Press Release Viacom18 Media Private Limited August 23, 2021 Ratings Amount Facilities / Instruments Ratings1 Rating Action (Rs. crore) CARE AAA; Stable / CARE A1+ Long-term / Short-term 1,615 (Triple A; Outlook: Stable / A One Reaffirmed Bank Facilities (enhanced from 1,575) Plus) 1,615 Total Facilities (Rs. One thousand six hundred and fifteen crore only) Commercial Paper 500 CARE A1+ Reaffirmed (CP) issue (Rs. Five hundred crore only) (A One Plus) Details of instruments/facilities in Annexure-1 Detailed Rationale & Key Rating Drivers The ratings assigned to the bank facilities as well as commercial paper issue of Viacom18 Media Private Limited (VMPL) derive strength from its strong financial flexibility as well as its strategic importance for the media and entertainment business of its parent through close integration with the Network18 group, with the ultimate ownership by Reliance Industries Limited (rated, ‘CARE AAA; Stable / CARE A1+’). The ratings continue to derive strength from healthy performance of its flagship channel ‘Colors’ with its consistent presence in the top Hindi General Entertainment Channels (GECs) in terms of television viewership and entertainment content offerings in various genres. VMPL’s profitability margins improved in FY21 (refers to the period April 1 to March 31) and Q1FY22 driven by better monetization of its entertainment content. It continued to have a comfortable capital structure and strong liquidity. The above credit strengths are, however, partially offset by the requirement of regular investments in its digital platform ‘VOOT’ and other content offerings which have significant gestation period; along with inherent volatility associated with its film production and distribution division. Furthermore, the ratings take cognizance of cyclicality associated with its advertisement revenue in a competitive media and entertainment industry. Rating Sensitivities (factors that could lead to negative rating action/downgrade) Negative Factors Reduction in controlling stake of RIL in Network18 and its subsidiaries or reduction in strategic importance of Network18 group to the ultimate parent, i.e., RIL. Sustained decline in return on capital employed (ROCE) below 15% due to moderation in market share or inability to monetize content in an efficient manner Deterioration in overall gearing above 1x on a sustained basis Detailed description of the key rating drivers Key Rating Strengths Strong and resourceful promoter group TV18 Broadcast Limited (TV18) owns 51% stake in VMPL while remaining stake is held by MTV Asia Ventures (India) Pte Ltd and Nickelodeon Asia Holdings Pte Ltd (ViacomCBS. group companies). TV18 is a 51.17% subsidiary of Network18 Media & Investments Limited (Network18) which in turn is held primarily (73.15%) by Independent Media Trust (IMT). Reliance Industries Limited (RIL; rated ‘CARE AAA; Stable/ CARE A1+’) is the sole beneficiary of IMT. The Network18 group is one of the prominent media and entertainment conglomerates in India with interests in television, print and digital media, OTT platform, movie production and allied businesses, consisting of brands like CNBC TV18, CNN News18, News18, moneycontrol.com, Firstpost, Forbes India, Colors, VOOT amongst others. Network18 and TV18 are part of the prominent and resourceful Reliance (Mukesh D. Ambani) group whose flagship company - Reliance Industries Ltd is India’s largest private sector enterprise with businesses across the energy and materials value chain, along with a significant and growing presence in the retail and telecom sectors. On the other hand, ViacomCBS Inc. is one of the world's leading media and entertainment conglomerates, comprising brands like MTV, Nickelodeon, Comedy Central, BET, Paramount Pictures. etc. The promoters are well supported by an experienced and qualified management team. 1Complete definitions of the ratings assigned are available at www.careratings.com and in other CARE publications. 1 CARE Ratings Limited Press Release Diversified content offerings and dominant position in niche segments VMPL’s flagship channel ‘Colors’ has been consistently ranked amongst the top Hindi General Entertainment Channels (GECs) in terms of television viewership on the back of regular investments in popular fiction as well as non-fiction content. VMPL has been a dominant player in niche segments such as Kids, Youth and English Entertainment with prominent brands like Nick, MTV, Vh1, Comedy Central, etc. VMPL’s content offerings are expected to diversify further with growth in regional GEC’s portfolio and its digital platform ‘VOOT’. Continuous improvement in monetization of content offerings VMPL’s profitability margins continued to improve during FY21 despite adverse impact of the Covid-19 pandemic