Shemaroo Entertainment Limited (SHEMAROO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Conference Call of Shemaroo Entertainment Limited, hosted by Valorem Advisors. [Operator Instructions]. I now hand the conference over to Mr. Anuj Sonpal, CEO at Valorem Advisors. Thank you, and over to you, sir.

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 first quarter of financial year 2024. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings 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 purely 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, CEO; Mr. Arghya Chakravarty; Chief Operating Officer; and Mr. Amit Haria, Chief Financial Officer. Without any further delay, I request Mr. Amit Haria to start with his opening remarks. Thank you, and over to you, sir.

Thank you Anuj and good afternoon, everyone, and welcome to our first quarter of the financial year 2024. Let me first start of by giving you some of the key financial highlights, after which our CEO Mr. Hiren Gada will give you some of the operational highlights. For quarter 1 FY '24, the revenue from operations stood at INR 154 crores, which we reached a growth of around 60% on a Y-o-Y basis. EBITDA for the quarter was INR 8 crores with EBITDA margin stood at around 5%, and we reported a net loss of approximately INR 1 crore for the quarter. In Q1 FY '24 expenses related to the B2C initiatives amounted to about INR [ 13 ] crores and if you wait [ for this semester ] EBITDA from the existing operations in Q1 would have been approximately INR 20 crores. Furthermore, the Digital Media business for the first quarter stood at INR 58 crores, which grew by around 20% Y-o-Y, while traditional media revenues for the first quarter stood at INR 96 crores, which grew by 100% Y-o-Y. Now I request our CEO Mr. Hiren Gada to brief you on operational highlights for the period under review.

Thank you, Amit, and good afternoon, everyone. During the quarter of FY '24, the company achieved significant revenue growth of 60% year-on-year, primarily driven by enhanced monetization of its B2C businesses. This growth is in line with our strategic growth plan, driven by our new business initiatives and investments. Unfortunately, margins for the quarter remained under pressure due to both traditional and digital platforms experiencing a decline in viewership. This happened due to availability of primarily due to the availability of IPL for free on digital. Along with record viewership on media television, resulting in a large number of key advertisers, significantly reallocating their spends towards IPL. We were also witnessing continued slowdown in funding for new age advertisers resulting in reduced advertising spend. The company anticipates margins to continue and to remain under pressure in the near future due to weak advertising spend as well as expenses incurred on the new initiatives. On the ShemarooMe Gujarati front, we released 15 new types during the quarter with content across movies, the web-series and plays. We have a digital world premium of blockbuster movies like [indiscernible], Aum Mangalam Singlem and Anokhi. We launched ShemarooMe with Grameenphone in Bangladesh and [indiscernible] in Oman. On YouTube our viewership continued to improve with [ 65 ] million subscriber. Shemaroo Filmi Gaane is a 22nd more subscribed channel in the world. In the Broadcasting segment, we launched the company's fourth satellite free-to-air channel, named Chumbak TV in May 2023. This channel is currently available on DD Freedish [ through ] cable operators, and we expect the monetization to commence from the current quarter, which is Q2. Shemaroo Umang increased its original programming offering to two hours with the launch of its original production Shravani and Kundali Milan, which replaced Raj Mahal during this current quarter. Shemaroo GEC channels have a viewership share of around 7% in the overall Hindi [indiscernible]. We also launched Shemaroo past channels, which is free ad-supported television -- digital television channel. In U.S.A., partnering with Link TV and in Australia, partnering with Seven networks. Overall, our growth momentum and viewership of broadcasting channels with the consumers continuously grow. Unfortunately, the industry headwinds of lower advertising spend continue to put pressure on our margins. As for industry ultimate, since inflation is pulling up -- and as FMC sales increase, we are hopeful of improved spend from advertisers in the second half of the year. With that, I open the floor for question-and-answer session.

We will now begin the question-and-answer session. [Operator Instructions]. First question is from the line of Rahil Shah from Crown Capital.

So this new channel, so when do you expect breakeven, sir?

