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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 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 , with the ultimate ownership by 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 General Entertainment Channels (GECs) in terms of 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 ‘’ and other content offerings which have significant gestation period; along with inherent volatility associated with its 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 () Pte Ltd and 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, , , 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 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, , BET, . 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

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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 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, 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.

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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 – Non-Financial Sector Liquidity Analysis of Non-Financial Sector Entities Rating Methodology: Notching by factoring linkages in Ratings Criteria for Short Term Instruments

About the Company VMPL is a subsidiary of TV18 Broadcast Limited (TV18; rated ‘CARE AAA; Stable/CARE A1+’), which is the broadcasting arm of the Network18 group. TV18 owns 51% in VMPL while the 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; rated ‘CARE AAA; Stable/ CARE A1+’) 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. VMPL operates GECs such as ‘Colors’, ‘Rishtey’, ‘Comedy Central’ (English), music channels such as ‘MTV’ and ‘VH1’, entertainment channels for kids such as ‘Sonic’, ‘Nick’ and ‘Nick Jr.’ and infotainment channel such as ‘History TV18’. VMPL also has presence in movie production and distribution business under Viacom18 Motion Pictures. VMPL has an alliance with Paramount Pictures, the leading Hollywood studio, to market and distribute its in the Indian sub-continent. VMPL and TV18 are partners in IndiaCast Media Distribution Pvt Ltd (IndiaCast) to consolidate distribution functions and drive monetization of content for channels of TV18 and VMPL. VMPL has also developed an in-house app called “VOOT” which is a digital platform on which it broadcasts its own shows as well as purchased shows. Earlier in February 2020, TV18 had intimated to the stock exchanges regarding a scheme of amalgamation and arrangement amongst NW18, TV18, DEN Networks Ltd. (DEN) and Cable & Datacom Ltd. (Hathway). However, subsequently in April 2021, it has decided not to proceed with the scheme as envisaged. Brief Financials (Rs. crore) FY20 (A) FY21 (A) Total operating income 3880.14 3278.03 PBILDT 577.66 599.44 PAT 353.54 582.89 Overall gearing (times) 0.59 0.09 Interest coverage (times) 7.57 14.32 A: Audited; classified as per CARE Standards As per the provisional results for Q1FY22, VMPL reported TOI of Rs.868.81 crore (Q1FY21: Rs.520.87 crore) with a PAT of Rs.126.97 crore (Q1FY21: Rs.2.42 crore). Status of non-cooperation with previous CRA: Not Applicable Any other information: Not Applicable Rating History (Last three years): Please refer Annexure-2 Covenants of rated facility: Please refer Annexure-3 Complexity level of various instruments rated for this company: Please refer Annexure-4

Annexure-1: Details of Facilities Name of the Date of Coupon Maturity Size of the Issue Rating assigned along Instrument Issuance Rate Date (Rs. crore) with Rating Outlook CARE AAA; Stable / Fund-based/Non-fund-based-LT/ST - - - 1365.00 CARE A1+ CARE AAA; Stable / Fund-based/Non-fund-based-LT/ST - - - 250.00 CARE A1+ Commercial Paper-Commercial - - 7-364 days 500.00 CARE A1+ Paper (Standalone)

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Annexure-2: Rating History (Last three years) Current Ratings Rating history Date(s) & Name of the Type Rating Date(s) & Date(s) & Date(s) & Sr. Amount Rating(s) Instrument/Bank Rating(s) Rating(s) Rating(s) No. Outstanding assigned Facilities assigned in assigned in assigned in (Rs. crore) in 2021- 2020-2021 2019-2020 2018-2019 2022 1)CARE AAA; 1)CARE 1)CARE AAA; CARE AAA; Fund-based/Non- Stable / CARE AAA; Stable Stable / CARE 1. LT/ST 1365.00 Stable / - fund-based-LT/ST A1+ / CARE A1+ A1+ CARE A1+ (07-Sep-20) (05-Jul-19) (07-Mar-19) Fund-based - ST- 1)Withdrawn 2. Working Capital ST - - - - - (07-Mar-19) Demand loan 1)CARE AAA; 1)CARE AAA; 1)CARE CARE AAA; Stable / CARE Fund-based/Non- Stable / CARE AAA; Stable 3. LT/ST 250.00 Stable / - A1+ fund-based-LT/ST A1+ / CARE A1+ CARE A1+ (07-Mar-19) (07-Sep-20) (05-Jul-19)

