Zee Entertainment Enterprises Limited
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Zee Entertainment Enterprises Limited CONFERENCE CALL January 24, 2017 Moderator: Good day, ladies and gentlemen and welcome to Q3 FY2017 Earnings Conference Call of Zee Entertainment Enterprises Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touchtone telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Bijal Shah. Thank you and over to you, Mr. Shah. Bijal Shah: Thanks, Margaret. Hello, everyone and welcome to Zee Entertainment’s Earnings Call to discuss Company’s performance in Q3 FY2017. Joining us today on this call is Mr. Punit Goenka – Managing Director and CEO of Zee Entertainment; along with Mr. Mihir Modi – Chief Finance and Strategy Officer. We will start with a brief statement from Mr. Goenka on the third quarter performance subsequently we will open the call for question and answer. Before I pass it on to Mr. Goenka, I would like to remind everybody that anything we say during this call that refers to our outlook for the future is a forward-looking statement and must be taken in the context of the risks that we face. Thank you and over to you, Mr. Goenka. Punit Goenka: Thank you, Bijal. I would like to welcome everybody to this call and appreciate you joining us for the discussion on the results of the third quarter of fiscal 2017. I would like to start the call with corporate developments followed by financial and business performances. Page 1 of 18 ZEEL TELECONFERENCE January 24, 2017 In line with our strategy to expand our offering in key genres and focus on regional space we have entered into an agreement with Reliance Broadcasting Network to acquire its television broadcasting business. BIG Magic, a comedy channel, will complement our Hindi GEC portfolio. BIG Ganga, the leading Bhojpuri channel, will give us entry into the attractive Bhojpuri market. We are confident that these two channels will benefit immensely from the strength of our network. Coming to the financial performance, we are happy to deliver another quarter of strong profit growth in a challenging environment. Despite the impact of demonetization on our advertising revenues, we have improved our EBITDA margins. This highlights our ability to manage costs to drive profitable growth on a consistent basis. ZEE’s consolidated advertising revenue grew 3.4% in Q3 FY2017, despite the impact of demonetization and the high base formed by 26.8% y-o-y growth in Q3 FY2016. Advertising revenue growth during first 40 days of the quarter, i.e. pre- demonetization was similar to the growth seen in H1 of FY2017. We believe that advertisers’ willingness to invest in their brands remains intact. However, the timing of spends has been recalibrated to an extent to suit the change in dynamics due to demonetization. As economic situation is normalizing, ad spends have already started moving up from December levels. Total subscription revenue in quarter three grew by 13.7% to Rs. 5,935 million. The strong growth in domestic subscription revenue is attributable to closure of content deals with a few large distribution platforms during the quarter. Accordingly, Q3 subscription revenue includes catch-up revenue for the previous quarters. The strong 9M growth in subscription revenue in FY2017 is due to finalization of several content contracts in Q2 and Q3 in this financial year as compared to finalization in the second half in the previous financial year. The outlook for full year growth in domestic subscription revenue remains unaltered. EBITDA for the quarter grew by 20% on y-o-y basis to Rs. 5.2 billion and EBITDA margin stood at 31.5%. The cash and cash equivalents for the quarter ended December 31st stood at Rs. 16.7 billion. Now, I will cover the business performance starting with the broadcasting vertical. Page 2 of 18 ZEEL TELECONFERENCE January 24, 2017 In the preceding quarter, ZEE Network’s viewership share excluding sports was 15.9%. The quarter saw the launch of HD feed of 3 regional channels, taking the count of non-sports HD channels to 9. The viewers can now watch Zee Marathi, Zee Bangla and Zee Talkies in HD. Our two Hindi GECs, Zee TV and &TV, had a combined share of 20.8% in the pay Hindi GEC genre. Zee Anmol, Hindi GEC catering to Free-To-Air audience, was the leader in the FTA Hindi GEC space. Our flagship Hindi GEC, Zee TV, saw some decline in viewership, while &TV improved its viewership marginally. In Hindi movie genre, we continue to retain leadership position through our five channels. Our latest offering Zee Anmol Cinema for FTA movie market has been well received and is ranked number two in its category. Our regional entertainment portfolio once again exhibited a strong performance. Zee Marathi increased its market share at the number one position in the Maharashtra/Goa market. Zee Bangla was the second most watched channel in West Bengal. In Telugu genre, Zee Telugu was the third ranked channel. Zee Kannada increased its market share as the second ranked channel in Karnataka. Zee Tamil continues to gain market share and is now the second ranked channel in the Tamil market. Sarthak TV continues to dominate the Oriya market. Our English cluster continues to perform well bringing the best of entertainment content and movies from around the world. Moving on to our other businesses. Zee Music Company, our music label, continued its library expansion with acquisition of music rights in both Bollywood as well as regional space. In Q3, our music label registered more than 1.4 billion views on its YouTube channel. Zee Live, our live events business’s first property - ‘Wicked Weekends’, continued with events across venues and cities. The business rolled out its second property with the commencement of Zee Theatre Tour in January 2017. On the digital front, DittoTV went live on major telecom operators’ platforms which should drive subscriber growth. Page 3 of 18 ZEEL TELECONFERENCE January 24, 2017 Thank you very much. We will now open the session for question and answers. Moderator: Thank you very much. We will now begin with Q&A Session. The first question is from the line of Sachin Salgaonkar from Bank of America. Please go ahead. Sachin Salgaonkar: I have three questions. First question is, how do you guys look at the outlook on overall ad growth especially, given the demonetization impact from FMCG companies? Just wanted to understand from you guys, how should we look at the recovery and general expectations right now for the ad growth for 2017? My second question is on the tax rate. Mihir, I think this quarter there was a decent jump in tax. So, if you could give clarity on why it was and how we should look at it going forward? And third, generally on a big picture view of your OTT strategy. Now, clearly when we compare DittoTV with Hotstar today, you do see Hotstar doing a bit better. So, wanted to understand if you have any thoughts on revamping your OTT strategy, anything you could share there would be helpful. Thanks. Mihir Modi: Thanks, Sachin. I will take the second question on tax first. So, the tax rate varies from quarter to quarter depending on the mix of profits that we make in various subsidiaries. The nine months’ tax rate is around 35% and we expect that on a full year basis our tax rate will come down to those normalized level between 33%-34%. Punit Goenka: So, on the advertising front Sachin, while it is still very early to predict how the entire quarter will look like, as I said in my opening remarks, we have seen significant recovery but not anywhere close to what we were clocking a year back. So, very difficult for me to give you precise outlook for what will happen in the whole quarter but we are looking at it week to week as we go along. On the OTT platform, yes, you are right we are significantly underperforming compared to Hotstar, but we have our strategy in place which we will be rolling out during the second half of current calendar year and you will hear more about that in the quarters to come. Sachin Salgaonkar: Okay. Thank you, Punit. One small follow-up - I understand clarity on FMCG is a bit difficult, but any offsetting impact out here with let us say telecom, autos or any other sector spending a bit more. How should we look at that? Punit Goenka: Bijal, you want to comment on that. Bijal Shah: What we are seeing already is that telecom is picking up, and again in telecom we should see significant improvement going forward once Reliance actually starts Page 4 of 18 ZEEL TELECONFERENCE January 24, 2017 charging their customers, because at that time you will need to build the brand. And once the final pricing is available, we expect other guys to actually advertise to counter Reliance. So, we see telecom as one of the major drivers next year. Beyond that, in auto, if we see the line-up of launches by most of the auto majors, that itself should be one of the big drivers. Some of the launches in FMCG were actually deferred, so as remonetization happens we should see that also come back in next quarter or over a couple of quarters.