Zee Entertainment Enterprises Limited Q4 FY22 Earnings Conference Call Insights

Key highlights from Zee Entertainment Enterprises Limited (ZEEL) Q4 FY22 Earnings Concall

  

Q&A Highlights:

Vivek Subbaraman – Ambit Capital – Analyst

• Does the current balance sheet allow ZEEL to bid for IPL at all?

Punit Goenka – Managing Director and Chief Executive Officer

• It does, ZEEL can participate on its own.
• Has a healthy balance sheet with zero debt and has qualification to participate in the tender.

 

Vivek Subbaraman – Ambit Capital – Analyst

• Are the IPL media rights being split like TV only, TV plus digital for these matches?

Punit Goenka – Managing Director and Chief Executive Officer

• Yes, it is being split by genres or by platforms but it doesn’t preclude from bidding for either part or all.
• Currently evaluating options as to the best strategy for ZEEL going forward.
• Will hear about that shortly after the bidding is over.

 

Vivek Subbaraman – Ambit Capital – Analyst

• Competitive landscape and capital needs in this business?

Punit Goenka – Managing Director and Chief Executive Officer

• This sector has been always heavily competitive.
• Zee believes, it has the capability to compete with both deep-pocketed as well as international brands.
• When more content is created, more consumption happens and therefore more monetization.

 

Vivek Subbaraman – Ambit Capital – Analyst

• Is Zee contemplating taking on debt to bid for IPL rights?

Punit Goenka — Managing Director and Chief Executive Officer

• Currently studying all options.
• Does not have to pay any money or a large sum of money upfront.
  • Only when the rights start, one will have to pay for them.
  • Until then, they’re only instruments like bank guarantees etc.

 

Sanjesh Jain – ICICI Securities – Analyst

• On the ad revenue side, looking at a positive FY’23 despite the entire inflationary situation and despite that, channels were removed from FTA 1. What gives this confidence in such a difficult situation?

Punit Goenka — Managing Director and Chief Executive Officer

• Still early days to say what it is going to look like for the industry overall, but expects that it will be better than the last year.
  • Will give better color on growth rate after Q1.
  • Working on that with the advertisers and the agencies to predict what’s going to happen in the full year to come.

 

 Sanjesh Jain – ICICI Securities – Analyst

• On the investment side, how much is going to be invested in linear, non-linear, movie, music, as well as technology?

Rohit Kumar Gupta — Chief Financial Officer, President, Finance & Investor Relations

• Stepped up investments in FY’22 and these investments will continue in content, technology, and on the key markets already outlined Hindi, Tamil and Marathi.
• Will not let margins deteriorate for FY’23.

 

Sanjesh Jain — ICICI Securities – Analyst

• And what will be the investment on movies and music put together?

Rohit Kumar Gupta — Chief Financial Officer, President, Finance & Investor Relations

• Scaling up movies.
• Has a reasonable good slate plan for FY’23.
• Expects to do more than 20, 25 movies in this year.

 

Sanjesh Jain — ICICI Securities – Analyst

• What was the movie revenue and the cost which has been recognized in the P&L?

Rohit Kumar Gupta — Chief Financial Officer, President, Finance & Investor Relations

• There is no separate disclosure for movie business because these movies will get monetized not only in theatrical, but also in digital on the OTT side and on the satellite.
• So they are part of the overall EBITDA number that was already given.

 

Sanjesh Jain — ICICI Securities – Analyst

• Did movies positively add to EBITDA in this quarter?

Punit Goenka — Managing Director and Chief Executive Officer

• There is a positive contribution to the EBITDA.

 

Jay Doshi – Kotak Securities – Analyst

• What is the delay in the approval of the merger with Sony Pictures Networks India by the stock exchange?

Punit Goenka — Managing Director and Chief Executive Officer

• Speculates that since this is a very large merger, there has been significant amount of queries that Zee has been answering to the stock exchanges.
  • Satisfied all their queries in last 10 days and nothing further has come.
• Hoping the process should be smoothly done now.
• Still positively inclined towards 8 to 9 month timeline.

 

Sachin Salgaonkar – Bank of America – Analyst

• Color on ad spends in the quarter. Who spent and who curtailed in a meaningful manner?

Punit Goenka – Managing Director and Chief Executive Officer

• No significant change in ad spending.
• FMCG still continues to be the highest spender on television followed by all the others.
  • All others are in the range of 7%, 8%.
  • FMCG is more in the 53%-54% range.
• Seen a lot of advertising coming from the new age businesses on the digital platforms, which generally is low on television.
  • Starting to see that coming on the digital platforms, but the advertiser list is expanding.

 

Sachin Salgaonkar – Bank of America – Analyst

• Any color in terms of how things are moving in terms of the mix? Are we seeing some massive curtailment across the board?

Punit Goenka – Managing Director and Chief Executive Officer

• There have been cuts across the board especially in the FMCG sector.
• Tracking the industry numbers and are pretty much in line with them or ahead of them.

