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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, good day, and welcome to the Zee Entertainment Enterprises Limited Q3 FY '21 Earnings Discussion. [Operator Instructions] Please that note this conference is being recorded. I would like now to hand the conference over to Mr. Bijal Shah. Thank you, and over to you, sir.
Thank you, [ Denise ]. Good day, everyone, and welcome to Zee Entertainment's 3Q earnings discussion. Hope you all are well and taking good care of yourself. We have today with us our managing Director and CEO, Mr. Punit Goenka to discuss the performance of the company for the third quarter of fiscal 2021. Unfortunately, our CFO, Mr. Rohit Gupta, had a family emergency due to which he had to rush to Delhi. He would not be attending the call today. This is the reason we are unable to do this on a webcast as we have been doing for over the last couple of quarters. We'll start with a brief statement from PG, and we subsequently open the floor for question and answers round. Before we begin, I would like to remind everyone that everything we say during this call that refer to our outlook or the future is a forward-looking statement and not be taken in conjunction with the risk that we see. We'll begin the opening remarks now. Over to you, PG.
Thank you, Bijal. Good evening, everyone. It is always a pleasure to connect and interact with you all. Since this is the first time that I'm speaking to you in the year 2021, let me begin by wishing each one of you a wonderful year ahead. With all that we have together experienced in the previous year, there is certainly a strong level of collective hope and positive energy across, and I'm most certain that this new year would be a great one for all of us. With the sharp and steady decline in the COVID-19 cases over the last couple of months, coupled with the easing restrictions, the process of all aspects returning to normalcy has certainly accelerated, both in terms of our day-to-day life and in terms of the overall economic activity. To add to this, the vaccination drive, which has already begun across the country, gives us the hope and confidence that we step into the next financial year, the chapter of pandemic will be behind us. Indian economy at large is quite resilient, which is evident from the lower growth reported by companies across sectors and the encouraging outlook shared by most of them. And as all of you must have noted, this is despite an unprecedented first half decline experienced across the board. Even for us, the advisement revenues have returned sharply to positive growth trajectory in the third quarter of this financial year. Our advertisers are seeing a strong revival in demand with the product launch cycle, which was [indiscernible] by the pandemic, witnessing a strong rebound. The blend of growth-oriented policies, multiyear low interest rates and the country's ever-expanding consumer base, will add to a strong catalyst for growth going forward. During the lockdown, content consumption witnessed a sharp spike, reiterating the fact that content is an indispensable part of our daily life. In India, content consumption has been in a secular growth phase across platforms, and the same is likely to continue. We firmly believe that the current digital consumption has only scratched the tip of the iceberg and that there is an immense potential for the total addressable market to grow multifold. While television continues to be the biggest entertainment medium, the [indiscernible] factor over 100 million TV -- 100 million households are yet to buy their first television sets, speaks a lot about the potential and growth prospect of this industry. We would like to achieve a dominant share of capitalizing this growth opportunity, which is going to unfold over the next decade or so. As you all might have noted, while articulating the ZEE 4.0 strategy approach, I have spoken about growth being one of the key pillars of the new journey. Over the past 6 months, we have been consistently working to devise a 5-year growth map for the company. After a rigorous exercise and internal deliberations, we have set internal targets in terms of time, energy and entertainment share that we, as a company must garner in the next 5 years. To achieve these targets, there will certainly be substantial increase in our investments across digital, television and movie-production business. I would like to elaborate this point further by speaking about these 3 business verticals. Let us start with digital. For ZEE5, our ambition is to be the leading OTT platform, not just for India, but for South Asian diaspora across the globe. Much like our broadcasting business, we will be following a multilingual approach, ramping up the original content production across languages. As more and more viewers join us on the digital platforms, it would be imperative for us to raise our investment in order to cater to the unique tastes and preferences. The expansion in content offerings will be supported by parallel investments in marketing and technology to improvise the overall consumer experience. Moving on to our broadcast business. Our aim is to consistently be India's #1 entertainment network. As you all must have noted, we have already added 6 new channels to our network over the past 14 months. While the expansion approach for the linear business is almost complete, we might see a few launches in the coming years. The viewership of our network has seen some decline over the last 1 year. And to gain back the leadership, we plan to enhance our spends in the Hindi-speaking markets as well as few regional language markets. Movies business, on the other hand, has been an integral part of our growth story. We reentered the movie production business a few years ago with an objective to develop a profitable and scalable model. Like any content business, even we had our share of success and failure. But