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and gentlemen, good day, and welcome to Entertainment Network (India) Limited Q2 FY '23 and H1 FY '22 (sic) [ '23 ] Earnings Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Runjhun Jain from EY IR. Thank you, and over to you. Go ahead, please.
Thank you. Good evening, everyone. Welcome to the Q2 and H1 FY '23 Earnings Call of Entertainment Network (India) Limited. To take you through the results and answer your questions today, we have the top management team from the company here represented by Mr. Prashant Panday, Managing Director; Mr. Yatish Mehrishi, CEO, Mr. N. Subramanian, Executive Director and Group CFO; and Mr. Sanjay Ballabh, Head of Finance.
The financials and presentations have already been uploaded on the website today. Should you need any further information, you can reach out to us at EY IR team, and we would be happy to send it over to you.
Before we proceed with the call, a disclaimer. Please do note that anything said on this call during the course of the introduction and in the documents which reflects our outlook towards the future or which should be constructed as a certain forward-looking statement must be viewed as conditions with the risks the company faces and may not be updated from time to time.
With that said, I'll now hand over the call to Mr. Prashant. Over to you, sir.
Thank you, Runjhun, and welcome, dear investors, to this conference call. First and foremost, let me introduce Yatish Mehrishi to you. He is our new Chief Executive Officer. I have recently stepped down to make way for Yatish to take over as the Chief Executive Officer. I will continue to remain the MD of the company for a certain period of time. This is a normal succession planning exercise that all listed companies go through, and this is part of that.
That said, let me now share with you certain results of the company, certain highlights of the results. First and foremost, I would like to make the point that we have had a very, very good quarter. After 2 consecutive years of COVID-infected quarters, this is the first time that we are having a second quarter of the year which is without any impact of COVID, and the results are there to see.
We did revenues of INR 103 crores in the ENIL domestic business. This is 90% of our pre-pandemic level, which shows how quickly the business is getting back to the pre-pandemic levels. And from there on, it should assume the trend line of the past again. This, if I were to take out -- if I were to do a like-to-like comparison from the pre-pandemic period of time, because remember, 3 years ago, we also used to do the business of Ishq FM, which is TV Today, television/radio business. If I were to remove that because we surrendered that in that period of time, then we have actually hit 92% of our pre-pandemic revenue. So I think this is a very strong recovery that we're seeing.
And remember, this is just the first quarter -- first time that we have had a great quarter without the impact of COVID. INR 103 crores also represents a 50% growth over the last year. But again, because last year's base was a low base, we were just getting out of the very dangerous Delta variant of the COVID. So therefore, 50% GOLY is to be seen in that perspective.
Now talking about EBITDA. Now I'm going to split up EBITDA into 2 parts, which is the EBITDA without our digital platform, and I will then give the numbers of EBITDA with the digital platform. I'll, of course, talk about digital platforms in a few minutes. Our EBITDA without digital platforms impact was INR 25.5 crores. Now this is a remarkable thing that this is 93% of our pre-pandemic quarter. It shows that not only have revenues recovered, but EBITDA has recovered as strongly or slightly more strongly as well. And because we are a high operating leverage business, you will recognize that as revenues rise, our EBITDA rises faster. So on GOLY basis, on growth over last year basis, this EBITDA of INR 25.5 crores represents 186% growth over last year. So it's a very strong EBITDA level performance.
Now let me give you the EBITDA with our digital platform. So as you know that in the digital platform, we are making investments on a quarterly basis. This quarter also, we made an investment of INR 5.8 crore. We incurred a loss of INR 5.8 crores on our digital platform. If I take the effect of this loss, then my EBITDA overall with the platform investment included is INR 19.8 crore. This is 72% of the pre-pandemic number, and this represents 122% growth over last year. The investments in digital platform are strategic in nature, and they are meant to build the business of the company in the coming years as well as build the wealth for shareholders in the coming years. So that is the reason why we continue to invest in our platform.
Now talking about the PBT levels. The PBT without platform was INR 6.2 crores, and this represents a growth of 316% of the pre-pandemic number, which is a strong number compared to the pre-pandemic number. And if I were to look at last year, the PBT was a loss of INR 11.1 crores. Now these numbers that I just gave you are without exceptional items, and I will talk about exceptional items a few minutes later, so please bear with me.
