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Ladies and gentlemen, good day, and welcome to Zee Entertainment Enterprises Limited Q2 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bijal Shah. Thank you, and over to you, sir.
Thank you, Raymond. First of all, I would like to apologize for a couple of delays in starting the call, sincere apologies from the management for the same. Good evening, everyone, and welcome to Zee Entertainment earnings call to discuss earnings performance in Q2 FY '20. Joining us today is Mr. Punit Goenka, Managing Director and CEO of Zee Entertainment; along with Mr. Rohit Gupta, Chief Financial Officer; and other members of senior -- other senior members of the company.We will start with a brief segment from Mr. Goenka on the first quarter performance. Subsequently, we will open the -- open for -- the call for questions. Before I pass it on to Mr. Goenka, I would like to remind everyone that anything we say during the call that refers to our outlook for the future is a forward-looking statement and must be taken in context of the risks that we face. Thank you, and over to you, Mr. Goenka.
Thank you, Bijal. Thank you for apologizing on our behalf. I would like to welcome everybody to this call and appreciate your joining us for the discussion on the results of second quarter of fiscal 2020. I'm pleased with the performance we have exhibited during the quarter. Our entertainment portfolio continues to grow from strength to strength across all formats and maintain its leading position. Our television network has emerged stronger post the implementation of tariff order on the back of a strong customer connect and brand pull of our channels. ZEE5 continued to gain traction across audience segments in the market, driven by a compelling content library and expanding list of partnerships across the digital ecosystem. The strong operating performance allowed us to deliver industry-leading growth in both advertising and subscription despite the tough macroeconomic environment. The next-day subscription growth of 27% has reaffirmed the value proposition of our television network that has been built over the years. The impact of tariff already has now largely settled down, and we have brought increased transparency along with improved monetization. Our domestic advertising revenue growth, though significantly lower than the historical trend, is higher than the industry growth. We have witnessed an improvement in ad spends through the quarter and believe -- we believe that the onset of festive season along with measures taken by the government will help revive the consumption growth.The domestic broadcast business continues to maintain its position and is leading entertainment network. During quarter 2 of FY '20, our television network had an all-India viewership share of 18.4%. While we have maintained our leadership share in the Hindi GEC segment, the network continues to strengthen its position in Hindi movie cluster and the regional portfolio. Our channels have seen strong acceptance across markets under the new tariff regime, especially in the regional markets. Reach of all the pay channels has been impacted during the implementation of tariff order. In the regional markets, there has been a strong revival of reach post the disruption in the early days of the NTO, and in almost all these markets, recovery in reach has been better than competition.Zee TV was the #2 channel in the pay Hindi GEC segment, and our strong movie library helped further consolidate our #1 position in the pay Hindi movie genre. We maintained leadership position in Marathi, Bangla and Kannada markets. Zee Keralam continues its impressive start, reaching 8% viewership share in less than a year of launch. We are on track for launch of new regional channels in line with our annual plans. Now coming to ZEE5. In the month of September, they've recorded a peak daily active user of 8.9 million. ZEE5 released 23 original shows and movies during the quarter and is well on track to achieve its commitment of producing over 70 original content pieces this finance -- this fiscal. Our content co-production deal with one of India's leading production houses further consolidates our position as India's biggest producer of original content. Along with content, ZEE5's partnership with players in the digital ecosystem are helping build traction on the platform. Tapping one of the fastest-growing smart TV ecosystem across 45 brands and comprehensive delivery across all operating systems gives ZEE5 an added advantage in distribution. ZEE5 also launched ad suite products, which allow it to offer wide-ranging and customized advertising solutions to brands. Coming to the financial performance. Our overall revenue grew by 7.4% year-on-year to INR 21 billion; EBITDA for the quarter stood at INR 6.9 billion; and the EBITDA margins were at 32.7%. Our cash and treasury investments at the end of September quarter stood at INR 14.8 billion. Finally, I'd like to address the question you might have regarding Note #5 to the financial statement. Our fixed deposit was INR 2 billion was wrongfully and unilaterally adjusted by a bank against the dues of certain-related parties. The said related parties have already reimbursed the same amount to the company. Accordingly, there's no financial loss to the company. We are seeking legal advice on the matter to take appropriate action or resolve the matter amicably with the institution. With this opening comment, I would like to address any questions you may have.
[Operator Instructions] We have the first question from the line of Abneesh Roy from Edelweiss.