on its advertisement income, being driven by continuous improvement in monetization of content offerings along with cost- optimization measures undertaken by the company. VMPL’s PBILDT margin improved from 14.89% in FY20 to 18.29% in FY21. Monetization of content offerings is expected to improve further with better utilization of its digital inventory led by growing traction of its OTT platform VOOT which is expected to keep its PBILDT margin at around existing levels. Improvement in capital structure VMPL’s overall gearing improved to 0.09x as on March 31, 2021 (0.59x as on March 31, 2020) primarily due to repayment of its working capital bank borrowings through healthy operational cash flow amidst relatively low content investment during FY21 and Q1FY22 due to Covid-19-related restrictions. Going forward, even with funding of its investments through external borrowings, its capital structure is expected to remain comfortable on the back of expected healthy cash accruals. Liquidity: Strong VMPL’s strong liquidity is underpinned by its strong cash accruals vis-à-vis negligible debt repayment obligations and low average utilization of its fund-based working capital limit at around 24% during last 12 months ended June 2021. Its unutilized bank limits are expected to be more than adequate to meet its incremental working capital requirement during FY22. It had free cash and cash equivalents of around Rs.134 crore as on June 30, 2021. Moreover, it belongs to a strong group (RIL group) which ensures superior financial flexibility. Key Rating Weaknesses Requirement of regular investments in content offerings resulting in inherent working capital intensive operations Entertainment business is inherently working capital intensive mainly on account of high holding of digital inventory in the form of content development and motion picture rights. Competition amongst top TV channels along with extremely dynamic channel rankings necessitate regular investments in existing and new content offerings. VMPL’s working capital cycle remained elongated at 221 days during FY21 primarily owing to higher inventory period. However, VMPL’s reliance on external borrowings for its investments has reduced with improvement in its profitability. Dependence on the vagaries of box office performance for motion picture division A significant portion of the motion picture revenue is secured by pre-selling of satellite, music and digital rights. Due to the inherent nature of motion picture business, the profitability of this division carries the risk of extent of acceptance of the content by its viewers. During FY21, revenue from the film segment declined substantially by 77% y-o-y to Rs.64 crore owing to the Covid-19 pandemic-related restrictions on functioning of theatres. VMPL has expanded its footprint into three major south Indian movie markets – Telugu, Malayalam and Tamil, in addition to Punjab in north India. Going forward, VMPL’s ability to successfully release the movies at box-office as well as on digital platforms within the envisaged time and cost and monetize the same in a timely manner shall be crucial to maintain its overall profitability. Volatility of advertisement revenue in a competitive media and entertainment industry VMPL’s advertisement revenue constitutes around 40%-50% of its total operating income (TOI). The advertisement revenue remains vulnerable to factors like market competition, television viewership for the channels, the quality and popularity of content being broadcast, trends in the media sector, regulatory changes and the level of economic activity in general. Covid-19 pandemic-related disruptions had adversely affected TV broadcasters’ advertisement revenue due to cut down of discretionary advertising spends by corporates along with decline in ad-rates due to intense competition amongst major TV broadcasters. Consequently, VMPL’s scale of operations marked by TOI declined from Rs.3,880 crore during FY20 to Rs.3,278 crore during FY21. However, with gradual ramp-up in economic activity, the advertising environment is expected to revive going forward. Furthermore, TV broadcasting segment is expected to grow at a compounded annual growth rate (CAGR) of around 7% during FY22-FY24 driven by increasing base of subscribers as households continue to get televised. 2 CARE Ratings Limited Press Release Analytical Approach: Standalone. Furthermore, the strategic importance of VMPL for the RIL group’s media and entertainment business as well as expected financial support from the parent group, if required, has been taken into consideration. Applicable Criteria Criteria on assigning Outlook and Credit Watch to Credit Ratings CARE's Policy of Default Recognition Rating Methodology – Service Sector Companies Financial Ratios