3Q (October- December 2009) FY 2010 Teleconference January 19, 2010
Zee Entertainment Enterprises Limited Quarter Three Financial Year 2010- Earnings Conference Call January 19 2010, 1300hrs IST
Moderator Ladies and gentlemen good afternoon and welcome to the Zee Entertainment Enterprises Ltd. Q3 FY2010 results conference call. Please note that this conference is being recorded. At this time I would like to hand the conference over to Mr. Harshdeep Chhabra from Zee Entertainment. Thank you and over to you sir.
Harshdeep Chhabra Ladies and gentlemen, thank you for joining us today. This conference call has been organized to update our investors on the company’s performance in the third quarter of fiscal 2010 and to share with you the outlook of the management of Zee Entertainment Enterprises Limited. We do hope that you had a chance to go through copies of the earnings release and the results, both of which are uploaded on our website www.zeetelevision.com.
To discuss the results and performance joining me today is Mr. Punit Goenka, Managing Director and CEO of ZEEL, along with members of the senior management team of the company including Mr. Hitesh Vakil, CFO & Mr. Atul Das, Head- Corporate Strategy & Business Development.
We will start with a brief statement from Mr. Punit Goenka on the third quarter performance and will then open the discussion for question and answers.
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 that must be taken in the context of the risk that we face.
I now request Mr. Goenka to address the audience.
Punit Goenka Thank you, Harsh. I would like to welcome everybody to this call and appreciate you joining us for the discussions on the results of the third quarter of FY2010.
Let us begin with details of some of the key financials of the quarter, which should give a clearer picture of our performance.
Advertising revenues were Rs 2.71 billion, an increase of 1% as compared to the corresponding quarter last fiscal. On a sequential basis, advertising revenues were up 9%. I am happy that after a period of three quarters, we have recorded a positive YoY growth in advertising revenues. This is reflective of our product strength as well as the fact that market sentiments on ad spends have improved considerably compared to a few quarters ago.
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Total subscription revenues for the quarter were at Rs 2.47 billion, registering an increase of 8% over the corresponding quarter last fiscal. During the current quarter, domestic subscription revenues stood at Rs 1.46 billion while international subscription revenues were Rs 1.01 billion.
Subscription revenues from domestic DTH were Rs 632 million during this quarter, an increase of 124% YoY and 23% QoQ. The DTH number this quarter includes a non recurring amount of Rs 49.8 million.
Positive steps continue to be taken by industry players and regulators for a fast growing pay television market. With around 2.4 million DTH households being added across the industry during the quarter, leading to 6.4 million DTH additions in the fiscal, signs are that digitization continues at a heartening pace.
Other sales and services registered revenues of Rs 135 million. The Company had recorded revenues of Rs. 497 million under this head during the corresponding period last fiscal.
These led to consolidated revenues of Rs 5.31 billion for the quarter.
On the cost front, total expenses were Rs 3.74 billion. This indicates a 12% decrease on year on year basis and a 4% decrease on a quarter on quarter basis.
Programming & operating cost was Rs 2.31 billion as compared to the Rs 2.68 billion in the corresponding period last year. Despite this reduction in costs, we have delivered a strong performance across network channels on the viewership front.
During the quarter, the company’s operating profit was Rs 1.57 billion, an increase of 31% over the corresponding period last fiscal. Operating profit margin improved both year on year as well as sequentially and stood at 29.6%.
Profit Before Tax stood at Rs 1.75 billion while Profit After Tax was Rs 1.46 billion. This represents an increase of 55% and 74% respectively over the corresponding quarter last fiscal.
I would now like to cover the business performance. The flagship Hindi General Entertainment Channel Zee TV delivered 250 weekly GRPs on an average during this quarter and attained a channel share of 20% in its genre. Zee TV reached its highest rating of the year during this quarter and had the highest rated fiction-Pavitra Rishta as well as non-fiction show-Dance India Dance in the genre.
The company’s Hindi movies bouquet garnered a leading 33% genre viewership share this quarter. Zee Cinema aired various blockbusters in the quarter including God Tussi Great Ho, 123, Dasavatar etc.