Now as you know, one of the strong pillars of our strategy has been the solutions business, and the solutions business continues to grow very handsomely. The revenues reported in this quarter were INR 27.1 crores, which is flat versus the pre-pandemic quarter, which means I can see that as compared to the overall business, the solutions business is recovering faster in terms of revenue because it has achieved the same level as it was in the pre-pandemic quarter. This number of INR 27.1 crores also represents a 64% growth over last year.
Now the good news about the solutions business, and we've been repeating it every quarter for the last few years, is that the margins have been consistently improving. This quarter was no different. The EBITDA in this quarter was INR 10.9 crores, which represents a 40% EBITDA margin, which is a very strong number as you will agree with me. And this is 31% higher. The EBITDA is 31% higher than the EBITDA in the pre-pandemic quarter, when it was INR 8.3 crores. This EBITDA also represents a growth of 52% compared to the last year.
So again, you will realize from the numbers I gave you about the core revenue business, the EBITDA margins, the PBT margins, et cetera, it has been a very strong quarter. And it's my belief that going forward with COVID now well and truly behind us, the radio business is bound to grow very rapidly. One of the factors which is boosting the growth of the radio industry is the fact that the consumption of radio is becoming stronger and ever stronger inside cars because people inside cars -- our research showed 85% of people who are driving cars listen to FM radio inside their car.
Now you know that these people are wealthy people. These people live in big cities, and these people are actually the people who have monies. And advertisers target these people. So these are all very strong factors. Also, with the offices reopening and schools reopening, you know that the traffic on the roads have gone up dramatically high. So the time spent on FM radio is also increasing. Advertisers know this fact, and that is why we see that advertisers are putting more money on radio, and the results of this quarter bear that out.
Let me come to the digital side of the business now. Now overall digital revenues that the company made either through directly digital inventory sales or through selling digital inventory as part of our solutions business, we sold INR 7 crores worth of digital business, which represents a growth over last year of 11% and a growth of 79% compared to the pre-pandemic period. Now clearly, the digital business is on an upswing, and a 79% growth over pre-pandemic gives us confidence that this number will rise further.
However, in terms of the total revenues of the quarter, this was approximately 7%, and this number is what we keep telling you is slated to grow to 25%. However, as I've mentioned in the annual report, we don't believe that this can rise to 25% only on the back of our current suite of products. And therefore, we are adding new products in our digital portfolio every quarter.
This quarter, we have added a very exciting product, which we call MPing, and MPing is basically an audio ad network. Now what that means is that if there's an advertiser who wants to put audio ads out on any audio platform, be it a story platform, be it a music OTT or be it even newspaper -- news television website where -- which accept audio feeds, the MPing audio network is the programmatic solution to audio advertising.
So basically, this is a strong effort we have made at building the entire audio advertising space as far as digital publishers are concerned. And this is a serious -- first-time serious effort being made in this country. We believe that in a INR 75,000 crore advertising industry in this country, there is room for the audio advertising to grow in and become several thousands of crores. And the MPing platform is meant to capture a lot of that revenues. When the MPing revenue starts coming in is when our business will be pushed -- our digital business will start going towards the 25% share of our total revenues.
Please remember also that our digital platform, which is Mirchi Plus, was launched on 1st July, and it is doing exceptionally well in terms of the consumer acceptance, in terms of the monthly active users, in terms of the engagement time on the platform. We haven't opened it up for advertising yet because we're concentrating on the user experience at this point in time. But at some point in time, that also will start contributing to our revenue generation. So all in all, a very serious effort has been made on the digital side of the business.
One last point before I open up the call is on our international business. Now the international business, as you know, is a business that we operate in 6 cities. These cities are basically New Jersey, Dallas and San Francisco in the U.S. and Bahrain, Qatar and the UAE in the Middle East.