Sir, my first question is on advertising. 2% growth, how does it compare with the industry ad growth? And second, digital ads have been taking share from rest of the segments over many years. New development is multiplexer. I've seen very good growth. We saw the #1 multiplex, 360% ad growth this quarter. So whenever slowdown happens, we always see that skepticism due to which footfalls increase. So is this an additional worry, multiplexes? Is this an additional worry for broadcasters apart from the digital in the current context?
Thank you, Abneesh. For the first question, the overall industry in our estimate for television saw a low single-digit fee growth. I think the number is around 4%, and we have still delivered 2% growth irrespective of that. Also keep in mind that this also has the impact of the FTA channels that was switched off on 1st of March of this year. Despite all that, we have managed to grow by 2%.On the second question on multiplexes having an impact on the contrasting business, I think it's too early to tell. If you look at the total number of cinemagoers or -- I mean, I don't have the total numbers, but I think the biggest blockbuster movie, it has been seen by 30 million people maximum. So from that perspective, our medium is far more marked than multiplexes. And add the price point as to what television is available in the country, I don't think multiplexes will be able match that kind of a marked impetus.
My second question is on the fixed deposit, which you gradually mentioned. Any more such issue can happen. So are you doing anything proactively in terms of ring-fencing? Any other alternative? Because there's a lot of cash on the company, so if we could clarify on that.
Yes. We have taken all necessary measures to ring-fence all our other deposits, and nothing else that's more likely to happen.
And one follow-up on the [ ICD's ] part, if you could clarify which entity, when was this money given? And any more such issues can happen on the related party [ ICD ] ?
So this issue happened 3 years ago. This was an ICD that we had issued through a company named [ Oscar ]. We have been trying to recover our monies for quite some time from them. The [ Komoro ] Group or Essel Group has stepped in last year to help us recover these monies through their good offices. But as a prudent governance measure, we have taken a choice to provide for it. We still expect the recovery to happen of this money but we still went -- wanted to go ahead and provide for it [ upfront]. And there are no other such failure of operations thereof.
Sure. And last question, again on the business. So recently, à la carte pricing has been cut by the -- by most of the players, so one is, why it's happening now? Could the bouquet prices also come down? And what percentage of the revenue is currently à la carte? Do you see à la carte mix increasing because of this?
So firstly, the bouquet pricing has not been changed. It is normally the à la carte pricing that we have done as a festive offer. It is not a change in perpetuity. We have the option of [an intermediate ] tariff order. Any promotional activity cannot be valid for more than 3 months as per the tariff order itself. So I expect this to be a short-term matter. The total number of à la carte channel penetration in our country for us, which is less than 10%, so I don't see a major impact on our revenues. Only it should help us increase reach, if at all, and therefore higher pricing revenues.
The next question is from the line of Kunal Vora from BNP Paribas.
A couple of questions on the balance sheet. So trade receivables are up from INR 18 billion to INR 24 billion. So what's the status of the related party receivables? And what's driving the significant increase? I think you are [ liable ] in receivables from Dish TV and Siti Cable at the end of fiscal '19. Any movement in that number? That's first. And second, the financial assets are up from INR 1,000 crores to INR 1,400 crores. You had given some advances, like what's the status of that now? And yes, that's it from me.
I'll just request Rohit answer that.
Yes. So yes, the debtors have gone up in this quarter, and it is on account of certain delayed payments from our MSOs and including Dish and Siti. We have now received a binding and definitive payment plan from both, and we expect to bring down this to the normal levels by quarter 4.
Sure. So compared to the end of fiscal '19 or they are stable? What's the status?
Sorry, can you repeat?
The receivable from Dish TV and Siti Cable, are they still increasing or they are stable?
No, we expect the receivables from Dish and Siti to start coming down. As I said, we have received a definitive and binding payment plan from both. And as for the payment plan, both the receivables from both the parties should come down in this quarter itself and definitely in quarter 4. So regarding your second question on other financial assets, so primarily the SD which Punit talked about, we have reclassified the deposits here, so that is one increase. And second is the normal increase of the annual revenue on subscription.
Sure, sure, sure. On the SD, how could the banks attach that? I mean recall there's some bank guarantee which we had given. How did this happen, that the bank [ attached SD] when [indiscernible] already were reduced?
Well, as I said in my opening statement itself, it is a wrongful and a humiliating decision they have taken. There's no guarantee given by Zee to any of the group companies [indiscernible]. We are taking appropriate legal advice, et cetera, to take action.
Lastly, on inventory, again, there's an increase from INR 30 billion to INR 43 billion. Where do we see it stabilize? And when does it start coming down?