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Zee Café, the network’s English entertainment offering, premiered the latest season of Gary Unmarried, Brothers & Sisters 3, The Celebrity Apprentice- Season 2 etc. and garnered 27% channel share for the quarter in its genre.
The English movie channel Zee Studio premiered movies such as Vicky Cristina Barcelona, Wrestler, Duchess, Peaceful Warrior, How To Lose Friends & Alienate People etc.
Highlights of our International operations included distribution tie-ups in new geographies with platforms such as Comcast, Bright House Cable etc. Zing UK continuing as the highest rating Asian channel on Broadcasters’ Audience Research Board (BARB) and the network’s Arabic offering Zee Aflam bagging a Gold Award in the prestigious Effies MENA 2009 were the other key highlights. Zee Aflam continued to dominate the local market, featuring in the top 3 movie channels of Kingdom Of Saudi Arabia during this quarter.
Ten Sports and Zee Sports continued their dominating presence in the sports genre. Key fixtures of the quarter included coverage of the Pakistan-New Zealand cricket series, the South Africa- England cricket series and the Men’s Champions Trophy Hockey. In the coming quarter, the channels are slated to air the live coverage of the Pakistan- England cricket series, the Chennai Open tennis tournament and the Hockey World Cup.
The Board of Directors of the company in its meeting yesterday approved the acquisition of an additional 45% stake in the Company’s 50% subsidiary Taj TV Limited for a consideration of USD 44.145 million.
With this, I would like to summarize by saying Zee’s performance over the last couple of quarters is reflective of its ability to grow viewership and revenues even under difficult market conditions. The operating profits and net profits this quarter have reached a new high despite intense competition and I am confident that we would continue to deliver strong results in the times to come as well.
I thank you again for joining us and would now like to open the floor for the questions and answers session.
Moderator Thank you sir. Ladies and gentlemen we will now begin with the question and answer session. The first question is from the line of Abneesh Roy of Edelweiss. Please go ahead.
Abneesh Roy Sir, congratulations on the advertising revenues and DTH revenue front. My question is on the international subscription revenues, where we see that the developed markets are making a comeback slowly in terms of GDP so where do we see the international subscription revenue because this quarter there was a 12% year-on-year decline and plus Colors is
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getting somewhat aggressive on this front, so overall if you can give some outlook on this?
Atul Das On the international revenue there is a mix of slight weakness on the revenue front as well as on the currency fluctuation. We have seen some subscriber churn, though with the international scenario improving we should hopefully be able to see some bit of stability there and going forward that turning into growth.
Abneesh Roy Is it possible to share the ex-currency numbers?
Atul Das The ex-currency would be normally 6% decline and as far as your second question is concerned on the Colors, yes we are watching the scenario closely. As you know that despite availability of major competing channels including Sony and Star in most of the international markets we have had a lion share of the revenues in those genres for many years now. We will watch with interest how the launch happens but we are confident that our ability to have a touch-point with the viewers will enable us to keep our shares.
Abneesh Roy Sir if you see the ad market all the ad pundits are saying that the growth rates are going to be better than expectations. India is going to be one of the major leaders in recovery. My question is from a three-player market suddenly we are seeing trends of a four-player market into the Hindi GEC space, so your comments on the overall outlook on the ad revenue front.
Punit Goenka Who is the fourth player Abneesh?
Abneesh Roy See YRF shows have disappointed but Sony’s ratings have picked up.
Punit Goenka Well I would not comment on any particular competitor, though I would say that the three-player market existed in this entire year of operations and I do expect that to be a reality even going forward. The fourth player I am not too sure about yet. Our expectation is that the industry for this fiscal would record a high single-digit growth largely driven by new inventories that have come in and next year pundits as you rightly said are predicting 12% to 15% kind of numbers.
Moderator Thank you Mr. Roy. The next question comes from the line of Vikash Mantri from ICICI Securities, please go ahead.
Vikash Mantri Good afternoon sir and congratulations for the numbers. I had one question on Taj TV. What is the debt that we would have assumed in the deal?