 

Sachin Salgaonkar — Bank of America – Analyst

• How should one look at ZEE5 losses going ahead?

Punit Goenka — Managing Director and Chief Executive Officer

• This is the peak year for losses for ZEE5.
• This is going to be the peak investment year and will see losses go up.
• After that, as revenue scales, losses will come down.
• Believes that there is still lot of room left in India for this business and for the Indian guys across the world. Does not feel the need to start cutting investments so early.

 

Sachin Salgaonkar — Bank of America – Analyst

• On Zee-Sony merger, any risk for the merger not going through?

Punit Goenka – Managing Director and Chief Executive Officer

• No, does not see any risk.

  

Ankur Periwal – Axis Capital – Analyst

• Breakdown of the revenue and costs?

Punit Goenka — Managing Director and Chief Executive Officer

• Highly sensitive information and can’t be shared.
• Revenue is largely subscription led currently, not so much advertising led.
• Has three large buckets of costs which is content, marketing and technology and makes up the lion’s share.

 

Ankur Periwal – Axis Capital – Analyst

• Is the cut in subscription largely led by the loss of subscribers here and given an embargo there probably this trend will continue going ahead?

Punit Goenka – Managing Director and Chief Executive Officer

• Decline has been because of losing subscribers.
• Not losing subscribers to digital, but losing subscribers from pay linear to free linear.

 

Ankur Periwal – Axis Capital – Analyst

• FY’22 EBITDA will be probably bottoming out and probably the margins should improve. Is it only the movies business which will be driving the incremental contribution?

Punit Goenka – Managing Director and Chief Executive Officer

• Movie business will drive part of the growth.
• There could be some lift on the embargo that was put on the MTO and therefore that will also start to translate.
• Going to try and make back some of the free-to-air losses on pay ecosystem with market share gains.
• So it’s a combination of multiple things that make ZEEL bullish and that’s what’s targeted.

 

Jinesh Joshi — Prabhudas Lilladher – Analyst

• Comments on the acceptance of content by subscribers?

Punit Goenka – Managing Director and Chief Executive Officer

• 43 of the 90 shows were successes, about 20-odd were moderate successes, and 20-odd failed.

 

Jinesh Joshi – Prabhudas Lilladher – Analyst

• During COVID times, how many households shifted from pay to FTA and given that we are now out of COVID, are those subscribers coming back to the pay genre?

Punit Goenka – Managing Director and Chief Executive Officer

• Still early days because free-to-air went off only on 1st April.
• There will be some lag to see whether those subscribers come back.
• Uptake of the free DTH has slowed down since the four networks have come out of free dish, a positive sign.

 

Karan Taurani – Elara Capital – Analyst

• Any indication in terms of the split of the number of films, how many of them will be a large budget or a medium, small budget kind of film?

Rohit Kumar Gupta – Chief Financial Officer, President, Finance & Investor Relations

• Theatrical is a significant source of revenue.
• Will do about 25 plus, out of which, maybe about 6 to 8 will be large and the balance will be mid-to-small movies.

 

Karan Taurani – Elara Capital – Analyst

• Anything new that ZEEL is attempting to combat competition from Star Network?

Rohit Kumar Gupta — Chief Financial Officer, President, Finance & Investor Relations

• Has a large focus on key markets like Tamil and Marathi.
• Wants to regain market share in both these key markets.
• Some of the other markets like Bangla and Kannada and Odhia, ZEEL are the leaders.

 

Yogesh Kirve – B&K Securities – Analyst

• Why were non-COVID costs so low this quarter?

Rohit Kumar Gupta – Chief Financial Officer, President, Finance & Investor Relations

• Had some reversals and so there were some provisions for doubtful debts which was made in earlier quarters.
• Because ZEEL collected those monies those reversals have been accounted for in the admin line, that’s why there is lumpiness in this quarter.

 

Yogesh Kirve – B&K Securities – Analyst

• How important are the subscriber acquisition costs or the marketing and promotion costs?

Mahesh Pratap Singh – Head of Investor Relations

• Not a whole is invested in customer acquisition and installs.
• Lot of marketing is focused around brand and promoting the shows.

 

Arun Prakash – Spark Capital – Analyst

• Will margins be significantly lower than the ’22 numbers?

Rohit Kumar Gupta – Chief Financial Officer, President, Finance & Investor Relations

• No specific guidance on any margins as such.
• Taken a strategic decision to pull away from the Hindi GEC from free to air category and so there will be an impact.
• Expects margins will not deteriorate more than what is there now.

 

Aditya Chandrasekar – UBS – Analyst

• Of 105-odd million MAUs, how much are direct subscribers versus subscribers through telco deals?

Rohit Kumar Gupta – Chief Financial Officer, President, Finance & Investor Relations

• All are AVOD subscribers.
• Does not give a split between B2B and B2C, but growth is primarily from B2C segment.

Mahesh Pratap Singh – Head of Investor Relations

• Base has both customer segments, but growth is largely being driven by subscribers who are coming directly to the platform.