So Kunal, if you recall in the last meeting, we have talked about the advances that were given out towards film acquisition, et cetera. That's what is now being accrued into inventory partly and partly also the content that we are procuring or securing for ZEE5. I don't think this is what's significantly higher. But once the new channels I talked about, the regional channels also start launching, we will start tapping to the P&L and they will come down significantly. So I think mix is better.
So do you see it as maxed out or it will go up further before it starts coming down?
So it's a matter of time before those advances get converted into inventory. Beyond that, it's not going to increase. And hopefully, my channel launches will happen in parallel, and therefore, you'll see part of it come down and part of it gets converted into inventory.
The next question is from the line of Vivekanand Subbaraman from AMBIT Capital.
A couple of questions on the financial statements. What is the status of repatriation of the INR 6-odd billion of cash parked in Actinium and Poseidon? Secondly, what is the figure of the cash and treasury investments for the current quarter? And thirdly, with respect to the investment point that you made on inventory, the annual report -- in the annual report, you had discussed that we have passed the peak investment phase. So do you mean the investment phase when seeing from the P&L or from the balance sheet? I have a couple of questions on the business also. Maybe after I get the answer, I'll ask.
Yes. So as I said, the cash and the treasury operation, the company stands at INR 14.8 billion. For the Actinium and Poseidon, we have seen some movement, only minor movement in reduction in the last quarter. And we will expect someone will figure out in this quarter as well as in quarter 3. We are working actively with them to redeem it as soon as possible and get it off our books. On the third part, what I meant to say was that whatever investments we were to do that's hopefully being done, which is part of inventory as well as advances. Beyond that, we don't expect it to go up further. And hopefully, in parallel, once my regional channels launch, I will start passing that also to the P&L. So we are currently looking it from a balance sheet point of view, and eventually, it will move to the P&L.
Great. And this cash and treasury investments, this is a gross number, right? You don't have any liabilities against this, right? This is not a net number.
No, that's correct. We don't have any liabilities against.
Okay. And forgive me for asking this, but because of the deposit that was adjusted, I wanted some color on the INR 14.8 billion so if you can clarify where this is part. Is it all in domestic banks? Or can you give some color on that?
Yes, Rohit can take that.
Yes. So this is a -- so there's a number of instruments in which this is comprising of. So this includes CDs, fixed deposits, mutual fund investments and core investments and noncore investments and domestic and outside of India.
Okay. Can you -- Rohit, can you share some more specific color on this?
If we take it offline, we can do it.
Okay. So the one question that I had on the business with respect to ZEE5 was I was reading [ Taruk's ] interview recently where he's highlighted that now the company is trying to focus on kids and also launched into new regional languages. So can you give some more color on the audience profile right now? How much of the DAUs and MAUs that you are currently getting is from India? Can you give some sense of the Tier 1, 2 versus Tier 3 and 4? Because some of the interviews also talked about you're doing very well in Tier 3 and 4 -- 2 and 3 markets?
So the number that I gave of 8.9 million figure is not predominantly India, will be 95% plus India. It will be -- I don't have the demographics readily but I can tell you our primary audiences are still female skewed and they are younger than the television audiences. The television is generally 35-plus, this will be more in the 18 to 25 or 28 bracket. So I think the split last when I saw was about 57% skewed to females and 43% to males, which is complete opposite of what is on television -- sorry, which is very familiar to what is on television.
The next question is from the line of Yogesh Kirve from B&K Securities.
So this -- continuing on the inventory part, so inventory, I mean, had increased about INR 200 crores in FY '19 and another INR 450 crores. So could you give us some breakup of the key components of the inventory increase and why we are seeing the inventory accretion of so much, only now? Because in the past, most of the television cost is charged off to P&L in that year itself. So why we are seeing so much accretion over the last year, 1.5 years?
So Yogesh, what happens in -- there's 2 or 3 buckets that's treated like that. So first bucket, which is the largest bucket, is the film library, right? So there's a time when we only acquire rights for television. We did not acquire other rights that we were needing for running the ZEE5 business. We started acquiring that about 3 years ago -- 3 or 2.5 years ago. And therefore, a large chunk went towards getting the digital rights for that library. Second bucket is our movie production and our music publishing business. As you know, we are now the second-largest music publisher in the country, and we acquired close to 60 to 100 movies every year for music publishing. Now that is not charged. Television content is charged through P&L. It is charged over a 3-year period. Then lastly, we have content that we are making for ZEE5 and for the television network, which is under production or is being sourced from third parties. So that is the third bucket. And once you start putting it on air or on the ZEE5 platform, it sits in inventory, it doesn't pass through the P&L. So we have 3 buckets largely you have to look at. So ZEE5 is completely new business. The movie production and music is completely new business. Both these have contributed towards this large chunk of growth in the inventory. And because we find both these assets to be very, very good assets to invest in as a company, we have taken that [ on air and moved it].