Punit Goenka The debt stands at $28 million.
Vikash Mantri Which you have assumed?
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Punit Goenka Yes.
Vikash Mantri Okay and second thing is, Sir our employee cost continues to be very low and actually has declined year-on-year by 3%, if I remember around two years back in June we paid out for fiscal year 2008 a one-time bonus to all our employees. Given we had a wonderful year this year is it something likely to happen in the next quarter or may be after that?
Punit Goenka Well, we as management like to give incentives to the people but it is for the Board to decide whether incentives would be paid or not. On the employee cost being down, I think it is a function of the cost prudence that we have had, with us having tightened our belt even on the manpower front as well. The total number of people that we employed last year compared to this year has come down and some of our businesses like the film production division are now we are running in a very lean manner compared to last year. So it is not exactly an apple-to- apple comparison but yes, I hope that we would be able to reward our people seeing the performance of this year.
Vikash Mantri And on the movie’s front we saw no action this quarter. Any new game plan that we may have in this space?
Punit Goenka We are still cautiously watching the space and seeing how the box-office has come back, we are evaluating whether it will be actually the same kind of growth level we were seeing two-years back. So basically in the next few quarters we will take our decision as to what needs to be done in this business.
Moderator The next question comes from the line of Madhuchanda Dey from Kotak, please go ahead.
Madhuchanda Dey My question is on the financials of Ten Sports, if you could share what has been the nine months’ revenue and the profitability numbers? I have just one more question also.
Hitesh Vakil For the nine months of this fiscal, the total sports business revenues were Rs. 2.53 billion and negative EBITDA of Rs. 597 million.
Madhuchanda Dey My second question is on Ten Sports itself. Having owned the company completely, what kind of changes are plausible by which you expect to turn around the business if you could throw some color on the same?
Punit Goenka Well first and foremost once we take the additional 45% control of the company, we will be fully integrating it into our operations which would include from the backend of transmission to the front-end of sales. So that would definitely bring a lot of synergies from a network perspective for us to garner better revenues going forward. And the new channels that we propose to launch under the same subsidiary would come in for
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example the Ten Golf Channel that we have proposed to launch and of course Zee Sports will also move into the same subsidiary.
Madhuchanda Dey So if I may just ask you what is your internal sense of when this whole sports business can breakeven?
Punit Goenka See the sports business has been making money for us over the last three years that we acquired it, this year is we have seen some misfortune due to the India-Pakistan cricket series being postponed once again and the misfortune of couple of cricket series getting washed out in the earlier part of the year, all of which have led to these losses. So for us the sports business is a strategic business that we want to be present in and going forward we will definitely be back to making profits.
Moderator Thank you. The next question comes from the line of Surendra Goyal from Citigroup, please go ahead.
Surendra Goyal Yeah hi good afternoon sir. Couple of questions firstly on this sports business side, is there a room to rationalize cost there given the fact that in the first nine months that is one segment where we have actually seen cost going up. So is there a room like post this change in ownership is there room to bring down cost?
Punit Goenka Definitely there is Mr. Goyal. As I said earlier, even in the back end where transmissions and programming are concerned we had two independent teams running operations- one for Zee Sports and one for Ten Sports. Once this acquisition takes place we will be amalgamating both the teams into one team. On the front end where sales is concerned, we again had two independent teams selling Zee Sports and Ten Sports. Those would now come together, so there are a lot of benefits in terms of cost that we will also see from this.
Surendra Goyal And my second question is, in the last analyst meet management had indicated that loans and advancements to group companies would come back over a period, has there been any progress on that. When should we expect that to start?
Punit Goenka I am happy to inform you that we have received in this quarter, Rs. 3.85 billion from the loans and advances account to the company and I am talking in the January month, not last quarter.
Surendra Goyal Okay sir. Thank you so much.
Moderator Thank you Mr. Goyal. The next question comes from the line of Amit Kumar from Kotak Equities, please go ahead.
