Tips Music Limited (TIPSMUSIC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Tips Industries Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Faraz Ahmed from Orient Capital. Thank you and over to you, sir.

Thank you and welcome to the Q3 and 9 months FY '23 Earnings Conference Call of Tips Industries Limited. Today on this call, we have Mr. Kumar Taurani, Chairman and Managing Director; along with Mr. Girish Taurani, Executive Director; and Mr. Sushant Dalmia, CFO. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations as of today, and actual results may differ materially. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. A detailed safe harbor statement is given on Page 2 of the company's Investor Presentation, which has been uploaded on the stock exchange and company's website as well. With this, I hand over the call to Mr. Kumar Taurani for his opening remarks. Over to you, sir.

Thank you, Faraz. Good evening, friends, and welcome to the Q3 FY '23 Earnings call of Tips Industries. Our teamwork is paying off and we have been able to report a substantial increase in our revenue from operations. For the 9 months FY '23 ending December 31, 2022, our revenue was up by 33%. For the quarter, revenue grew by 15%. We released 243 new songs, which is highest in any quarter so far. These include 169 new film songs and 74 non-film songs. This quarter has seen a substantial increase in our content cost. For the 9 months financial year '23, our content cost was INR 43.5 crores. On a year-on-year basis, it has increased by 81%. For the quarter, content cost was INR 18.7 crores, up by 49% year-on-year. Our new releases have performed very well. To put in perspective, our two songs of Freddy have crossed 55 million plus views. Our latest release by Yo-Yo Honey Singh, Yai Re, has crossed over 35 million views along with Tujhe Dekhen Meri Aankhen and Gal Ban Jaye, which have crossed over 20 million plus views. Our subscriber numbers continue to grow. On YouTube, we have now 78.6 million subscribers. And our YouTube views for Q3 financial year '23 were about 31 billion, which is an increase of almost 105% in our views over the corresponding quarter last year. We will continue to invest in quality music to achieve our vision of becoming the #3 player in the industry. You may already know that we have hired Mr. Sushant Dalmia as our CFO to strengthen our team. Now, let me hand over the call to Mr. Sushant Dalmia to share the financial highlights of the quarter.

Thank you, sir. First, I would like to wish everybody on the call a very happy and a prosperous new year. As you know, at Tips Industries, we charge off the content cost to the P&L as and when it is incurred . Now let me take you through our financial highlights. Our revenue from operations for Q3 FY '23 stood at INR 51 crores as compared to INR 44.2 crores in Q3 FY '22. That is an annual growth of 15%. Operating EBITDA stood at INR 25.9 crores for Q3 FY ’'23 versus INR 27.7 crores in Q3 FY ’'22. The operating EBITDA margin was at 51% for this quarter. Our profit after tax for Q3 FY ’'23 stood at INR 20.2 crores versus INR 21.5 crores in Q3 FY '22, with a PAT margin of 40%. Now for 9 months ended December ’'23, the revenue from operations stood at INR 134.8 crores, an annual growth of 33%. Operating EBITDA stood at INR 75.5 crores for 9 months ended December ’'23 versus INR 65.9 crores, that is an annual growth of 15%. Our profit after tax for 9 months ended December ’'23 stood at INR 58.2 crores versus INR 48.6 crores last year with a PAT margin of 43%. The decline is due to substantial increase in content cost. With this, I would like to hand over the call to the moderator for the Q&A session.

[Operator Instructions] We take the first question from the line of Mr. Ravi Naredi from Naredi Investments.

Sir, almost results are good. Content costs rising continuously, how we may see this? A few words need from you or this is new norms for future? That is my question.

Actually, Mr. Ravi, we have already mentioned in our earlier meetings, in music business, we need new content. And as I told you earlier as well, we have a fixed budget that this year we have to invest so much money in the content. So we have a revenue target. We have a bottom line target. And even content budget also is there. So we are accordingly working towards that, and it's absolutely under control.

Definitely under control. So what is the target for financial year '24, our content cost?

2024 will be the next year. I think our total content and marketing budget will be around INR 85 crores, you can say, INR 85 crores to INR 90 crores.

And sir, this content whatever we have booked in first year, because that is our tradition, how much revenue we may generate in first year or second year, can you give some idea about that?

I think we don't have any calculation like that. But you can say, whatever investment we are doing, say if we buy a content worth INR 10 crores and maybe first year we are recovering INR 3 crores or INR 3.5 crores, so I expect the balance money I will recover in the next 4 to 5 years' time. So you can make your calculations accordingly, how much we can recover in the next 3, 4 years.