Sir, is it possible to give an amount related to the amount sitting in the inventory which is not the content which is under production or are not being shown on any of the platforms so far?
We have a very small number. I don't think it will be more than 7%, 8%. The rest will be all towards the films and the other things. See, we have a policy of films which are amortized over 5 years, straight line. So even after a movie airs, doesn't mean it gets written off completely. But there is enough library of mass content which is completely written off, but still is being aired or which is earning revenue. So it kind of counterbalances itself. While these one-off blips of new businesses are added to it, over a period of time, this will lead to that amount.
Sir, just to clarify, the 7% of the inventory. So you're saying 7% of the inventory is the series content and the production?
That is correct.
Okay. And sir, do we see...
I do not have the exact number right now.
Sure. Sure. Sir, in terms of the charge to the P&L, I mean, considering that the inventories are like over the last 2 or 2.5 -- about 2, 2.5 years, do we see the weight of charge into P&L may increase and the margins may come off in this, then the charge-offs really starts?
So our non-film content is charged 80% in the first 12 months and 10% over next 2 years. So that, I think, is already a very conservative policy that we have. The films on the music side and on the film production side in the 3-year policy. In production, we are charging almost 90% plus some theatrical release and the balance over the next 2 years. Music, we are charging 3 years straight line. Sorry, 50% in year 1; 25%, 25%, year 2, year 3. So if you look at a large part of our content cost done through P&L every year, it's only the film rights which our minimum purchase rights of at least 10 years or more. Almost 1/3 of my library I am sitting on is almost 99 years in rights. So these assets don't just deteriorate in the first year itself. We make money out of it for multiple years, even after charging off the books.And I can say, we constantly review our amortization policies internally and with our auditors and with our Board, and we take [indiscernible].
All right. And so second question I have for the rate, I mean, now in the first half, we see that cash flow from operation is negative. So taking all into consideration regarding the inventory as well as some of the advances, sir, do we expect a definite [ rate cut ] in the second half that the cash flow from operations should be positive by a healthy number?
So as I said, we are working on liquidation of [ details ] and we have a definitive plan. This will help us in -- obviously, we're losing cash. I do expect that cash flow position should improve at quarter 4, and by next year, we should have positive free cash flow.
[Operator Instructions] The next question is from the line of Jay Doshi from Kotak Securities.
I have 3 questions. The first one, your domestic subscription revenue growth is about 36% in first half and you had guided of 25% kind of number for the full year. So if there is change in guidance, what should we expect for the full year?
No. No change in guidance yet.
Okay. So including second half, will be much lower? Then what...
Our subscription there, because you compare it to our last mechanism, which is a very different mechanism, a lumpy mechanism, our collection then billing, that is all changed. So it's not really apples to apples from that perspective.
Understood. Now related party receivables was about INR 500 crores as at March end. What would be that number? Or what would be it, as a percentage of total receivables of INR 2,400 crores, how much would be related party?
So the audio amount was in the range of about INR 250 crores to INR 300 crores.
Understood. And what is the usual amount? If you could give me the entire number, should be helpful.
So the entire number of receivables would be in the range of about INR 700 crores.
Understood. Then last, as at March end, you had given interest-free deposits of INR 6.9 billion and advances for INR 2.45 billion. I understand you mentioned that some of that inventory content you've procured. So what is that aggregate number, which was INR 9.35 billion as at March and? What is it now as of date?
So both the deposits and the advances that we have given, so there is movement in that. In the advances that we had given, I think roughly around INR 75 crores has already moved. And in the deposits also there is movement, which is there.
What should be that aggregate number as at September end, if you can give me? Is it possible or should I...
Yes, we don't have the exact number right now. Can we take if offline?
Sure. I'll take it offline. And finally, plenty thanks for explaining to us the amortization overall, sort of inventory amortization policy across different segments. Now if I broadly look at the inventory increase, it's about INR 1,600 crores on a Y-o-Y basis. And if I look at your days quarter of programming cost and current quarter programming cost, the increase is INR 160 crore. So the INR 1,600 crore net inventory increase, my sense is that ballpark minimum, there should be a INR 300 crore increase in the amortization expense or programming cost. So is there any change in the inventory amortization policy between the base quarter and the current quarter?