Amit Kumar Good afternoon sir. Sir, I just wanted to understand you know in the past few quarters we have seen a fair amount of volatility as far as your SG&A expenses are concerned I think it was around closer to 120 crores in
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fourth quarter last year coming down to 80 crores then jumping up again to 123 and you know about 106 crores. Could you just give us a sense of which particular line item does this belong to? Within SG&A which line item is causing this sort of a number and in terms of scale of operations we are fairly a huge amount of scale so we would have expected some stability here?
Hitesh Vakil Amit, if you look at the numbers, selling and administrative expenses have shown marginal de-growth in quarter three. So where is the discrepancy?
Amit Kumar No, I am saying the numbers have been changing very widely on a quarter-on-quarter basis so just wanted to understand within SG&A which particular line item is responsible for this?
Punit Goenka This year the season actually began in Q2 itself. Diwali was very early this year so there would have been lot of marketing push that all the channels would have put behind for the season sales itself so that is what is causing the fluctuation there.
Amit Kumar Okay good. If you look at the net other income or net interest income also that has gone up quite substantially on a quarter-on-quarter basis so could you just help me explain that?
Hitesh Vakil Well interest income also accounts for interest received which is a one- time item, interest received on our income tax refund Rs. 5.1 crores which is one time income which is accounted for in this quarter.
Amit Kumar One time income of about Rs. 51 million. Okay. Thank you sir. I will come back.
Moderator Thank you Mr. Kumar. The next question comes from the line of Devendra Singhal from Kotak Fund Management, please go ahead.
Devendra Singhal Good afternoon gentlemen. My question is basically related to your ad inventory utilization if you could just give some sense as to how you are seeing that in the last quarter and what is the current trend in the current quarter?
Punit Goenka On inventory utilization we have seen a lot of improvement in the last quarter itself. On an average for the network I can say that we are operating at 90 plus percent fill levels, which has been consistently growing over quarter-on-quarter and we do expect that trend to continue.
Devendra Singhal And should we contemplate a price hike anytime soon in this quarter or the next if that be the case?
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Punit Goenka As we always maintained any deals we do will always be at a price hike so we will be concentrating a lot more on getting our yields much better.
Devendra Singhal And sir the last target hike which we took, have they actually resulted in the yields improvement or we are still operating at the older contracts which we rendered?
Punit Goenka As I have been mentioning to you, all throughout this year that we did not do any big annual deals this entire year, we were working on very short- term deals so we have taken consistent rate hikes but yet we are nowhere close to the levels that we were in our peaks of last year.
Moderator Thank you Mr. Singhal. The next question comes from the line of Ritesh Doshi from First Global Securities, please go ahead.
Ritesh Doshi Good afternoon sir. Just I wanted to know like we will be merging the six channels of Zee News from January, so will the fourth quarter include those numbers?
Punit Goenka Yes, it will.
Ritesh Doshi And similarly sir the ETC numbers will be there in the next year while education will be not there?
Hitesh Vakil Right.
Ritesh Doshi What is the gross debt currently?
Hitesh Vakil Gross debt is Rs. 4.68 billion.
Moderator Thank you Mr. Doshi. The next question comes from the line of Hiren Dasani from Goldman Sachs, please go ahead.
Hiren Dasani Yeah, just two data points and what is the DTH subscriber number which we have?
Atul Das The DTH subscriber base for Zee is currently at 9 million. We have seen addition of overall almost 2.4 million subscribers for the industry during this quarter and if you look at the nine-month period then the industry has added 6.5 million subscribers this year.
Hiren Dasani So this would be roughly at about 18-19 million.
Atul Das Yeah, 18.5 million is the total size of the DTH industry.
Hiren Dasani Out of which we are getting it for nine.
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Atul Das Nine million is the paying subscriber base, we have to account for the fact that many of these subscribers are in the southern part of India. There would be some subscribers of Hindi programming.
Hiren Dasani Also, on DTH there was some mention of non-recurring revenues of about 5 crores, so what is that?
Punit Goenka This is basically backlog of revenues which came from various operators because we do consistent audits with them.