Okay, okay. And sir, whatever digital advertising grows, at same percentage our industry grows?

Not the same, but it's substantial. A major thing for the industry is growing, because the digital advertising and digital content is through films, web series and so many other products as well, apart from music. So we exactly don't know how much will be on the music and how much, but you can say music will be the crucial and big part of that.

And 5G will definitely help us, right?

Absolutely, 100%, big way.

We'll take the next question from the line of Mr. Akshay Sam from Sam Capital.

So sir, in this quarter, we have almost invested in 243 songs, which is almost equal to for the total year of FY '22 what we invested, right. [Foreign Language] So can we expect the growth rates for pick up going ahead? Or you think with the advertising slowdown that we are seeing in the industry, that the growth rates will be moderate a bit as well?

I think advertising slowing down for last 2, 3 months is not actually affecting Tips. So we are maintaining our -- because of our releases and quality releases. So I don't feel it will hurt Tips. And I think that 2, 3 days back, I was reading one article where Hindustan Lever, HUL, was telling people that now business is back, economy is back, and that they are increasing their advertising revenues this year. So I think it will come back to normal situation. And I feel it will grow further to big heights. So I'm not actually worried about this.

Yes. I mean -- but with such an increase in content costs, I mean, you initially, historically have given like 20%, 25% growth rate. So can we expect that to go up further, because now you're investing for the whole year -- for the quarter what you used to invest in the whole year, right?

Yes. I always maintain that, last 2, 3 years I am telling this that next another 2 to 3 years I don't see any problem. Our revenue will be up by 25% to 30%, and even bottom line will be up by 15% to 20%. After deducting all the content cost same year, huge content cost, we will maintain that.

Sir, second is more like a book-keeping question. So say, if the movie releases 6 months from now and you've already paid advance now, so would you put the advance cost in this quarter or would you put the advance cost with the entire cost when the music releases?

When musical releases, we write off entire amount. I will keep this money, whatever we paid as advance, as advance only in books and we write off all the amount when our first song gets released.

But advance cost you will write off now, not when the music releases, right?

No advance cost, we don't write off. We write off all together.

Sir, also could you give us kind of a flavor of what we can expect in the coming year of new releases in Hindi, Telugu, some of the others. What is there publicly we know, but other than that, anything else, the kind of releases we can do in music?

Yes, we have quite good releases this year. We have quite a big content in South India, Tamil and Telugu. Plus in Hindi also, we have 3, 4 -- Tips Films making 3 films, Merry Christmas, Ishq Vishk (sic) [ Ishq Vishk Rebound ] and Gaslight, 3 films we are going to release. And there's another 2 or 3 big films we're talking with outside producers. And also there is a re-creation of our Tips songs, plus there are so many songs in regional languages, spiritual. So that's as usual going on.

Mr. Devanshu, please go ahead with your question, sir.

I just have 2 questions, sir. So can you give me a sense of the concentration of revenues from the top 3 or 5 platforms in our licensing business?

Top 3, I think there is one from the YouTube. And then there is -- I think then should be Resso, and third one will be maybe Spotify or Facebook.

So including Spotify and Facebook, maybe the top 5, what is the revenue contribution from them, combined, if you can share that?

I cannot give you these 2, 3. But I can tell you, as usual, 70% to 75% comes from digital revenue and balance 25% from other streams like public performance or publishing, TV stations, all that.

And just another question, since people have been asking about the slowdown in advertising and all those things. So is there a possibility of music licensing terms changing away from minimum guarantee and fixed fees, given the state of economy and all those kind of things. If that is the case, what can be the impact? Because I am assuming that the 20% plus growth assumptions that you are taking would take into consideration some of the hike from these numbers itself, right, your MG and fixed fee rate as well. Can you give me a sense on that?

Actually, if you see, I don't have a major business like that. I'm actually -- Spotify or YouTube or any other parties, except 1 or 2 parties, I have all the parties in a profit sharing kind of a business. So my model is very clear, I don't want to get any extra monies like that the other companies may be getting. So I'm very safe that way. And I don't see any major impact will happen to Tips. On the contrary, the way our content, our 90s music is performing, I think some of the platforms, I feel, still to be clear, I feel I'm now performing as #2 player. So I think this is way beyond our expectations. I think we will -- in the next 2, 3 years, I'm committing 25%, 30%. But I feel we have really potential to do much more than that, which we are trying. So let's be positive, and I'm very confident better results will come.