Well, Jay, you are not factoring in the fact these inventories that have been accumulated, but we have not launched the channels yet. And therefore, it got passed into the P&L as the [ sitting agreement ]. So I had a plan to launch a Kannada movie channel, a Tamil movie channel, a Bhojpuri movie channel and a Punjabi channel. Four channels are still not launched from which are accumulated in a lot of libraries.
Understood. But for movie amortization, 5-year policy still is unchanged. Is that right?
That is correct.
Satellite rights, 5 years, right?
Yes. Bijal, do you...
Yes. So one thing which you are missing, Jay, has been, see, you are looking at base quarter and this quarter. But base quarter had a movie -- a big movie also which was there, and that had inflated -- I mean that led to higher cost. This quarter we did not have any movie. So the comparison might not be as easy as just looking at base quarter and this quarter number. On top of that, there is lot of difference in which -- I mean, the programming bouquet itself might be different. We might be doing awards. We might be doing events. Now it depends upon where the festivities are, which quarter we want to do. So just a simple comparison will not give you a full picture.
Understood, Bijal. In fact, I was -- I believe the increase is lower than what it should be given the increase in inventory, but Punit I think did explained that a lot of inventory sitting on balance sheet is yet -- the channels are not launched, so you're not charging it to P&L as yet.
And also there are future rights. So I mean, in my inventory, let's say, I mean if you look at FY '19 balance sheet, almost 4 big indices of future rights are there, INR 4.75 billion. Now these rights are not even started. So there's no amortization with respect to that.
Right. And just a request if it is possible maybe in the future quarters or maybe next year. Given that inventory and -- there will be questions around amortization of inventory, would it be possible to give a breakup of programming cost and movie amortization expense going forward at a later date? Just a suggestion if it...
Yes. We'll consider it.
We'll consider it, Jay.
The next question is from the line of [ Arun Kumar ] from [ High Yield Fund ].
You had mentioned INR 700 crores is pertaining to related party out of the total receivables of INR 2,500 crores. And also you had given overdue amount of INR 250 crores relating to related party. Similarly, can you give me the related party breakup in the other financial assets, INR 1,376 crores?
Yes. Just one second. We are just getting it. So roughly around INR 200 crores out of the INR 1,300 crores is relating to related parties.
Are there any related party transactions in the other current assets also, which is about INR 1,465 crores?
No. No. Other current assets only.
Yes. I don't think there's any amount in the other current assets.
Arun, there are no other related party assets in the current liabilities.
Okay. And in cash and treasury investments, were you able to -- I mean the previous participant had asked for the breakup. Were you able to get that breakup?
No. Like I said, we'll give you the breakup offline. The cash and treasury, see, this is all in fixed deposits, the figure of deposits, mutual funds, NCDs and bank balances. And the exact cash is not available with me right now, but we'll give it to you offline.
Is it -- I mean, it predominantly is in Indian investments, right?
Yes. It is in Indian investments, and we do have overseas investments as well. Yes.
And in the P&L, what is causing the fluctuation in that fair value, because it's -- from -- on a Q-on-Q basis, it's moved from INR 68 crores gain to now INR 8.75 crores loss in the consolidated P&L?
So this fair value adjustment relates to redeemable preference shares, which we had issued as bonus to our equity shareholders. As per accounting standard -- fair value accounting standard, the value at which this instrument need to be recorded should be the market value because this preference shares are listed. So whatever is the fluctuation in the market value of this shares is passing through the P&L as fair value every quarter. So it has got -- in the P&L, it has no cash implication. It is just a notional -- sometime notional gain or sometime notional loss depending upon how the price of this instrument traded -- I mean, the change over the quarter on BSE and NSE. So it can be positive, it can be negative. I mean, there cannot be any trend on that because the price -- I mean, it is like stock market. Prices can go up and go down, and that will be reflected as loss or profit.
So this is only on account of preference shares, no other instrument?
I mean, overwhelmingly, there might be some more, but I mean, more than 95%, 99% it is that.
Okay. We will take that cash breakup offline.
The next question is from the line of Vivekanand Subbaraman from AMBIT Capital.
Punit, can you please give some more color on the advertising environment? This revenue decline for the industry, you have mentioned in the quarterly note that it is looking up now. What is your expectation of industry ad growth for fiscal '20? And what do you think drives the growth optimism that you've outlined in the quarterly note?
