to be in the books of advertisers, which are -- so that -- and it's kind of a that kind of a thing that it's -- so what happens is in this whole scheme of things, one has seen many broadcasters, not just in India, globally also fail. So that prudence -- and that sort of how do we quantitatively look at it varies, I mean and end of it, one also wants to see that I mean one can spend and achieve a certain market share in terms of -- with the volume of content, et cetera. But there is also that frugality angle where 1 looks at a lot of broadcasters that spend a lot less and are able to achieve and that kind. So even that aspect is something that one wants to understand and one would like to see that come in because see the beauty or sort of...

Can I just answer that? This is a pretty long question. So I think there are 2 things. And while as an organization, we have started this business 2 years back and especially as Hiren said 3 years back. And it started at a time when actually the second the channel that came up, first channel know the operator signal came out, we were hit by COVID. So given -- forgetting all of that I think one thing if you -- I think we have, as a stated objective, we would definitely want to reach a certain level of profitability in this broadcasting business before we start moving very, very aggressively into getting deeper into it. So I think that is 1 thing, which I want us to understand very clearly. At the end of the day, you are right, people can achieve broadcasting businesses can achieve great, good margins by investing less, but not in the beginning. I mean we are in the setting a process, and we are playing in one of the most competitive and the biggest space also, which is Hindi GEC. And hence, we are in that growth phase. And our -- as I said, I mean, a lot of the investments have actually happened of late in the last couple of quarters. I mean 3 shows have come in the last 2 quarters, of which 2 were coming in November, December. It is as recent as that. So obviously, the monetization of that happens over a period of time. It takes a couple of 2, 3 months for the monitoring to start kicking in. Despite the tepid environment that we are there, we are very, very confident that the revenues will start kicking in. And as an organization, we have -- we are very clear in terms of the prudence -- financial prudence with which we are going to start investing. Otherwise, you are right. By now, we could have -- we had the basis and we have the pipeline, we could have added 5 more shows. And that 10% viewership share could have been at 20% also. So that's not how we are intending it. We are taking careful steps. We are aware of what the situations are. Otherwise, we could have added new channels by now also. Our objective is not bad. Our objective is to grow steadily, but also be aware that it's a large market. There are a lot of players, and we need to keep investing at a certain pace at least to stay relevant. That's the way we are looking at it, definitely not being -- we are not going to be kids at candy stores and invest left, right and center. So that's not the objective, very clearly. And also, if you look at -- I'll just add 1 more thing. There are easy ways of gaining -- there are other ways of gaining viewership share. We could have -- we could invest in a nonfiction show. We have not invested in non-fiction shows, which are more expensive. So we have been very prudent and careful in terms of our choices so that it yields us the right returns in the right period of time. Unfortunately, the market has been a little tough in the last couple of quarters, and I expect it to be so in the next quarter also. But we are very confident that things will rebound, and our investments are being graded accordingly.

Fair enough. One last observation from my end. So from the feedback that I have got from the call so far, the environment is outside our control. To that extent, to some extent, the top line is outside our control, and that expenses, on the other hand, are controllable. So given this equation, do you think there is a need to increase the targeted spreads that you have sort of thought of in the past and going ahead because this might keep happening that the environment might remain tepid, maybe the environment changes for some reason, maybe spend don't come or spends come with a lag or something on those lines? So do you think there's a need to increase that spread, given that we've experienced this particular sort of -- we've gone through sort of this, let's say, the margin not meeting our estimate in this quarter? Or do you think you will wait for some more time before taking this call?

No, I didn't understand what you mean by spread.

Revenue to yield cost.

Do you think that is controllable?

Are you -- what do you mean by spread? Are you talking about the gap between revenue and the cost?

Yes. From an operational cost perspective, I mean in terms of creating content, that is the only cost that is kind of controllable.

I mean to be honest at this stage of the journey, I think I would -- I mean, we would definitely go for building market share at this stage of the journey. We reach in our march in that top league to say that we are -- you can control, you have levers to reduce cost here and there and thereby improve your margin to protect profitability. But at this stage, the journey is still ahead of us significantly. And I think we would definitely wait. Of course, if things really, really don't turn around in another quarter or so Vardhan, then of course we will also be taking calls according to that, no doubt, I mean. So if you see our history of plus even in the worst of the pandemic and all of that, we controlled our whole -- all our cash flows and all of that through internal accrual, et cetera, extremely prudently. And I don't see any reason to change that orientation for us. So I think that is a given. In fact, I would -- since you are talking about various broadcasters and globally and all of that, please do check around to see how much it costs to set up Hindi GEC channel and compare that with how much we have spent this. I can assure you that we have been extremely, extremely frugal about setting up this business.

[Operator Instructions] Next question is from the line of [Hiral], an individual Investor.