1)Withdrawn (26-Sep-18) Commercial Paper- 2)CARE A1+ 4. Commercial Paper ST - - - - - (24-Aug-18) (Carved out) 3)CARE A1+ (10-Aug-18) 1)CARE A1+ (07-Mar-19) 2)CARE A1+ Commercial Paper- 1)CARE A1+ 1)CARE A1+ CARE A1+ (26-Sep-18) 5. Commercial Paper ST 500.00 - (07-Sep-20) (05-Jul-19) 3)CARE A1+ (Standalone) (24-Aug-18) 4)CARE A1+ (10-Aug-18)

Annexure-3: Detailed explanation of covenants of the rated facilities Covenants Detailed explanation Non-financial covenants Majority ownership and management control of VMPL shall remain with Mukesh group directly or indirectly.

Annexure 4: Complexity level of various instruments rated for this company Sr. Name of the Instrument Complexity Level No. 1. Commercial Paper-Commercial Paper (Standalone) Simple 2. Fund-based/Non-fund-based-LT/ST Simple

Note on complexity levels of the rated instrument: CARE has classified instruments rated by it on the basis of complexity. This classification is available at www.careratings.com. Investors/market intermediaries/regulators or others are welcome to write to [email protected] for any clarifications.

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Contact us Media Contact Name: Mradul Mishra Contact No.: +91-22-6837 4424 Email ID – [email protected]

Analyst Contact 1 Name: Hardik Shah Contact No.: +91-79-4026 5620 Email ID – [email protected]

Analyst Contact 2 Name: Ranjan Sharma Contact No.: +91-79-4026 5617 Email ID – [email protected]

Relationship Contact Name: Saikat Roy Contact No.: +91-22-6754 3404 Email ID – [email protected]

About CARE Ratings: CARE Ratings commenced operations in April 1993 and over two , it has established itself as one of the leading credit rating agencies in India. CARE is registered with the Securities and Exchange Board of India (SEBI) and also recognized as an External Credit Assessment Institution (ECAI) by the Reserve Bank of India (RBI). CARE Ratings is proud of its rightful place in the Indian capital market built around investor confidence. CARE Ratings provides the entire spectrum of credit rating that helps the corporates to raise capital for their various requirements and assists the investors to form an informed investment decision based on the credit risk and their own risk-return expectations. Our rating and grading service offerings leverage our domain and analytical expertise backed by the methodologies congruent with the international best practices. Disclaimer CARE’s ratings are opinions on the likelihood of timely payment of the obligations under the rated instrument and are not recommendations to sanction, renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security. CARE’s ratings do not convey suitability or price for the investor. CARE’s ratings do not constitute an audit on the rated entity. CARE has based its ratings/outlooks on information obtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE have paid a credit rating fee, based on the amount and type of bank facilities/instruments. CARE or its subsidiaries/associates may also have other commercial transactions with the entity. In case of partnership/proprietary concerns, the rating /outlook assigned by CARE is, inter-alia, based on the capital deployed by the partners/proprietor and the financial strength of the firm at present. The rating/outlook may undergo change in case of withdrawal of capital or the unsecured loans brought in by the partners/proprietor in addition to the financial performance and other relevant factors. CARE is not responsible for any errors and states that it has no financial liability whatsoever to the users of CARE’s rating. Our ratings do not factor in any rating related trigger clauses as per the terms of the facility/instrument, which may involve acceleration of payments in case of rating downgrades. However, if any such clauses are introduced and if triggered, the ratings may see volatility and sharp downgrades. **For detailed Rationale Report and subscription information, please contact us at www.careratings.com

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