So I think, firstly, the festive season itself will drive some amount of advertising growth for the industry and therefore for us as well. We are seeing -- and I don't mean so much more for the industry than for us, because given our network share and given our consolidated market positioning gives us a far better leverage to negotiate with the advertisers. That's where I said when the industry had seen a degrowth of 4%, we have still managed to deliver a 2% positive despite the 4% degrowth, despite the shutting off of 2 very profitable FTA channels that we had switched off. So from that perspective, the industry may -- that too may be a flat kind of situation for the rest of the half, but we'll definitely beat the market.
Okay. And as regards to the network share numbers that we see, 18.5% now and around 18.7% in 1Q, this is slightly lower than the 19.5% odd number that we saw in 1H FY '19. Is that only because of the shutdown of the free-to-air channels? Can you give any more color on that?
Yes. It's largely on account of that. There may be some movement in the listing portfolio, but that will be miniscule. In fact, the FTA channel contributed for more than 2% of viewership share for the network. So it was actually prior to that even a 20%-plus, so which is now at 18.5%.
The next question is from the line of Sanjay Chawla from JM Financial.
My first question is on this overdue amount you indicated from related party, INR 250 crores to INR 300 crores now. So what is the provisioning policy with respect to this? And should one expect some more exceptional cost to be booked in the coming one or 2 quarters on account of this?
So as a -- Rohit, as a policy, for related parties we don't provide for -- of this thing -- of the -- but we have received a definitive plan and a binding plan from them for making these payments over the next 2 quarters. And we're quite confident that they will stick to their commitment. And therefore, you'll see a significant reduction, I think, by quarter four. So yes, there should not be any impairment on account of this.
Okay. And second question is on ZEE5. Have you not disclosed MAUs, maybe I've not noticed it yet, for ZEE5 the last month of the quarter?
No. We have now decided to disclose daily active users because that's a for -- that's a large -- that's more the metric that we use for trading.
Okay. So how do you feel about this daily -- DAU to MAU ratio? It still seems to be low assuming your MAUs have grown from last quarter's level. And this is despite release of a lot of the original shows. So I'm just trying to understand what could be the factor here. Some of your other rivals like Voot and Hotstar, they have much better percentage of DAU versus MAU. So what could be behind this? And how do you -- second related question is, how do you feel about the pricing? I believe some of the discounts are no longer there on the annual subscription of ZEE5 for the entire content. So...
You're right that the MAU to DAU conversion is still lower than the industry. But keep in mind that we are just about 1.5 year old. And our original content started only about a year ago, not even 1.5 year ago. So we are quite confident that we'll continue to grow from here leaps and bounds going forward.
[indiscernible]
From the last quarter, the percentage of conversion from MAU to DAU has significantly gone up. I think it's about 60%, 70% growth. And we are pretty confident that the numbers will keep tracking. On the subscription side, I'm very confident that the numbers that we are delivering on the subscribers that we have captured so far is in line with the industry, in fact beating most of the players in the industry.
We've taken a full discount to it.
And you're right. We've taken a discount to it.
Yes. So no, my question is basically more broader perspective on pricing whether INR 499 is really the price point at which one unleashes a lot of demand? Or -- because there's a lot of competition, obviously, out there for this paid -- for SVOD also. So is there really pricing power out there which helps you or would help you command INR 999 and maybe further increase it in the future on an annual basis?
No. I'm pretty confident that if we continue to produce good quality content people will pay for it. And that's testimony to the growth that we've seen not just in ZEE5 but even in the broadcasting business. I mean if you look at the kind of pricing growth we have seen in the broadcast business also is -- because our content has a pull towards it and therefore we manage to command these high prices. As long as Tarun and his team continue to build on content, which the consumer wants, they will pay for it.
So we haven't seen any significant pickup in the churn once the pricing got reset to higher level after first year?
None whatsoever. We've only seen growth. We think that as we allow it with auto renewals, et cetera, the numbers will only track higher.
The next question is from the line of Ankur Periwal from Axis Capital.
So just a couple of clarification. One, on the à la carte pricing, which you mentioned -- and I appreciate this is more to increase the penetration. Now if I go back to our discussion, in South India we were pretty much there in terms of presence across the base packs, while in HSM there were certain issues with select players here and there. Has that situation improved? Or is this pricing strategy largely addressing that [ bucket, sir?]
This pricing strategy doesn't really impact the regional markets in a big way because, as I said in my opening statement, that most of the reach impact that we had seen during the implementation of NTO has come back and people will continue to buy bouquets in this country. I'm very clear on that. À la carte will be a very small segment of the audience base that subscribes to it. So I don't see much impact happening. I see more impact possibly in the Hindi Speaking Markets where the penetration of our paid channels in the rural markets can increase much better through the à la carte pricing strategy.