Breakeven. So the monetization has started in this Q2. In fact, July is the first month for monetization. We expect the full complete inventory filing to happen probably by the end of this quarter. So two things. We kept this as a relatively low cost channel in terms of distribution, et cetera, and content costs both. So the idea is that there is a certain need gap which we've identified, which is not a big scale opportunity, but still at its -- at that scale, it could be a reasonably profitable or positive contribution kind of channel. That was the thought process behind this. And it, in a way, also adds to the bouquet specifically to the overall offering as a network. It's difficult to give at a channel level when we expect this to breakeven. But as I said, this has been conceived as a low-cost and not just conceived even in terms of its distribution and other aspects. It's currently operating at a relatively low cost kind of channel.

And -- but it looks promising, like the rewards of the channel.

So the opening numbers on ratings are in line with -- what our broadly in line with what our estimates have been. So we should be reasonably in line with our own expectations. And as I said, considering that -- it's a relatively low cost need gap opportunity that we've identified. We are quite confident that the cash breakeven on this should not be to fired out.

Okay. And any other plans like new launches? -- channel-wise?

So as we shared them in the previous quarter also, that overall approach towards building a network sale but -- and therefore, we will have more channel launches in the times to come. However, our effort has always been that we want to stabilize it at that in terms of the financial and the cash flow impact and create new additional incremental new ways that by launching a new channel. So it's only incremental investment that we look forward to in terms of channel launches. And secondly, I mean, so to that extent, the idea has been to do this in a way that it doesn't really impact the balance sheet in any significant way. In that, we have seen the efforts.

Okay. Okay. And on the margins, you said you expect pressure to remain, how long do you think? So what you expect for the full year?

So see, I think -- two things are there. I think the advertising spend overall have remained tepid since last at least about 4 to 6 quarters ever since these input cost inflation challenges have happened because that has impacted the ability of companies to spend and be wherever the price hikes have been passed on, there has been a demand challenge for the various companies. Now a lot of this is actually over the last couple of quarters has been kind of normalizing, stabilizing, et cetera. We are hopeful that this translation of this should come back in the festive season. So this quarter in a way was -- from that point of view, a low [ festive ] kind of quarter. But we are now headed into the festive season as we...

So that's why you said second half of the year.

Yes. And the other challenge has been that we currently don't have a significant visibility of the whole channel business that we position funding in turn which has been lagged down significantly. So you, for example, see year-on-year.

I'm sorry. Your connection...

Your voice is breaking.

My voice is breaking.

Now it is better.

Okay. Okay, sorry. I will repeat what I said. The second issue is the fact that -- this whole start-up funding winter as they call it, the extension of that. Now unfortunately, at this point, there is no clear visibility on when that kind of will and [ wind] or come back or bounce back because if you see the spend this year also on many of the marquee sporting events and things like that. So year-on-year, if you see the key vendors, advertisers, et cetera, the start-up ecosystem has had a significant churn. So as a result of which, the overall pie or the spending pool, the advertising pool has come down. So we hope that that should not be the case. This should wind down probably again, 3 to 6 months down the line if the economy bounces back and...

But still like on a yearly basis, overall, where do you see your margins? Can it get to double digit in second half?

So clearly, we are in a scaling focus or opportunity as we have said earlier also that there is opportunity to gain market share and scale up the business further. And if you see last 2 quarters, the real focus and the numbers have also shown up on the scaling front. So to that extent, this year, we are -- our aspiration will be to maintain last year's EBITDA margins set, but on a higher scale because obviously, to scale up, we will need to invest. And -- but the opportunity to really take this business to a different scale is existing, and we built a lot of -- we put in a lot of things investments from that point of view, whether it's a business, people, infrastructure, brand, many other things we've put in place, and that is what really we are playing for. Margin opportunities are at scale will be significantly better available because there is a good amount of operating leverage available.

Okay. And then lastly, quickly on just the revenue. So over there, you see no problems. You will be able to clock a good growth for the year, as you saw in last year?

Yes. We're very, very confident given the way the -- our own business mix has set up our own organization energy is focused. We are very confident and acquiring for a strong top line growth. I mean while we don't give a guidance.

Yeah. No, no, go ahead. I just wanted your view.

Yes. I mean we are very confident of -- and as I said, there's a huge amount of organization energy and momentum around that.

The next question is from the line of Kunal Patel from Equilligence Capital.