that said, on an aggregate basis, the performance has been satisfactory. We now plan to increase our annual movie releases to 35 to 40 across 6 languages from the current number of 8 to 10 releases a year. This will also have a flywheel effect for our digital, broadcast and music business. To summarize the points, our investments in content would see a hike in the financial year 2022. This phase would be somewhat similar to what we experienced around a decade ago wherein our investments in regional markets did temporarily impact our EBITDA margins. But at the same time, it also enabled us to grow ahead of the market for many years. The investment decision will have an impact on our margins, working capital and cash generation. Our business plan for the coming year will be finalized during quarter 4 and we would provide a granular guidance on these line items during the fourth quarter investor dialogue. As Bijal mentioned that Rohit could not join us today, I will run you through the operating highlights as well. After a disruption phase due to the unprecedented economic slowdown in the first half, our business returned to near normalcy in third quarter, led by strong resurgence in consumer demand across categories. Advertising witnessed a sharp rebound, as sale of products across all categories saw a strong recovery. With the lockdown easing across the country, people began to spend more time out of their homes, leading to normalization of TV viewership to pre-COVID levels. While movie genre had gained massively during the first half, the category suffered some fatigue due to lack of new content, and saw a drop in leadership shares, which benefited the GEC genre.During the quarter, we maintained an all-Indian viewership share of 18.2% and continued to be India's #2 TV entertainment network. Continuing with our strategy of diversifying our content offering to the consumers and going deeper into the regional markets, we launched 2 channels: Zee Zest and Zee Vajwa. While Zee Zest is a lifestyle channel, Zee Vajwa brings the best of Marathi music to our audiences. With this, we have reduced 6 new channels in the market over the last 14 months, significantly bolstering our offering to the consumers. All of our new channels have started on strong footing and will continuing to strengthen our network share going forward. During the quarter, Zee TV, Zee Bangla and Zee Keralam improved the viewership share, respectively. And the Hindi movie cluster maintained its #1 position. However, we lost leadership in Marathi, one of our traditionally strong markets. We are working towards fixing the gaps, which we have identified in our content offering, and we hope to see the results of the same in the next couple of quarters. Now coming to ZEE5. The platform's global MAUs and DAUs for the month of December as per our internal data analytics were 65.9 million and 5.4 million, respectively. During the quarter, ZEE5 released 20 original shows and movies. With close to 200 original shows released since launch, ZEE5 now has the biggest library of Indian original content, which will help in ramping our paid subscriber base as we go forward. ZEE5 also received 7 movies on our new pay-per-view platform, ZEEPLEX, which enables consumers to watch all the new movies from the comfort of their homes. The revenue and EBITDA loss of ZEE5 for the quarter was INR 1.2 billion and INR 1.8 billion, respectively. Zee Studios, our movie production and distribution arm, took the lead in the efforts to normalize movie-going habits. Our Hindi movies, Suraj Pe Mangal Bhari and Telugu movie Solo were the first to hit the cinema theaters since lockdown in the respective markets. Zee Music Company added over 5 million subscribers during the quarter and continues to be the second most subscribed Indian music channel on YouTube. The label witnessed a 50% growth in video views on a year-over-year basis. Now coming to the financial performance. Before I get into the details, I'd like to call out 2 things that you would have seen in the financials. This quarter, we have struck a content syndication deal worth at least INR 5.5 billion, which has led to an extraordinary jump in the other sales and services revenue. Inventory was INR 4.7 billion, associated with this transaction has been charged to our profit and loss account, leading to a spike in our operating cost. Other aspect is that due to internal restructuring of business, a part of our music subscription income will now be reported as part of the international business from this quarter onwards, which will explain the jump in the subscription revenue. I will talk about the financial performance, excluding the impact of these 2. The revenue for the quarter grew by 6%, a sharp improvement from 19% decline that was seen in the last quarter. Like I have said earlier, advertising and domestic market saw a strong rebound, which led to a 7.5% growth year-on-year. Domestic subscription revenue saw a like-to-like growth of 9.3% year-on-year, which is driven by both ZEE5 and the television network and partially helped by a lower base. Like we had mentioned in the last quarter, due to the lingering uncertainty on NTO 2.0, our subscription growth this fiscal will be lesser than what we have delivered historically. Comparable programming cost for the quarter grew 11%, led by higher spends of ZEE5 and the new television channels. As ZEE5 video views grow, it will also lead to higher technology costs, which is part of our program. Underlying EBITDA for the quarter stood at INR 6.4 billion, and margin was 29.3%, an improvement of 635 basis points sequentially. The cash and treasury investments for the company were INR 18.2 billion as of December, 31 2020, which includes bank balance of INR 3.9 billion, fixed deposits of INR 6.5 billion, mutual fund investments of INR 7.3 billion and NCDs worth INR 505 million. That is it from my end on the overall quarter performance front. Back to you, Bijal.