Okay. And any percentage you can share in terms of reach in the HSM market overall or maybe rural versus urban?
Oh, I don't have the number right now. But I can tell you we are above 90% of pre-NTO in most of our markets.
Okay. Fair enough. That's encouraging. Secondly on ZEE5, like while we have sort of taken away all the longer gestation, discounts -- the long-term pack discounts on ZEE5, we did heard earlier mention of launching sachet-based pricing. So that -- what's the thoughts over there which can probably increase the penetration of ZEE5 as well in the respective regional markets?
So we already have the regional pricing different than the all-you-can-eat à la carte. And we are working on lighter packs as we speak which will be roll out in the next couple of quarters.
Sure. And on the international distribution, any updates there?
International distribution, not much to update. We are focusing on ZEE5 rollout. We are very aggressively rolling out in the APAC and the MENA region and following, which we will go to the U.K. and the Europe and then finally U.S. at the end.
Okay. Fair enough. A couple of bookkeeping. Now the tax rate in this quarter is only 15%. So any specific reasons there, and what should be the number one should take away here?
So as you are probable aware, so the Finance Minister had a reduction in the corporate tax rate. We have therefore taken -- computed the estimated tax based on that. And we see the adjustment in this quarter. So yes, the tax rate has come down from the overall 33%, 34% to about 24%, 25% now. We will see the benefit in cash flow as well in the next 2 quarters. So hopefully, in the next 2 quarters, our cash tax outgo should improve by about anything between INR 250 crores to INR 300 crores.
Just to be specific to your question, because we had provided for higher tax in quarter 1 that has been refilled back.
Now a related question to that and if I got it right, we did mention because of our higher investment in content, the OCF in the first half obviously is negative. And maybe by end of year things will improve. So for the full year, are we expecting OCF to be positive? If I got it right, earlier we said FY '21 we'll see OCF positive.
Yes. So next year, we expect the free cash flow to be positive.
So OCF will be negative despite lower tax outgo in the second half there, so.
Yes. I mean we are working on improving our -- liquidating our debtors and releasing cash wherever possible. So our endeavor is to have a positive FCF this year itself, but definitely next year we'll have a positive FCF.
So we are not saying that we will be negative. We're working towards ensuring that it's a positive FCF. But next year for certain, we'll be positive.
The next question is from the line of Dinesh Kulkarni from Mission Holdings.
My question to you is the operational cost on a stand-alone basis has gone up by 50%. Can you please explain on that?
Sorry, operation cost?
Cost, yes, on the stand-alone financial statement, P&L.
One second. Give me a minute.
It increased from INR 540 crores to almost to INR 800 crore.
Yes. See, this is primarily on account of investments that we have been making in our ZEE5, in the digital platform. So if you are really -- so stand-alone includes digital platform, and it is on account of that both in terms of programming, transmission and personnel.
Okay. Fair enough. Can you just provide some light on -- color on ZEE5 content investments like how would we see the difference in technology and content investments to go through the next like 2, 3 years? Do we expect technology investments to come down, and we'll be more focused on content? Can you just provide some bifurcation there?
See, there are 2 parts of technology cost. One is CapEx. The other is OpEx. So the CapEx is not very high in this business. Most of the investments have already been done. There are marginal investments we are making to improve the tech platform, et cetera, especially on the -- whether the ad tech suite is concerned, whether it is the user interface of the app, et cetera. So that will not see much investment going forward. It will be incremental. But operating technical cost will continue and only increase. Because as the consumption increases, you pay for more consumption. So the transmission cost here is nothing but the content delivery network charges that we pay to people who carry our content and deliver it to the consumer. So that -- as consumption increases, that will continue to be going up.
The next question is from the line of Anshu Govil from Aurigin Capital.
My question is regarding these INR 500 crore-odd you'll need to pay to the preference shareholders in March. So is that possible without taking any additional bank debt? And do you have enough free cash -- unencumbered cash onshore in India to make the payment?
It will be paid from our treasury operation or internal accruals. We will not be taking additional funding from anywhere.
Yes. And that is already structured in, when we talked about our cash flow. It's already structured in.
The next question is from the line of [ Sudhir from Eastbay Capital ].
I have a question with respect to this INR 200 crore opportunity [ which has been broken. ] Was there any charge created by the company or any of the group entities which bank you're taking into consideration while [ taking royalty]?