Well, a couple of questions have been already answered in detail to other investors call. Just a specific question on how do we look at the debt reduction plan going forward and as we also need to focus on building content and spending on that? So any light on that? And any monetization plan to offer any segment or any division which can help in that reduction -- debt reduction?

So I'll answer your second question first. At this point, there is no such monetization plan for any of our segments or this thing. To answer your first question, a couple of things. I mean, so firstly, we have been comfortably carrying with debt for last 2 years, okay? I don't see our cash flows have been supportive and servicing even in the worst of the pandemic, et cetera. We never delayed any of our servicing by even 1 day, for that moratorium or any of that. So I really don't see what is the -- why should there be so much hue and cry about the debt. Still I understand and agree on the need of having an overall downward trend on the debt or at least grow the business commensurate to this, so that I don't deny. I think -- both of that is happening. So already in terms of the scaling back to our pre-COVID levels, I think we are -- hopefully, we should be well on our way if we see the trends of the first 9 months. Secondly, the second part in terms of on the debt reduction side. So let's understand 1 thing. And we have been the reason -- one of the reasons why we have been also sharing the investment that is being made in the new initiatives. So obviously, this year plan was to -- or target rather and plan was to invest or restate that investment to over INR 50 crores. Given the external circumstances that number has been overshadowed. Let's understand that there is a strong internal accrual of existing business is happening. So once that investment is getting contained within that level, and once these new initiatives are reaching that breakeven and operating leverage, I think there is a natural cash flow availability to reduce the debt. Also, the -- so for example, as we shared last time also, there is a -- as this television business is scaling up, there is a certain debtor reflation, et cetera, that is happening. That is last quarter, it has caused the debt to slightly inch up. All of these are according to me transitionary trends. I don't see that as a trend because we are not -- I mean, we have been extremely prudent about it. And I see that as and when this revenue shortfall kind of start addressing itself. I think there is a natural cash flow, which is there from other existing internal accruals available.

So really just on the same context, what the objective was to understand where the margins will improve. So either the debt reduction can help through interest cost reduction or some spend where we have reached some peak on spending. So definitely, it will not reach a peak but...

Hiral, there is -- as I said, the commensurate revenue for this quarter actually should have been higher. That is what we've been trying to say, okay, compared to the operational metrics that we -- the business has achieved in terms of the viewership ratings and all of that. The revenue should have been higher. So that would anyway give us a margin availability, right?

[Operator Instructions] The next question is from the line of Rahil Shah, an individual investor.

To repeat question, but just on the objective side, like, do you have a number in mind when I ask you about the forecast for the revenue and EBITDA margins for the next year, financial year, any sort of target or number you have decided you want to achieve? And also the same for the new channels and when will they break even?

For the second question I have, in fact, spoken about earlier, so I don't want to repeat that. The first question, I think that so the annual operating plan for next year is currently being drawn out by various businesses and divisions. So unfortunately, at this point, I'm not able to give you much of visibility on that. But given where the operational position has reached, I think we definitely see a continuation of the growth of decent growth into next year. So even purely on the operational basis. Now -- if the market is supportive, obviously, the industry supportive, I think that will add further.

The next question is from the line of [Animish Modi], an individual investor.

Actually, I wanted to ask you one thing. How many users we have in ShemarooMe? There is no number reflecting anywhere in the presentation. So I thought let me take an opportunity in that. And what is the growth percentage in terms of subscribers of the ShemarooMe? Any highlights?

So unfortunately, right now, we are -- we have not been sharing that number. I can only give a qualitative view that the growth of consumption and revenue have been fairly strong, and we continue to have an extremely strong position in the Gujarati subscription market. So unfortunately, I defer and beyond that it's difficult for me to put out those numbers.

Yes, it's fine. And 1 more question in nexus of this, that there are subscription plans like 1-year plan or 2 years plan. So let's say, if any one subscriber pays for 2 years do you recognize the revenue in split between 2 years or in the year itself of the subscription?

It's divided by a number of months.

Okay, by number of months?

Yes.

Perfectly fair enough. Thank you so much.

Next question is from the line of Shikha Mehta from Equitree Capital.

I just have a few questions. So there was an article in the newspaper around 10th of January saying ad revenues on the TV side have grown by 26%. And ad revenue for the 9 months have also grown by 36% for Q-on-Q at 66%. And we're still saying that we saw a shortfall in revenue, which is why the new business burn has hit us. So what trajectory are we looking for on the revenue side? Are we expecting higher revenue growth to sort of reduce that burn, or is that even sustainable? How do you look at this?