Yes. Hi, [Denise]. We can start Q&A.
[Operator Instructions] The first question is from the line of Abneesh from Edelweiss.
Congrats Punit and team on the excellent numbers and higher disclosure levels. My first question is on the syndicate revenues jumping sharply. Could you tell us which geography, which client, why suddenly now, what was thought process? And can we see more such deals in the coming quarters. Was this largely because of the better inventory you wanted to utilize? Was that the key to this?
Abneesh, this was actually not specific to any 1 particular geography, it was spread across international markets. A large part of it was emerging from the fact the markets that we want to exit, case in point being Germany, some markets in the Spanish-speaking region that we want to exit in the future. And just a deal that fructified in this quarter. It was something that we have been pursuing from pre COVID time, but it just happened in the last quarter. Hopefully, we would love to find such deals every quarter. But as you can imagine, they are far and few.
Right. Second question is on movie production, extremely risky business versus your core business. Now you want to scale up significantly, which you have mentioned earlier also. So my question is, do you want to be a big box office player or the strategy will need to more apply good quality content to your own networks? I'm asking this also, because of the experience or learning from last 2 movies, either on the box office or on your own OTT, Suraj Pe Mangal Bhari and the other one in terms of the Khaali Peeli. So -- because in the past, you have seen other movies production companies also struggle a lot. It's a extremely risky business. So what kind of outlay and margins, if you could give us some sense on FY '22 on this part of the business?
Yes. So we will want to play the holistic film business game, Abneesh, as I talked about in our opening remarks that we are targeting the time and the entertainment share of the consumer. And movies do form a significant part of the share for the consumers in our country. And therefore, we will play the holistic game of box office as well as it being a feeder of content into our own ecosystem of -- both or all 3 segments of digital, broadcast as well as the music business. Obviously, it will be a low-margin business compared to our traditional core business of television. But we do believe that the portfolio and the approach towards selection of the films, we can make it sustainably profitable for us in the long term, and including in the fiscal '22 itself.
And anything on outlay and impact on the profitability, any sense on that?
Well, as I said, it will be a lower-margin business compared to our television thing. I don't think specific guidance we are giving right now on that. But we will be giving you overall guidance, as I mentioned, by the end of quarter 4 on the overall business, which will factor in this low-margin impact of the movie business.
Right. And last question on advertising, normally, you give a feel of the outlook. Now we have seen economy rebound far higher than initial expectation. Still, some sectors are lagging. For example, travel, hospitality, et cetera, are still lagging. So if you could give us some sense on that part of the lagging sectors. And overall, how are you getting the feel? Is this more of a temporary shoot up in the economy and that's why advertising -- or do you see FY '22, irrespective of the base, base is extremely favorable. But when you see on a 2-year basis, you see FY '22 being a extremely strong year in terms of advertising?
So, Abneesh, also, at the end of quarter 3, as is the festive quarter, so that part also plays a role in the growth that you've seen. As I said, we are near normalcy. We are not back to the normal situation. So quarter 4 should be better. And definitely, in FY '22, we'll see growth for the industry overall. But whether it will be back to the normal 10%, 11% number or not, it's still very hard to say. We are yet to see this quarter before we can guide for the next financial year fully.
The next question is from the line of Sanjesh Jain from ICICI Securities.
First on the core business, and the television advertisement side, how was been the mix between volume and value? Are we in terms of pricing per [indiscernible] in our core GEC portfolio back to pre-COVID level? Or we still have an headroom in terms growth pricing -- net growth in the advertisement?