Moderator Thank you Mr. Dasani. The next question comes from the line of Ankit Kedia from Centrum Broking, please go ahead.
Ankit Kedia And question is regarding the launch of Ten Golf. When are we expecting that?
Punit Goenka We are awaiting the clearances from the regulatory bodies. As soon as that comes through we will be launching that. We expect it to be sometime early next fiscal.
Ankit Kedia Right. And sir just one more thing on Ten Golf. The PGA Golf has the rights has been won by Nimbus or has been won by us for the next…?
Punit Goenka I do not think we will have that information right now. (Management Clarification: Rights to PGA Golf are with Nimbus)
Moderator Thank you Mr. Kedia. The next question comes from the line of Nikhil Vora from IDFC SSKI. Please go ahead.
Nikhil Vora Hi, just a couple of things. Firstly on the international distribution, the de-growth that we have seen, is it more related to a subscriber base churn that you have talked about, or also about a yield decrease as in net market?
Punit Goenka Nikhil it’s largely to do with subscriber base churn which is also coming mainly from the markets of Europe. There is not drop in yield in that market yet for us.
Nikhil Vora And the churn is related to customer switching to other Indian GEC, is it?
Atul Das One cannot classify that Nikhil. Basically many places you have seen either people moving back to India or having economic downturn so there are some switch offs which happen so whether it is a switch off that they have taken on Pay TV or whether they move to some other network something that would be difficult to say, but in general there has been weakness in the Europe market. But in the U.S. market we have seen continuous growth.
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Nikhil Vora This other sales and services income that we have, can you explain the volatility in the same?
Punit Goenka Yeah one of the biggest reasons for this sequentially on the quarter-on- quarter basis was there were some third party channels that we were distributing in the international market where we had booked all the revenue as our income and then costed out what we pay to the third party channels which we have reversed in this quarter and we are already booking our commission as income now. That was to the tune of 110 million.
Hitesh Vakil Besides that we were also earning commission sales done for Zee News Limited channels which has not stopped, there was also a syndication sales on account of various sporting event which was not there this quarter and also there was a film business income which was booked in last year, is not there this year.
Nikhil Vora So henceforth we will be booking it on a net accrual basis?
Hitesh Vakil Right.
Moderator Thank you. The next question comes from the line of Rohit Dokania from B&K Securities. Please go ahead.
Rohit Dokania Yeah good afternoon sir, just two questions. First would be what is our cash position at the end of December quarter?
Hitesh Vakil Cash at the end of the quarter was Rs. 1519 million.
Rohit Dokania So sir this is an all cash deal, so will we have to raise another debt or something to pay this, or the cash that has come in January quarter from group companies will be used for that?
Punit Goenka We will be using the cash received in the month of January.
Rohit Dokania Okay, and sir also could you explain the loss of 9.9 crores EBITDA loss in the movie business? What would this loss primarily constitute?
Hitesh Vakil It is amortization of the cost which is now accounted for.
Rohit Dokania So the revenues probably have been earlier booked and now we are amortizing the cost, is that true, if I understand it correctly?
Hitesh Vakil Movie business has got a set pattern of amortization which will continue over the three years.
Moderator Thank you Mr. Dokania. The next question comes from the line of Jharna Mazumdar from Ticker Plant News. Please go ahead.
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Jharna Mazumdar Hello. My question is do you plan to raise your advertisement rates in the coming quarter and by what percentage?
Punit Goenka As I said earlier all our deals that we are doing now are all always done on an incremental rates. No deal gets just signed at the same rate or lower rates. It’s very difficult for me to give you a percentage figure right now, but it will be in line with our performance on the ratings front and well as what the market scenarios are.
Jharna Mazumdar Okay and last quarter how much did you increase the price of your ads?
Punit Goenka Since we have multiple products in our bouquet it is very difficult for me to generalize it but the safer thing that I am saying to you is that all new deals are at higher rates.
Moderator Thank you Ms. Mazumdar. The next question comes from the line of Fatima Pacha from ICICI Prudential. Please go ahead.