Sir, my first question is regarding our debt reduction. So are we sticking to the plan of INR 30 crores to INR 50 crores reduction in debt for this year and coming year?

Yes. Going by the -- as of now, the debt has picked and the year on push for the relation, which had the committed limited in the beginning of the year.

Okay. Got it. Perfect. Sir, second question is regarding our burn rate. So it is roughly around INR 75 crores around that number. So what is our plan on that spend, whether it will go up because of new launches? Or do you see this number steadily declining over the period of the next 5, 6, 8 quarters?

So you're talking of investment in new initiatives, right?

Yes. Yes.

So last year, this number was roughly about INR 55-odd crores. And during the beginning of this year, at the end of the previous quarter's call, we had indicated that this year's plan for us is in the range of about INR 75 crores for this current year. Now in this quarter, we have spent roughly about 12.5 thereabouts. We are -- I mean if you simply annualize it, that itself works out about INR 50 crores, INR 55-odd crores kind of indicator. We -- right now, as of now, we'll hold the 75 number as far as this current financial year is concerned. And considering that we are looking forward to a strong couple of quarters as we move forward. Definitely, there will be an investment. But yes, it can be backed by better growth in revenue and profitability and things like that. So we are very actually, this number according to us, we should be able to manage within this impact well within this rather. And how this unfolds over the next financial year right now, it's too early to say because this is just the beginning of this current financial year.

Understood, understood. Sir, one question is on our viewership. So it dropped from 9% to 7%. Is IPL the reason for that? Or if yes, do you see the ratings going back to 9 or more again?

I couldn't not [ underlie ] that? Yes. Yes. Yes. So this is [ one more year ]. So let me -- so the viewership -- so there's an overall viewership numbers have come down in this quarter, obviously due to IPL, but this -- you're asking a question about the viewership share within in GEC. So that is not really a function of IPL levels. The IPL overall numbers have come down. But the share has come down because of primarily 2 reasons in the quarter 4 of last financial year, [ BART ], which is the broadcast measurement council. They have reindexed the base. So that keeps happening at sequence level. So the base has got recasted in terms of the homes that they measure. In that recasting the pay level has gone up and the [ viewership ] have come down a little bit. So if you look at not just us, if you look at even the largest previous player in the GEC scenario, which is they also have come down. So hence, as a result, what has happened is, say, [ universe ] has gone up compared to the free universe. So that is one of the reasons why our viewership shares in the overall GEC scenario has come down a little bit. And secondly, also, our marquee content, which was there in Q4, which is Ramayana and Shri Krishna. They also ended. I mean, the term ended, and that also had an impact on the share coming on. So I think these are the 2 main reasons why the viewership share would have been come from 9% to 7%. And as we keep going up, I mean, the shares will keep going up. But of course, that recasting of the base will average impact for a couple of more quarters.

The first reason is not in your hands. But when it comes to content, do you -- are you planning to launch some series or is that to [ attempt to increase ] the market share.

Comment at the beginning Shemaroo Umang was the middle GEC channel. We have increased the original programming to 2 hours right now, right? So there is a host of launches. So we have launched two shows in the first quarter and more launches are planned as we go forward. So that is obviously something which is part of the process, which is happening. So hence, I said, there will be a correction, but that index correction will take its time to play out.

Sir, lastly, we have hired quite senior guys over the last 6 to 8 months. So where do you see employee expenses going forward? And secondly, what is our plan of action here? So -- because if you look at the kind of people we have hired, I'm sure we are aiming much higher than what we are right now.