Now we've had certain problems in our operations in San Francisco. We've also had an unprofitable run in Bahrain. And while these businesses run out of our subsidiaries and the losses that have incurred -- have been incurred by these subsidiaries over the last few years have been captured in the accounts of the subsidiaries and, therefore, have been captured in the consolidated accounts of ENIL, we have not taken any impairment in the main ENIL books, which is the ENIL books of India itself.
This quarter, in line with accounting prudence, we have decided to take an impairment on account of our San Francisco business and on account of our Bahrain business in our India books. Please remember, our consolidated business, it makes no difference because these losses were already captured in the subsidiaries. There is nothing new that we are reporting under this head. But there is also a certain amount of money that we are reporting under the onerous contract principle because there is a contract in some international markets which we believe could result in losses coming our way. And we have made a provision for that under exceptional item.
In the right -- at the right point in time, we will give details of this onerous contract. At this point in time, because of the sensitivity of the nature of the matter, we are not giving the details of that particular thing.
So overall, to summarize, a great quarter, great solution business results, strong product addition and traction in the digital business. And then the international business where we have taken the impairments so that the books are cleaned up, we have also changed our strategy. And we are chasing only brand and content licensing strategy so that we cut all the risks of operations from the foreign operations of ours. So in FY '24 onwards, we should see profitable international operations.
That's the summary of the quarter's numbers. And I would like to open up the call to our investors, Yashashri.
[Operator Instructions] We have a first question from the line of Sumit Rathi from Axis Securities.
Good to see that some good colors on the EBITDA front graced you this quarter. I had 2 questions, sir. One, on quarter-on-quarter basis, our digital products revenue, it seems we are not able -- we did a bit -- a tad lower. So what could be the trajectory on quarter-on-quarter basis from the revenue from digital products, if you can give us some highlight?
And second is on the overall market, sir, the quarter 3 and the quarter 4, if you can give some commentary on like how are we seeing. Because for quarter 3, October month has already been gone. So how are you seeing the business activity on the ground and especially in the solutions business? Are we seeing any encouraging signs?
All right. Thank you, Sumit. For your question first, let me take the second part of the question. Like I mentioned, the second quarter results were strong because there was no impact of COVID. And you will agree with me that in the second half of the year, I think we can safely assume that now the impact of COVID has gone. If this continues, then I think the -- you can see in the markets, there is heavy shopping happening. There's a lot of consumer demand for all kinds of consumer products. We are also seeing the impact of that on our business, the positive impact of that on our business. So I would like to believe that the second half of the year will be far stronger than the first half of the year has been. And traditionally also, the second half of the year is stronger because of festivals and because it is, anyway in the media and entertainment business, a stronger half. So that is a part to your second question.
On the digital, the share, you're right that the number was higher in the first quarter. But this will keep happening quarter-by-quarter. In fact, a media business is never evaluated on a quarter-by-quarter basis because of seasonality and other factors. So a media business is always evaluated on a year-on-year -- the same quarter on a year-on-year basis. That, I mentioned to the GOLY, is 11% and 79% higher than the pre-pandemic quarter.
Okay. Just a follow-up on this. So with respect to on -- even on yearly basis, sir, our perspective of achieving 25% -- digital products achieving 25% of our overall revenue by 2025, we stand by that, right? Or there's, I mean, change in the guidelines towards that?
Yes. We are not changing -- first, we don't give any guidance for the future as a company. Secondly, what we have indicated as 25% is an indication. And yes, we are standing by that indication. Like I mentioned to you and like I wrote in the annual report of last year, we believe that our current products would not take us to 25%. So we launched our platform, which has a huge potential. And now we have launched the audio ad network, which is MPing. Between all of this, we believe that, yes, we should be able to hit our 25% target.
[Operator Instructions] We have our next question from the line of Subrata Sarkar from Mount Intra Finance Private Limited.
Yes. So like 2 questions. First one, information like in our radio business, like when is the next renewal like when we have to -- like what is the period for which we have these rights and then when it needs to be renewed? Or please let me update on -- explain this a little bit in detail.
Second -- and second question is on the capital allocation part. Like now we have a business, the radio business, which is now coming into profitability, and we will throw a cash flow from that. So what is our strategy regarding digital expenditure? Like how much -- what is our strategy? Like we want to utilize only this cash flow to build up digital business or we want to use our cash reserve? Or how aggressive we are? What is our -- in terms of like how much we want to spend on a strategy level on the digital business on a yearly basis? And third is like...