Fatima Pacha This question is primarily on the DTH side. Sir as you said we are around 18 million DTH subscribers then I think we are getting paid for nine. And I think most of the broadcasters have signed agreements with the DTH guys which is based on a specific hurdle rate. So is this an annual event that now at the end of 4Q you will assess what individual companies have subscriber bases and based on that you will charge them, or will it be more of a general 10% kind of increase every year for the next 3-4 years?
Atul Das Fatima if you observe the progression on the DTH revenues, you would see that we have had a very handsome growth this year and its all based on a combination of deals. Some deals we have which are on fixed fee basis and therefore its pre-decided before the beginning of the year that this is the amount that we will get from a particular DTH operator and some of them are on a first serve basis based on the accrual of subscribers to them who opt for our packages. It’s a combination; we try and sign fixed fee deals for a shorter period of time so that based on how the industry moves and subscriber addition, we have some rate of visibility on revenue streams on DTH. Given the current progression of subscriber take up, one can very reasonably figure out that almost 8-9 million or maybe going up to 10 million subscribers will be added every year for the next couple of years.
Fatima Pacha So sir will there be a bump up in the 1st Quarter of next year in terms of revision of rates?
Atul Das I don’t think you will see huge bump ups in any particular quarter, but it should be a natural progression.
Fatima Pacha And sir one more thing, what would be your debtors outstanding to our associate companies?
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Hitesh Vakil We do not share separate company-wise debtors.
Fatima Pacha Okay, outstanding debtors if I can get, total amount?
Hitesh Vakil Total is 128 days i.e., 7347 million as on December.
Moderator The next question is a follow-up question from the line of Abneesh Roy from Edelweiss. Please go ahead.
Abneesh Roy Most of the questions have been answered. One question is since ad revenues are coming back to the industry, where do you see the two key cost elements carriage and content cost? What would be the outlook you have currently on this?
Punit Goenka Our expectation on carriage cost is that it will be flat and on the content side I think it’s a function of number of hours of content plus how much more you want to invest in high cost programming etc.
Atul Das On the content cost basis we will reevaluate on a rolling basis every quarter and our endeavor would be to obviously keep the cost under check and the first point of effort is to ensure that we create programming which is innovative and fresh content which is liked by the viewers. I think we will observe it on a quarterly rolling basis, but effort would be to increase our operating margins.
Punit Goenka And this can be function of both cost saving and well as increase in revenue and therefore spending more.
Abneesh Roy On domestic cable revenues, 3% decline partly because of the huge DTH growth, so will this continue to decline on a sustainable basis, is that the outlook?
Punit Goenka That’s not our outlook. We in fact are striving to keep that at least on a low single digit growth.
Atul Das Domestic cable will have two components hopefully from the next year; it will be a digital component as well. Of course, that depends on the development within the digital cable space, but if HITS were to be taken up by the industry then that’s an additional revenue stream which we can see in the next year.
Moderator Thank you. The next question comes from the line of Bijal Shah from IIFL. Please go ahead.
Bijal Shah We have a minority interest income this quarter of around 100 million and last quarter it was nil and before that it was an income of 105 million. This line item has been fairly volatile. So which particular channel does it relate to during the quarter?
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Hitesh Vakil This year minority interest has been mainly attributed to Taj TV performance. Apart from that there is a negative contribution from Zee Turner as they are distributing 3rd party channel on minimum guarantee basis.
Bijal Shah Yeah okay, thanks, just one follow-up on that, so going forward as we will be holding a 95% stake and this number should become very small or a marginal number?
Hitesh Vakil Right.
Moderator Thank you. The next question comes from the line of Ashwin Shetty from Noble Group. Please go ahead.
Ashwin Shetty Sir can you give a break up of sports business into subscription and ad?
Hitesh Vakil Sorry we do not provide these numbers separately.
Ashwin Shetty Or at least what will be the impact on ad revenues because of decline in sports business which has fallen by 50%?
Punit Goenka It’s largely due to advertising. As I said earlier, we had the postponement of the Pakistan Board and we also had wash out of some of the India West Indies series earlier part of the year.