Absolutely. So I mean, I'll talk about the expense part. But yes, I think fundamentally, 2 or 3 parts, which I even said earlier, in fact, in my earlier reply also was that the fact is that we have what -- why this confidence of growth is so high, it is because there is a multifold investment that we have done right from the business front to people front to infrastructure to brands to many, the content, many other aspects. And it's all of that coming together. Now obviously, we believe the -- that people is the biggest investment and biggest way to encash on the opportunity that comes up. And if I were to take a step back, media entertainment. So the economy, which is expected to grow from whatever $3.5 trillion to $5 billion, $7 trillion over the next 10 years or 6 years or whatever. We believe that the resultant growth in consumption will drive large revenue for media sector because of advertising as well as subscription thing. And if we have to participate or rather drive that whole wave and growth, we really need obviously to have put in place all of these investments, people, business, infrastructure, et cetera. And in a way, at putting this on people as said first has been the approach, and we believe now that we have a fantastic leadership team and, in fact, next level execution team in place. So there is absolutely no doubt about that. Now coming to where this expense will go. In this current quarter, we have spent around INR 26.5 crores if you see that. But this is not yet fully loaded on the people because we've had a few more joinings in this quarter also. So we believe that will be annualizing itself, this puts us at about INR 105 crores to INR 110 crores kind of an annual number, which is against the last year number of around INR 85 crores. But we believe that considering the fact that the team will fully be in place or largely being placed only by July or August. I think the full year expense should be marginally higher than that. So hopefully, another about -- I mean, again, difficult to give guidance at this point in time. But yes, we should be looking at somewhere in the range of about INR 115 crores to INR 120 odd crores as a full year expense on people front.

Lastly, when do you see all the things coming together for us and Shemaroo becoming a much bigger, much better business than what it is right now?

Well I think this year, definitely is an inflection year from that point of view, I believe, because last year, we demonstrated the fact that what we embarked on in 2020 -- FY '20, we saw that in spite of COVID, we were able to build a business, 2 businesses, in fact, B2C revenue, the whole revenue mix, business model chase and still bounce back on the revenue and with a completely different revenue mix and cash flow mix. As well as not really cause any major impact on the balance sheet and funding everything from internal approval. So we set the base extremely well in the last financial year. And I believe this year is an inflection point for us from that point of view because we have a very solid leadership team. In fact, the whole professionalization, we have kind of dialed up in a very significant way with some really, very solid industry-leading veteran and very dynamic team to be in place.

The next question is from the line of Maan Vardhan Baid from Laurel Advisory Services Private Limited.

Recently, there was a case that we had with T Series, which I think in the concerned court didn't go our way. Could you take us through exactly what was the matter? And what was our stance and what didn't play out for us?

The matter is sub judice, and we have already filed an appeal on this because we believe that we are on a strong footing. And basically, where we own some of the rights where T Series owns music right. There is a dispute on who owns the music video rights. So currently, we are anyway not monetizing that. Our plan based on the paperwork and optimization is that the T Series doesn't own it. T-Series has been monetizing it for 2 years, last 3 years, and we believe that, that is wrongly being monetized. And that is what -- so if we -- and apparently it has been -- it's subdued. So beyond that, it very difficult for me to give you more details.

So while I understand it's subdued, but since the high court has delivered. So can you at least enlighten us on what the High Court opinion was and where things didn't go our way.

No, High Court has...

I mean I understand that you appealed. So I'm not -- I mean, but there is...

As I said, this High Court has refused to stay the monetization that T Series is currently doing, which we believe is wrong. And therefore, we have the whole remise to file the case itself was that we have won a bid for that.

Okay. And I think from whatever little I read about it, there's something about link documents not being produced. And so what exactly are these documents and...

Link documents are underlying agreements between their producer and music company, et cetera. Ultimately, we're not the producer of that work. So we would have inherited the movie as a part of our purchase of that. Now there could be some underlying documents, which would be missing in that.

Fair enough. So because we have such a large repository in that way, we also had this concern whether this particular aspect is applicable to the rest of our thing as well. Can this -- I mean, can other...

No. No. All agreements are treated individually at separate agreement.

Okay. Fair enough. Understood. Sir, just wanted to understand one thing, this is more in the larger context of things since obviously, one notices that the organization is making a lot of efforts and is kind of in a transition mode. Just wanted to understand who are the benchmarking ourselves or against and -- what are we -- I mean, sort of what is the end game in mind? Or what is that aspirant model or that we can look for, for Shemaroo. And I just wanted to understand.