Subrata, wait. Subrata, wait, wait. Let me first answer the first 2. Otherwise, I'll forget the question. Okay. So Subrata, I'll answer the first -- the second part of the question first. And I would like to mention to all the investors who are present on the call, you might have seen the stock exchange notification we sent out a few days ago. We have made our first strategic investment in a company called Spardha. Spardha is into online music education.
Now you will appreciate that this is an area which connects very strongly with Mirchi's core business because it is music, it connects with youngsters who want to learn music. It has a global scale, a global footprint, and it's a technology company with a consumer-facing interface. So all of this is very strong areas of interest for Mirchi. But there are certain businesses that we do not want to operate directly ourselves because, really, sometimes it is better to ride on the passion of external promoters. And with Spardha, that is exactly what we are doing.
Now we have a strategy, and we've mentioned this in earlier calls, to make other similar strategic investments in the coming years. And the cash reserve that we have got, some of it will be deployed towards strategic investments in -- of this nature, as we said, of Spardha. Most of the plan is to invest using our internal accruals. And like I mentioned, a lot of the money that we have generated will be used for this investment.
Now on the first question of your license period, Sanjay?
Yes. Sure. So Subrata, you asked about us what is the license period still pending for the stations where we operate. So as you know, we have total 73 stations. And so far, in the first 35 stations, we are exactly at the midpoint. So basically, we have 7.5 years still to go. For batch 1 stations, we have only elapsed 6 years -- approximately 6 years, so 9 years more to go. And in case of the batch 2 stations, we have elapsed only 4 years, so about 11 years to go. This is plus/minus 1 or 2 months because not necessarily all the stations got operationalized in the same month based on that.
Okay. Perfect. Sir, last question, again on the digital side, like if you could explain a little bit, like how we are trying to monetize maybe like rating in YouTube or like other area. We think view is like, obviously, that's very important. Now -- but now what is our strategy on one -- with this initial success, like how we want to monetize it basically from our...
Yes. I have again explained this in the earlier conference call, but I will do it again. On the platform, there are many ways of monetizing. For instance, one of the ways of monetizing is that you can build a subscription product. And while subscription products are relatively less popular right now in India, that ecosystem is changing very rapidly. You may have heard the number that on video OTT platforms, there are close to 100 million subscribers now.
So if you provide the right content, then you can build the subscriber base, and that is -- that will be our attempt with our Mirchi platform as well. But more importantly, on -- in international markets, subscription is a proven model. It's a big model, and it's a revenue-generating model. So that is certainly one of the things that we are considering.
But there's also advertising that we will take on our podcast platform. Now it's not easy to get advertising on podcast on story -- audio story platforms. But our solutions business that we run in which we give solutions to our advertisers, one of the pieces of the solution can well be our Mirchi Plus platform. And that way, we can generate more revenues for Mirchi Plus. So that's the second piece.
There are many other innovative ways of which you can generate revenues on audio platforms, which include things like tipping or which include things like using IPs across media platforms and so on and so forth. So all of those are on the table. But remember that we also have launched MPing now, and MPing is a huge opportunity. And we are early birds in this game, and we really see ourselves as audio experts having 10,000 client relationships. And now with programmatic, we can literally reach much, much more than that. So that is a big -- will be a big contributor.
And then, of course, there's revenue that comes from public platforms like YouTube and Facebook and all of the others. All of these put together is what will make up the 25% digital contribution.
Okay. Yes, just one small clarification. [indiscernible] what you have said like when we can achieve this [indiscernible]. Any strategic target, not a particular time I'm talking about, but at least some clarification on that.
Sorry, I didn't hear you. You're talking about when we can hit the 25% number?
Yes. Yes.
Well, we've indicated to you approximately FY '25 kind of a number. So we are holding that number. But these are -- remember, these are -- it's not a guidance, to be very clear about it. These are just indications.
Okay. Okay. So as of now, like the indication is by FY '25, we can be near to that ballpark?