Atul Das Broadly speaking if you were to look at our performance, sports has not done as well during the quarter purely because there were not enough cricket properties or enough big properties which garner those revenues and profits, so minus sports the performance of the network has been fairly strong on advertising revenue which has not reflected in the consolidated 1% year-on-year growth.
Moderator Thank you Mr. Shetty. The next question comes from the line of Arjun Khanna from Principal Mutual Fund. Please go ahead.
Arjun Khanna My first question is in terms of our flagship GEC with had removed afternoon programming during the downturn of advertising. Any plans on re-entering this segment or expanding on hours of programming?
Punit Goenka As of now we are still evaluating to see how the next year’s ad revenues market will look up. Basis that we will decide whether to increase the number of hours in afternoon or in pre-prime or late prime.
Arjun Khanna Are we planning any other new channel apart from the golf channel?
Punit Goenka There is nothing on the cards apart from a new channel we are launching called `Zee Salaam’, apart from that nothing has been approved as of
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now. We are consistently evaluating newer channels. On the niche category it’s like food and high definition etc.
Arjun Khanna So we have not plans of launching any of our channels in high definition say in the coming six months?
Punit Goenka No we do have plans but nothing has been approved so far.
Arjun Khanna And lastly what is the outstanding amount after these 385 crores that we have received in January. What is the outstanding amount that we should be receiving by March 31st?
Hitesh Vakil Outstanding would be around 500 crores plus the interest.
Moderator Thank you Mr. Khanna. The next question comes from the line of Pratish Krishnan from Bank of America. Please go ahead.
Pratish Krishnan Based on the other revenue you have mentioned that this would be accounted on a net revenue basis. Should we assume that there will not be any margin impact then because of the fall in revenues?
Hitesh Vakil Not at all. In fact when it was shown separately as revenue in cost it was impacting the margin and now we are just looking at only the commission portions, which is our income.
Pratish Krishnan Okay this means the margin profile remains the same then. Secondly in terms of the tax rates, any reason why the tax rates have moved up this quarter?
Hitesh Vakil Yeah that is mainly because of the deferred tax calculations like losses of film business which was booked earlier and the amortization cost is now booked, but these expenses are already considered for tax benefit in earlier years. So this year we have to pay tax on those. So likewise there are various deferred tax credits and assets which we have to adjust and as a result there will be a marginal increase in the tax rate this year by about 2%.
Moderator Thank you. The next question comes from the line of Hiren Dasani from Goldman Sachs. Please go ahead.
Hiren Dasani Yeah just one question on the business restructuring we seem to have done quite a bit over the last few months, anything else also more on the cards?
Punit Goenka No there is nothing else on the cards as of now.
Hiren Dasani Once all these things are done basically Zee will have the entire bouquet of National GEC, regional entertainment channels and sports channels?
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Punit Goenka Basically all the entertainment related businesses will be consolidated under Zee Entertainment.
Hiren Dasani Okay and as of now you do not have any other plans to acquire any new businesses.
Punit Goenka None unless we find something at the right price.
Moderator Thank you Mr. Dasani. The next question comes from the line of Miten Lathia from HDFC Mutual Fund. Please go ahead.
Miten Lathia Hi. Looking at analog cable subscription revenues over the last seven quarters we have been stuck in a range of 80-85 crores. Given that our ratings have probably improved substantially over the same period and we have probably established ourselves from the No. 2 GEC, should not we see a bump up to that revenue number or the dynamics of that market itself are changing and hence the revenue should not increase?
Punit Goenka The dynamics of the market itself are changing rapidly with DTH eating into the analogue cable subscriber base. With digitization expected in cable itself going forward, we are expecting to get a ticker in the domestic cable revenues. As I said, we endeavor to bring in a single digit growth on the analog cable front in the coming year.
Miten Lathia But the fact that our ratings or our position improved should not matter.
Punit Goenka When our ratings went down last year also it did not matter.
Miten Lathia That’s true. Thanks.