No sir, [Foreign Language] revenue sharing, then a lot depends on the slowdown, right? Because we just heard Saregama call where they are saying that we are sort of in a different position because we have MGs and we have fixed fees. So they have nothing to worry about over here. But what you are saying is the opposite. So essentially...

[Foreign Language] I don't know about them. But my business model, like YouTube, I don't think YouTube pays anyone any MG. The MG players are new players, more or less, Facebook and all those players, which we are discussing our new deal with them. So we don't know where we will go about that. But other companies like YouTube or Spotify and major companies, they are on a profit sharing basis with all, not with me, all the companies. So I don't feel -- and my business is increasing. Even YouTube, I see a jump. it is doing well. So I don't think it is affecting my business.

Okay. So in this quarter, are there any contracts that are not included, but are up for negotiation right now -- that are not part of the revenues?

Two, three parties, we are negotiating, and I think soon, we will -- let's keep fingers crossed. I think it can be a game changer, I feel.

So these parties are -- they were never clients or they are just clients and they have...

Yes, I think some of them are never clients. Some of them are clients, but renegotiations are happening. Both cases happening.

We'll take the next question from the line of Mr. Ankush Agrawal from Surge Capital.

Yes, Taurani ji, first question is, if I see quarter 2 and quarter 3, our revenues are flat. But typically, quarter 3 is the biggest quarter for us, right? And this quarter, [Foreign Language] flat quarter on quarter?

[Foreign Language].

[Foreign Language]?

[Foreign Language].

[Foreign Language]?

No, no, no. [Foreign Language], we book in the same month because of GST and because of all those tax factors, so we book in the same quarter only, on cash basis.

[Foreign Language]?

[Foreign Language]. So we do this, we book the same month. So we always say, please analyze our performance on a yearly basis.

[Foreign Language]?

[Foreign Language].

[Operator Instructions] We take the next question from the line of Anika Mittal from Nvest Research.

My question is on basically layoff side. Actually, we are seeing layoffs and cost cutting from the organization and the cuttings in the advertisement costs as well due to the rising inflation. And OTT spending by the players like Netflix due to lower-than-expected subscription growth likely to impact our revenues as well. So if that is the case, do we have any alternative revenue stream to compensate the advertisement, because advertisement YouTube has a major impact on our revenue, sir.

See, maybe what you are talking is of such a huge organization, where they have 100,000, 200,000 employees, they are cutting down 1,200. We are not such a huge organization. We have only 60 people and very controlled organization.

No, no. No, sir. I'm not talking about your organization. I'm talking about basically on the digital ad spend and on the CapEx by the end players, OTT players like Netflix. So if they are cutting down their costs, what kind of impact do we see on our revenue, sir?

Yes, yes. I'm coming to that. So Netflix is a film company, and we don't have any dealings with them. Maybe occasionally, whatever web series come on their shows -- on their platform, if they want music rights, so they take rights from us, they also pay us money. So we don't have any major dealing with Netflix, but we do have a major dealing with YouTube. But, touch wood, YouTube, we are even growing month-on-month basis. Even compared to last year, this year, we are on target. Whatever we budgeted that this much money will come from YouTube, we are achieving that target. So I don't see any problem. And this thing happens. Every 2, 3 years, there are some dull months come, and then again it picks up. So I think it's a temporary phase. And even temporary phase is not affecting Tips. So I'm actually not concerned very much. And still, there are so many other platforms and other deals are going in place. So I feel whatever I'm committing, this 25%, 30%, it's easy to achieve. And we are, touch wood, achieving so far. So there is no complaints about that.

Means you are confident about this 25%, 30% year-on-year growth, right?

Absolutely, absolutely, absolutely.

We'll take the next question from the line of Mr. Dheeresh Pathak from WhiteOak Capital.

Sir, in the presentation, you show content cost, let's say, 9 months, it is INR 45 crores; full year, let's say, INR 60 crores. So just to get a sense, sir, that on an average, how much new content is available for bidding in a year in terms of value in crores?

See, actually, INR 800 crores, INR 900 crores of content all in India is being produced. Maybe because of competition, the cost will go another INR 100 crores, maybe say INR 1,000 crores. In INR 1,000 crores, INR 50 crores, INR 60 crores is not a big deal for us, and we are not in this bidding game. Other players may be doing that. So we really pinpoint one of any film and then we go to talk to that producer. And we just tell him, don't make us bid for it. If you are interested and we are interested, let's sit across and in first meeting we will close the deal.