That is right. That is right.
Perfect. Perfect.
Thank you, Subrata.
We have our next question from the line of Chetan Thacker from ASK Investment Managers.
Am I audible?
Yes. You are.
Yes. Sir, the question is largely on pricing. So we've seen volume bounce back very rapidly on radio. What is your outlook on pricing next year?
So Sanjay will give you the details on the pricing in a minute, but the outlook on pricing is that it will improve from the place that we are at right now. Remember, compared to pre-pandemic levels, we are at approximately 35%, 37% down in pricing. The growth has been volume-led. But going forward, as the market becomes more busy, there's more advertising volumes, it's a natural principle of economics that the pricing will start to pick up from here.
However, in previous calls, I've also mentioned that it will take several years before the pricing goes back to pre-pandemic levels. In fact, it is possible that the pricing may not go to pre-pandemic levels at all, and it may permanently get reset to maybe a minus 10% or a minus 15% kind of level. However, given the fact that the volumes will remain far stronger than pre-pandemic, I think it does not mean that the revenues will not be growing. In fact, we are very buoyant that radio revenues will also continue to grow. Sanjay, do you want to give some details?
Yes. So Chetan, if I just quote the numbers, as Prashant has said, the degrowth in the effective price in the current quarter we have seen compared to same period in FY '20 is about 38.5%. And if you ask about the absolute number, we were operating something around INR 16,000 as effective rate in Q2 FY '20, which is now approximately around INR 9,900 in the current quarter. That's what we have seen. Can I help you with any other numbers?
No. That is helpful. So this journey should approximately start from next year onwards. So have you taken any pricing action so far? Or is there any push to gradually start getting pricing higher because you are the leaders right now? So just wanted to get a sense on that.
Well, the pricing in this quarter has been flat compared to last year, which is a good sign because from a place where it was dropping, it has achieved stability. Now in the next 6 months, which is the busy quarter and the festival quarter, we can certainly hope that the pricing will start to lift. But the pricing will lift only when the volumes have built up even more stronger. And therefore, I think that we'll probably take another 4 quarters, basically the next year's season is when the price recovery should happen in right earnest.
Okay. And sir, in terms of impairments, you've taken whatever we have to. So now there should not be any other impairments in any of the subsidiaries. That's the only thing that has happened? Just help me understand.
Yes. Chetan, so I would -- Sanjay here. So I would like to take this question, and I would dissect it in 2 parts. As far as our domestic operations are concerned, you know that in Q4 FY '21, we had already taken a hit of about INR 97 crores because of the domestic headwinds and various COVID-related complications appearing in that point in time. However, I must tell you that sitting in the results on Q2 FY '23, we, the management team of ENIL, we do not foresee at least in the near future for any kind of impairment for the domestic operations or any part of it.
Coming to the international operations, as Prashant has told categorically, there were certain situations in U.S. and Bahrain that we are seeing a lot of different kinds of headwinds. That includes, I would say, abnormal inflation in the country of U.S., along with, to combat that, the increase of Fed rate, et cetera. Now because of the combination of all those impacts, it was only prudent and on a very, I would say, transparent basis, the management thought that we should take the impairment by complying with the relevant accounting standards already in book.
Therefore, in the current scenario, looking at my overseas operations, currently, whatever was needed, we have taken that, and we have also taken a hit of -- by way of providing the cost of an onerous contract. Currently, we do not think there is any other reason to comment anything more than that in terms of impairment or any other contract becoming onerous.
Got it. And last question is on capital allocation. We've obviously started to incrementally generate cash flow, and there is a reserve on the balance sheet. So any thoughts there to take it to the Board as to what we intend to do in terms of extra surplus which is sitting there?
Okay. So Chetan, again, this is a question we have answered in earlier conference calls. So one part of the cash is going to be used for strategic investments of the type that Spardha is. And we have to always keep a certain amount of corpus as -- reserve corpus in case any other COVID-like situation were to come up again. And the third part, of course, which is of interest to investors is about the dividend that we pay out. That matter is before the Board. And at the right time, the Board will decide on how to distribute the accrued earnings. So at this point in time, we don't have anything to report on that.