So, clearly -- so a couple of things. One is the whole -- the B2C aspect of the way forward is something that -- so if we extend what I just replied to the previous answer to your question, that clearly, if this is an opportunity ahead for the media entertainment industry, then we obviously feel the best way to ride that or participate in that is through a strong B2C play. And that is something that we focused and decided and have built over the last 3 years, we've now formed about 1/3 of our overall top line. So that was the first step. Now if you see how the entire media space is now evolving is that finally, there is the line of traditional and digital beyond the point are blurry. And why I'm telling you this is that it is one-- at one level, it is the media brand, whether it's leading TV channel or it leading digital brand, et cetera. It's a media brand that people for the destination that people or a consumer or audience go towards. And second is there is a content or IP brand. It could be a show, It could be a reality show, it could be whatever it may be. And if that is the way things are moving, then the lines between traditional and digital have already started blurring from that point of view, so to give you an example, one of the -- so the top viewed category on OTT broadcaster OTT is catch-up TV. So -- so then it doesn't matter whether a show people are seeing on television or they are seeing on OTT. There is a viewership as an affinity or consumption of that show irrespective of traditional or Digital. Now if that be the case. The way forward for us also obviously is to build that combination for us, which is to build a strong network brand, which innovate helps translate on digital and all other media. So that has been in the first step. Now where is -- what can happen, I think the opportunity to scale up and gain market share is significant. We believe that there are lot of need gaps that are still underserved. And we would be actively from time to time, evaluate and work towards those filling up those need gaps. So I think the ability of the opportunity to scale up is very much there. And, I wouldn't want to hazard a guess right now, as to what is the end game. I think if we are able to continue to gain market share. I think anyway, there is a significant opportunity available to scale up.

Fair enough. Sir, one last question. When we sort of look at some other listed players on the Digital side or sort of our beneficiaries of sort of media going on the Digital side, we tend to see that there is a certain -- or there is a large portion of the top line that can continue even if they stop making any incremental investments. So for us, would you be able to sort of bifurcate that sort of if -- how that part of -- how are sort of revenue, especially on the Digital side, -- what is that portion that is sustainable even if we stopped making any investments? And sort of which will give us some sort of idea about how strong is our content sort of base that is there . And obviously, I understand that over the longer run, investments are required to sustain that run and that way, if [ funds sees ] 5, 10, 15 years ahead. But ...

So I -- I mean it's very difficult for me to answer that question in that way. But I'll try to give you a slightly different perspective on this. In the last 3 years, which is FY '21, '22 and '23, we invested a cumulative of nearly about INR 180 crores in new initiative. Out of that, INR 180-odd crores, about 80% of that was INR 100 crores through [indiscernible], which is approximately INR 145-odd crores. Okay. Which in a different way. If you look at it, it is, in a way, steady-state business revenue, right? So while I -- it's very difficult for me to answer the question straight up the way you have put it. But I'm just trying to give you a different way to look at look at that. So there is -- there is a significant internal accrual or underlying cash flow being generated, which is from past investment or existing content library kind of a thing. It's just that we have -- given the opportunity ahead of us and scale-up opportunity, we have decided to invest and go after that opportunity. And that's really what the whole thing is about.

Understood. So of this INR 180 crores of new investments that we made, we write off everything or are...

Yes, this is all amount which is written off. This is written off and gone into P&L, not on balance sheet.

This is not on balance sheet. Okay. And I mean, I see a very large inventory that is on our balance sheet, what is the thought process? How -- when do we and how do we intend to write that off?

That will happen as per consumption. Inventory, there is a clear cut consumption and linked to consumption, there is a charging of inventory. So this year itself, you will see a significant lowering down already in this quarter, it's slightly lower, but I wouldn't show on quarterly kind of number, you look at in annual numbers you will see this year a reasonable lowering of the inventory -- and the inventory is not a static thing. So the breakup or the composition of that keeps changing because you add content and you so...

So I will just add to what Hiren is saying. So you, on -- if you look at it, on a timely basis, as of today, what our inventory is, there will be a reduction at the end of the year. But it's a variable thing, right? Through the year, we'll also acquire some, make some shows, acquire some stuff and so moving thing. So it's also -- there is an aging factor also. So a lot of users inventory will get consumed by this year, some part will come down, but it will keep rotating.

So, I understood. So again, my thought and what I needed some sort of insight on was, does this also provide a kind of a taxation buffer to us that in the future, I mean, maybe we will see stronger progress on the cash flow front and not on the profitability front because we have so much inventory on our books. Is that also?

Yes, that could be one way of looking at it.

[Operator Instructions]. The next question is from the line of Rishikesh from RoboCapital.