Okay, you take both the rights? You take master rights as well as the publishing rights?

Yes, absolutely, total rights of it.

And video rights of that song, that also you take?

Yes, yes. It’s a common practice. Everybody takes that rights.

Okay. The cost that you charge to the P&L, the content cost, that shows up as other expense in the annual report, right?

Yes.

Where –there is this -- so there is this advertisement and promotion and then there is music acquisition. So both combined together is this INR 30 crores that you've shown in last year, right? You include ad expense also, right, in the presentation figure that you...

Yes.

There is no royalty item? Some companies have a royalty line item. You don't have that?

Whatever content we buy, we buy all content outright basis. We don't keep that we pay you later royalty, you charge us less and we'll keep on paying you royalty. We don't do those kind of things from beginning. This practice we follow from 1988. It's lump-sum deal. All the content, 100% ownership will be transferred to Tips, and we pay a onetime fee, that's it. And we charge that to our balance sheet same quarter.

Okay, but if you take the publishing rights, you're supposed to give the lyricist and the composer certain amount of money. That you show in which line item?

Yes, that is the law of the land, and we monetize that right through IPRS. There is a society for that, and they collect all the monies from various platforms and services and they give us 50% and they 50% directly distribute to the artist.

Okay. So you recognize only your portion, so you don't have to compensate. And this ability to acquire rights in perpetuity without any royalty, this is existing in Bollywood? I was under the impression that Bollywood, typically the deal had royalties.

No, no. Except one or two companies, everybody acquires music right lump sum basis.

Okay. It's not that the big banners, let's say, Karan Johar, and the people who are big shots, they want royalty, so they will not do perpetual deals.

Maybe they also have different dealings with different companies. Maybe with one company they are doing royalty, maybe another company, they do outright lump sum deals. So all those things are negotiation and deal to deal basis, you can say.

Okay. Top 1 customer would be what percentage of your revenue, if you can share?

One customer? I didn't understand that.

So largest customer, just to get a sense of concentration, largest customer, typically companies have to disclose, right? The largest customer is so much percentage of my revenue. So if you can share like the top customer would be what percentage of revenue?

Basically, for all the industry worldwide, it's YouTube, the big customer is YouTube. And YouTube becomes around -- minimum you can say, from 40% to 55%, YouTube contribution, any music business, you can say today.

So the monetization...

Sorry to interrupt, Mr. Pathak. May we request you to join the question queue, as we have participants waiting for their turn. Thank you.

I will, thank you.

We'll take the next question from the line of Mr. Maanvardhan Baid from Laurel Advisory Services Private Limited.

Most of my doubts have been cleared. Just wanted to understand [Foreign Language] given the volume of content that Tips puts up versus the hits that it manages, especially on YouTube, it does much better than most other competitors. So just wanted to understand the approach and how are we managing to do that? And sort of, is there a focus on particular language? [Foreign Language].

See, we have experienced people working for us, plus we also have our own experience for last -- I'm doing this business for the last 44 years, 45 years. And even my son, Girish, or there are other guys, Praveen, Kaushal, Kavita, so many other people we have in artists and repertoire development business. So everybody is in this business for 5 years, 10 years, 20 years. So they have a good experience of this music. So that's why our ratio is good. And we try at least 70%, 80% of the major, major songs, we all listen to those songs. And actually, if you see, we don't have much work to do. We have only these 40, 50 customers. And if we do a deal for 2, 2 years also, so we have to sign just 25, 30 contracts a year. So our major time goes into creation of content. And that's the main game. Creation of content is the big thing in any music business. So our focus is there. So we try, [Foreign Language], we should have a very good quality content, which can last long. [Foreign Language] some new learnings also. So this is actually, basically, you can say it's the experience of that.

[Foreign Language]?

[Foreign Language].

[Operator Instructions] We take the next question from the line of Mr. V.P. Rajesh from Banyan Capital Advisors.

Two questions as most of my other questions have been answered. So first one, in terms of your content acquisition, you were saying that you also create content. So out of these INR 45 crores, how much was your own content versus the content you bought from third parties?

I think in this INR 30 crores, major will be acquired, because this year, in nine months, we have released 2 big films, Freddy, and this one, PS1. So you can say around 60% we acquired and 40% we have created in-house, you can say that.

Out of this INR 45 crores figure, right?