Let me answer this. This is Arghya here. I think -- when you're looking at growth of revenue, I know that you're getting a little colored by the growth of revenue over last year. Remember, it is not on like-to-like asset base. Last year, we did not have a channel. There is a new channel in this year. So the growth -- just hang on. So the growth may be a little confusing in this. Just what we are saying is the revenue is not commensurate with what we expected it in terms of the investment grade because the new channel has come up in this year from April onwards, and that channel is up and running in this quarter. Our revenue expectation was much higher.

So what was our expectation if you can quantify that?

I will not be able to quantify it, but I'm saying despite the 66% growth which you are seeing, it is not the only metric to be looked at. Because there was 1 channel which was not there, which is there today. So we need to -- I mean, if the market would have been as per our what we had hoped it would have been, which it has not turned out to be in terms of the industry aspect, that's where the gap is. And we will continue on our journey. I mean, I think it's not something which you said there is no unrealistic thing, it is absolutely realistic in terms of what is going to happen. We don't have an option of not making that happen. It will happen. I mean I think the trajectory is that. So I think that [indiscernible] growth and what is affected, we should just see that separately.

So sir, is this a peak level of a burn, or how should one look at it because as we mentioned earlier on the call, it's already been 3 years since we started this journey toward the channels, et cetera. And when do we expect this to normalize? Because the burn is just continuing. Is it a peak?

I mean, it's -- so I think the -- there are 2, 3 things in this. One is there is a -- we need to while we are at 10% plus around 10% viewership share today, there is a road towards being -- we continue to be relevant in the space. I'm talking about clearly in the broadcast space. Yes, we are there for 3 years, but remember that 3 years -- out of 3 years, there was 2.5 years of COVID, okay? It's not a real 3 years in real terms that 1 can say. It is actually last 6 months only when things have been normal. So hence, we need to -- and it's very difficult to say which is the peak burn and not burn, but at the end of the day, we are sure that the monetization of whatever we have invested in is in the right direction. The metrices are correct. The viewership shares and the commensurate benchmark rates is something that we are able to achieve. It's a matter of when the tide will turn and the fill rates will also matter and how things will even out over a period of time. But it's very difficult to say, which is a peak burn. The investments will continue. We need to keep staying relevant. It's not that we are the only ones who are investing in content so are other but the market has not been as supportive, but we expect it to turn over a period of time. It's a matter of time. We have belief that economy will rebound.

[Operator Instructions] We'll take the next question from the line of Dhwanil Desai from Turtle Capital.

Two more questions. Sir, the first question is, so I think look after listening to the entire commentary and answer, the only question in my mind is that we are kind of banking upon that we'll continue to spend and we get a good operational metrices, which will give us higher revenue and eventually will cover up the cost on the content side that we are spending and other things that we are spending. Now what is our revenue, for whatever reason some contents don't work as per our expectation, ad revenues don't shore up as per our expectation, then is there an upper limit? Is there a Plan B? Is there a kind of a level at which we'll say that?

Dhwanil, let me do 2 things. Let me say 2 things. One is, a, failure is not an option. I think we are very confident, given our experience and presence in the industry. I think we are very confident of making it happen. Okay, number one. Number two, we are -- we have an extremely active deal. Please understand one thing. Being a player literally the last player to enter this and fitting against 20-year-old players and still taking away a relevant market share. Obviously, there is an intense level of capability, maturity and execution skills that the organization has built and is carrying, right?

We appreciate.

We have a continuous daily hawk eye on what is working and what is not working. It's obviously not been a smooth ride even to where we are. So things that have not worked, we are promptly jump those things and move on to the next set of things. So that is literally poising out what is not working with us, is literally a daily exercise. It's not even -- we don't -- why would we wait for even a week to complete that?

Okay. Sir, second question is Hiren Bhai, I think you alluded to 1 thing in last call. I think that we may kind of change our amortization policy at some point in time to reflect the digital traditional mix. So I understand that we are currently at a stage where we are burning more money, and hence, we are not profitable. But even this higher amortization also will also mean that even after we kind of reduce our burn, the profit may still not be visible. Is that understanding correct?

I don't think so. So I mean one is the policy is already in place, so I'm not able to comment right now. I would say 2 things. The one -- we have the operating leverage available, there is a cash flow available. Now that cash flow addresses many things, including the long asked question of debt or stock or many things. So I think that automatically reflects or will reflect around. So I don't see that as much of an issue. Once -- I mean right now, I'm not in a position to comment actually. We have no point.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

As we've discussed, I think there is a significant opportunity available in this space. And we have clearly positioned ourselves to execute and take that share of the business. And we are very confident that as the tide turns, we are extremely well positioned to take advantage of that. With that, I thank everyone for joining the earnings call for Q3 FY '23, and see you, everyone in the next quarter. Thank you.

Thank you, everyone.

Thank you.

Thank you. Ladies and gentlemen, on behalf of Shemaroo Entertainment Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.