Yes. And sir, last question on Spardha. If you can throw some light on what is the revenue model there. How scalable is that opportunity where you've invested?
On Spardha you are saying, right?
Yes. On Spardha.
Okay. So as Prashant has already clarified, Spardha Learnings Private Limited is an online music teaching portal. But I would like to clarify one more point, and I hope that will give you the clarity in this regard. Spardha is not like BYJU'S kind of an online edtech product. Rather, it's an online passion-tech product. And the TD of that company is not the school-going kids only. It is -- their TD actually starts from 16 to 36.
So if you and I, we could not learn guitar or sitar or Carnatic or any kind of vocal or bharatanatyam or dance or drama or anything, which is our passion, we believe that is our passion, and for whatever reason, we could not pursue that when we are young or younger, that we can do if we go into the Spardha portal. I would you suggest and request you go there, and you will find out that it offers you an experience of learning your passions in these fields by getting the education online on a one-on-one basis. Again, unlike BYJU'S, these are not recorded classes. This is based on your experience level, your -- whatever you want to learn, they will teach you on one-on-one.
Of course, the major question is then whether it is scalable or not. Of course, it is scalable. We are seeing a lot of students renewal from Indian diaspora based out of the North American geography, and the number they are getting is really very encouraging. And in India, they have just started spreading into other states in addition to Maharashtra and Gujarat right now. Also, the future planning, I can tell you, they would like to spread their business in Middle East and Southeast Asia.
Thank you, Chetan. And Yashashri, if there are any more questions, then please ask for it. Or else, we can call this call -- conference call to an end.
[Operator Instructions] We have a question from the line of Sumit Rathi from Axis Securities.
Yes. Sir, just a data keeping question. Sir, what was the revenue from radio, our core radio business, if you can give me the figures? I might have missed when you were giving the first understanding of numbers.
Yes.
Yes. So Sumit, Sanjay here. I hope you are asking for the current quarter numbers, right?
Yes. The current quarter radio's number, revenue number.
INR 75.2 crore. Right. Any other question I can help you probably?
Yes. From my side, yes, that was only a number I wanted to check.
We have a question from the line of Naveen Kulkarni from Axis Securities.
Quick question. So during the pandemic period, we had made certain changes in the cost structure, the resulting savings that were quite significant. And post that, of course, the digital initiative was started. Probably the run rate was in the range of around INR 5 crores to INR 6 crores on a quarter -- on every quarter basis. So right now, what -- these savings that we had or the changes in the cost structure, how much of that we are still able to sustain? Because the profit numbers somehow do not indicate any kind of savings that we are able to retain. Most of the savings seemed to be again back invested in the business. Is my reading correct? Or is it the revenue growth? What exactly is missing in the picture?
Okay. Thank you, Naveen. Let me just answer your question. So you are very right that in the year FY '21, we took significant cost initiatives, and we reduced our operating costs by as much as INR 90 crores in the full year. Now in the second year, which is FY '22 of the pandemic, we were able to retain and hold on to most of the savings. I think we would have probably saved about INR 80 crores or thereabouts in FY '22 compared to pre-pandemic.
Now we had also mentioned that we planned -- even as the business grows and as we start adding back people and have marketing and other such spendings, we will keep a tight grip on our cost structure. It is our plan that we would like to hold on to at least about INR 40-odd crores in savings from our pre-pandemic period of time, and we are well on track of that particular thing. In this particular quarter, the savings have been 7.5% compared to the quarter 2 of FY '20.
So yes, that is the objective and that is the idea. And if we can do that, then it basically means that even before we hit our revenue parity with pre-pandemic, we will hit our EBITDA parity with the pre-pandemic numbers.
As there are no further questions from the participants, I now hand the conference over to Mr. Prashant for closing comments. Over to you, sir.
Thank you very much, and thank you, dear investors, for attending this call. As I mentioned at the beginning of the call, you will now get to interact with Mr. Yatish Mehrishi, who takes over as Chief Executive Officer from the next conference call. So please join me in welcoming him and see you next time. Have a good day. Thank you very much.
Thank you.
Thank you. On behalf of Entertainment Network (India) Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.