Moderator Thank you. The next question is a follow-up question from the line of Vikash Mantri from ICICI Securities. Please go ahead.
Vikash Mantri From the numbers on the balance sheet, we have talked about gross debt of 468 crores and cash over 151 crores this yields us to a net debt of 310 crores and we started the year with a net debt of 382 crores whereas you would have delivered a PAT or cash flow from our operations of more than 350 crores. So can we outline the investments that we might have done in the nine months?
Hitesh Vakil It has partly been into working capital management, some CAPEX expenditure incurred and there has been some loan repayment.
Vikash Mantri Okay and what is the amount that is still due to us from our sister associate companies?
Hitesh Vakil Post the re-payment it is approximately 500 crores plus the interest.
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Vikash Mantri And this interest is the accumulated interest over the years?
Hitesh Vakil No, interest has been paid every year. This year’s interest will be due in March and accordingly it will be paid for.
Vikash Mantri Okay thank you sir.
Moderator Thank you. We will be taking the last two questions. The next question comes from the line of Amit Kumar from Kotak Institutional Equities. Please go ahead.
Amit Kumar Sir in the previous quarters you have shared the break-up of the loans and advances portfolio into how much is out for treasury, how much to sister companies and associates etc. Can we have that?
Hitesh Vakil I will be able to answer this questions offline.
Amit Kumar Sure, not a problem sir. On the sports business side I wanted to understand, this overall cost of about 880 million that we have in this quarter, roughly how much will be on account of cost of rights and it is essentially content cost and how much would be on account of the other expenses? Or in general if you have a broad overview on this number?
Hitesh Vakil We do not normally give this break-up.
Amit Kumar I mean I do not need a break-up for this particular quarter but generally how does it span out? In an average year how much is the content cost and how much would be the other cost?
Hitesh Vakil It would be almost about 70% would be the content cost.
Amit Kumar Also in this particular quarter your overall cost of sports business has come down. And given the fact that it is largely the cost of rights or content cost only but your consolidated content cost has gone up about 3% on a quarter-on-quarter basis. So that means excluding the sports business your content cost has seen a significant increase. So just wanted to understand is there any particular driver for this?
Punit Goenka Programming and operating cost would include all the channels that we have under the bouquet and given that Q3 would have been the seasonality with lot of events etc. and programming operating cost is not only content cost, it also includes our various other costs linked to content.
Amit Kumar Essentially seasonality and events largely what account for this?
Punit Goenka Right and it’s not related to sports, we have to look at in isolation of two separate things that we are talking about.
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Amit Kumar Sure thank you so much.
Moderator Thank you Mr. Kumar. The last question comes from the line of Nikhil Vora from IDFC SSKI. Please go ahead.
Nikhil Vora Hi, just one thought I wanted to touch base on. The DTH revenues that we get how does it look going forward, more from the fact that today if significant part of the negotiation is driven by bulk or a fixed lump sum and incremental sub growth continues to be fairly strong. What is the tracker in this? Should one seriously look at the sub-base increase or how the negotiation moves on a fixed lump sum basis?
Atul Das Both are important Nikhil. As this year we have seen definitely more than 70% growth on DTH revenues and the industry dynamics are also changing. Two years back nobody would have imagined the developments which have happened in the industry in terms of how the pricing is done ala- carte; negotiations being done on package basis. So things are changing. As long as subscriber numbers keep on track I think we should be able to see revenue growth though it may not be necessarily in line with the subscriber numbers, it could be tracking ahead or behind the subscriber numbers.
Nikhil Vora Okay thanks.
Harshdeep Chhabra Ladies and gentleman thank you for joining us, we soon hope to have a transcript of the call on our website www.zeetelevision.com. We look forward to speaking to you again at the end of for the fourth quarter of fiscal 2010 or even earlier on a one-on-one basis. Thank you and have a great day.
Moderator Thank you gentlemen of the management. Ladies and gentlemen on behalf of Zee Entertainment Enterprises Limited that concludes this conference call. Thank you for joining us and you may now disconnect your lines.
* This document has been suitably edited for ease of reading
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