Yes, yes, yes. Approximately, I'm telling you, this will be the figure.

And out of that 40%, how much is coming from Tips Films or the films…

Tips Films has not given any films till now. Their films will come in this year. Maybe one film will be released in February, music-wise, February or March, and then 2 to 3, 4 films will come next year.

Okay. So sir, if you look at your entire library, what would you say, percentage, homegrown, created by yourself versus acquired over a period of time? Like how would you bifurcate that?

You're asking for this year or for a long, long time, you're asking?

Long time. I'm just trying to -- as you said, like a lot of the content in this quarter was acquired. So I'm just trying to understand, over a longer period of time, what does that split look like?

I think we have 500 films music rights in totality and I think among that, we have our own production movies, 35 or 38 films original, and rest another 10, 12 movies dubbed -- Punjabi film dubbed into Hindi or Hindi film dubbed into Tamil and Telugu. So you can estimate around 7%, 8% created by own and balance acquired from outside. Overall, I'm telling you my catalogs we have done so far.

So now are you seeing that your own content creation percentage is increasing from this long-term 8% to 10%? Is that the way to understand?

Earlier, it used to be a huge film market music. And that time, music cost was not the way what we are paying now, content cost. And earlier, it was whatever we invested in music rights, we used to recover all the monies, whatever invested, in 3 to 6 months' time or maybe 1 year's time. But now recovery is really far, far. So we have to mix that properly. If we are creating non-film, our own content, that costs us less. And films, whatever we are acquiring, it's very expensive rights to acquire. So because of that, we do a mix of non-film music, re-creation of our old songs, and then some film music, we do a proper mix. So it cannot be very expensive. So that's why we do that.

Right. So if I heard you right, that non-film content that is proprietary to you, that percentage is increasing over time, so that you don't have to pay third parties, right? That's what you're saying?

Yes. Proprietary [Foreign Language].

True, true. Sorry, yes, you're right. You are proprietary for all of it. But what I mean is that what you have produced yourself, you have direct control over in production itself. And then the last question, so what is your arrangement with Tips Films now that you are 2 separate companies?

See, we have appointed a separate valuer. Baba, you tell us how we do arm's length kind of a business between Tips Films and Tips Music. [Foreign Language] we don't want to pay more, we don't want to pay less. And they also won't sell us for less or we will not allow them to get more money from us. So we have appointed a valuer, [Foreign Language] and then that valuation, whenever valuer will be ready, he will talk to our auditors and auditors will finalize this, and then we will take them to Board and Board will give us a green signal and then we will finalize.

But you have the exclusivity on all the music that is being produced with respect to their movies?

Yes. [Foreign Language] because it's a sister concern, you can say, or a Group company, [Foreign Language] compared to other people. So we shouldn't tell them [Foreign Language]. So we will acquire that at a very fair price.

We'll take the next question from the line of Mr. Mayur from Wealth Managers Private Limited.

[Foreign Language] because at an industry level also, we don't disclose subscription revenue, advertisement revenue and [Foreign Language] can we index it? Let say, in FY’ '22, [Foreign Language] but if that was 100, how much the subscription revenue has grown in this period related to the overall revenue? So sir, [Foreign Language] subscription versus advertisement [Foreign Language] because of the lack of information. [Foreign Language] understanding and confidence [Foreign Language] subscription revenue in general is improving, not improving in certain quarter or a year. [Foreign Language] just a suggestion.

[Foreign Language] Nothing is free in this world. [Foreign Language].

[Foreign Language].

I am not committing, but let us see. I will explore with my team. We will see this.

[Foreign Language].

[Foreign Language].

[Foreign Language]?

[Foreign Language].

[Foreign Language]?

[Foreign Language].

[Foreign Language] so if we look at FY '’23, [Foreign Language], if we want to grow that at 30%, then next quarter Q4 will either be flat or can be negative. Is this the right reading or we are saying FY’ '23 should be actually much more than 30%? Because [Foreign Language], I am reading in between the lines. Just trying to understand and clarify.

So again, depending upon the deals, [Foreign Language].

[Foreign Language]?

[Foreign Language].

[Foreign Language].

[Foreign Language].

Thank you. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to Mr. Kumar Taurani for closing comments. Thank you and over to you sir.

Thank you so much. Please keep faith in us. We are really working very hard and we promise [Foreign Language] That is my hope, and we are all working towards that. Thank you. Thank you so much.

Thank you. On behalf of Tips Industries Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you.