No. As I said, [ Sudhir ], in my opening remarks itself, it is a wrongful investment and a completely unilateral step we have taken. We have never encumbered any of these assets or any of the group's asset against these [ SDs.]
Like was there any document or impression given to the bank that these charges have created?
Not by the company. So I definitely -- I can't say that something was given.
The next question is from the line of Jay Doshi from Kotak Securities.
A quick bookkeeping question. So peak DAU base of 8.9 million in September, is this the peak DAU achieved on any single day? Or is it average for the month of September?
It's not one single day, Jay. It will be for -- it may not be for 1 day, but it's also not 30 days. It will be a significant period during the month. Just to give you some color, our consumption actually is high on weekdays for our soaps, et cetera. For our original content, consumption is high on weekends. So it kind of plays off from that perspective, based on when we upload content, et cetera.
So how do you compute it?
So if you look at our soaps, which is our regular television content, that is uploaded immediately after telecast of the television show. Therefore, the consumption happens on weekdays. All of our original content is generally launched on a Friday, and therefore consumption happens on the weekend.
Right. But the 8.9 million number is -- how -- is that on a particular day? Or is it average of a few days?
It will be for significant part of the month average.
Okay. Understood. Second is your -- as per the annual report, corporate guarantees of about INR 900-plus crores were against -- for some loans of Siti Cable Networks. Is there any change there? Or is there any other change in corporate guarantees per se?
It is -- as from my recollection, it is down below INR 300 crores now.
Corporate guarantee number -- overall number is down -- is down to INR 300 crores?
Yes. Overall, it's less than INR 300 crores. It's not even INR 300 crores, Jay, because these guarantees are in form of extra guarantees and not full loan guarantees. Therefore, our exposure is limited to just a quarter. But if you want to take the whole loan, it is less than INR 300 crores.
Understood. That's helpful. And just a final question. Any incremental update you'd want to give on the debt resolution plan? Or any progress on infra assets or any updates you may want to...
I was wondering, Jay, that nobody has asked me this question, and we're almost at the end of the call. Thank you for asking this. So apart from my call that I did last to last Saturday, as I stated, we are working on solutions that we are currently evaluating, are aimed at removing the so-called overhang on the ZEEL stock in a holistic and timely manner. We are working with several parties on the ZEEL stock deal. There was a certain disclosure that happened after that from VTB. We're in constant dialogue with VTB. We believe they are a responsible institution, and they will not take any action in a manner that will hurt their interest, our interest or other shareholders' interest. And apart from that, the latest development has also been that for our education vertical, Zee Learn, which is the largest education company in India, we have received inward interest from strategic and financial investors, which we are evaluating actively.
The next question is from the line of [ Chu Liong ] from [ Nusell Growth ].
I just have 3 very quick questions. One is, is there any plans on sort of the reinvestment of the tax savings from the corporate tax cut? If you could give some color on that, that would be great. Second is on the domestic ad revenue. Are you seeing anything in the rate cut? So any sort of pricing pressure or anything on that. And lastly, as the time spent per day on ZEE5, in the release, you put 120 minutes. Is that comparable to the 33 minutes that you last reported?
Bijal, do you want to take the first one?
Yes. So as far as corporate tax rate cut is concerned, I mean we are already -- we have been investing what was needed in both the business, broadcast and digital. So immediately, there are no plans, and we continue to maintain EBITDA margin guidance also. In the -- I mean, most of the tax cut will probably accrue in profit line, and it will add to our EPS for the year.
Coming to the advertising part, while the industry situation is still not as healthy as one would expect, but I'm hopeful with the festive season around the corner, things should be better than the first half. Only time will tell, but it should improve over the first half, at least. That's what's my understanding. And irrespective of whatever happens to the industry, we will always endeavor to beat the industry number to the positive side. What was the third question?
Can you please repeat third question?
It's on the time spent per day this quarter, 120 minutes. Is that the same as last quarter's 33 minutes?
So the 33-minute number was computed when we used to give you the monthly active users. So that number is no longer relevant for us to be exact. The 120-minute consumption is based the 8.9 million daily active users and what their consumption is. This is a real relevant part of our business that we're focusing on, and we'll continue to drive that. This is what drives our advertising as well as subscription revenue in this business.
Okay. Sure. Sorry, just one quick follow up on the tax reinvestment. So you mentioned immediately -- no immediate plan. Should we take it that the cash flow just sort of build up on the balance sheet?
Yes.
Yes.
Thank you very much. We'll take that as the last question. On behalf of Zee Entertainment Enterprises Limited, that concludes the conference. Thank you for joining us. You may now disconnect your lines.