Yes. Sanjesh, so compared to 1Q and 2Q, we are seeing significant improvement at both the places in pricing as well as inventory utilization. And it was a festive quarter, so -- I mean pricing was good. But that said, we continue to see possibility of improving prices further. Specifically 80% to 85% of [indiscernible] particular year comes primarily from prices because inventory are fixed. So sales from the impact of COVID, we typically run at 90% to 95% on all the key channel during prime time. So largely, our growth is always driven by pricing. And in the coming years, well, Punit is saying that we'll -- the industry and us will most likely have a very strong growth, that will be largely driven by pricing again.
So are we back to pre-COVID level as in are we back to last year pricing? Or there's still a gap between the -- last year pricing to this year pricing?
Yes, there is -- depending upon channel to channel, but yes, pretty much close to that. Or some of the channels, it would higher that than; some of the channels, lower than that. Also, viewership has a role to play in what exact price you get. But it is in that ballpark
Got it. Got it. Second, on the ZEE5 portfolio, now that we are one of the probably leading OTT player in terms of releasing original content, which Punit rightly highlighted. You have released more than 200 originals. But in terms of subscriber addition or a movement from MAU to DAU, it still looks like we are lagging in terms of converting the monthly active users to daily active users. And in terms of revenue growth again, considering that there is a revival in the advertisement, I think, on the digital side, we also got the advertising revenue date. The quarter-over-quarter growth still does not look that exciting in the ZEE5.
So I think one of the things on ZEE5 was that we lost based on was the fact that when we had no original content, because our MAUs are driven from these television content that we put onto the platform. So that had shrunk the funnel for us in a big way in the initial period of quarter 1 itself. And we've been building the base back from that period onwards. Obviously it's far more stable now, as you saw the numbers of the last 2 quarters. And hopefully from this quarter onwards, monetization will also start improving.On the subscriber side, we have had, again, stand out with multiple operators given the fact that a key property came only in the third quarter of this fiscal, and therefore we had to get off some platforms for commercial reasons. So that's a battle that continues to go on, Sanjesh. And it's something that we continue to fight going forward as well.
Just one last question from my side, a follow up on this. Can you give some color how was the underlying growth in the paying subscriber customer in the portfolio?
Your talk -- sorry, can you repeat your question?
How has been the trend in the subscribers who pay as in subscription-based subscribers? We know, we don't [indiscernible] the number, but you can a color [indiscernible]
Yes, it is pretty much in line with the revenue growth, which you have seen during the quarter. So it is -- I mean, the mix of revenue between add-on subscriptions [indiscernible] hasn't changed much. And subscriber growth also has been in line with the revenue growth which we have seen during the year.
Okay. I was just asking because we had ran a promotional offer, I think, in the peak Q2 to add a subscriber at 699 a year. So I was just trying to understand, has it affected a lot more customer? Because revenue may not have come, but customer may have grown faster.
Sanjesh, I mean, there are continuously some scheme or the other scheme and you would see that from us also, you would see that from others also. So it is overall part of -- I mean, annual plan, which we build. So nothing very different we have done. Of course, we have run a few in -- but there would have been something else in some other quarter.
The next question is from the line of Yogesh Kirve from B&K Securities.
Yes. So regarding the investment -- the content investment phase you are talking of from FY '22 onwards. So just a clarification. So will it be within the guidance on the free cash, the cash flow conversion that we talked -- use to talk about earlier, roughly 5% cash flow from operations with PAT conversion. So in that stage or that could -- we also see some revision?
Yes. So Yogesh, as Punit pointed out, that we are -- we would be increasing our investment across 3 businesses. And as we increase our investment, there will be an impact on all the aspects, working capital as well as cash flow and the margin. Still, we have not absolutely finalized the plan. There are certain things which is WIP right now. And that is the reason why we mentioned that during the fourth quarter, we'll give you the granular guidance on all the 3 line items. So at this point of time, we'll not be in position to give -- guide you exactly, but guidance for FY '22 will be available in 4Q FY '21 call.
Okay. Sure. So regarding second question. So if you look at the television subscription revenues, I understand there are a lot of sort of uncertainties at the moment. But on a medium-term perspective, what are our growth expectations? And what are the key drivers of that? I understand that taking plain vanilla price hikes might be little more challenging than in the past. So what could be the drivers? Is it like a HD conversion or any other factors that could drive it?
If the regulation stabilizes and things become normal in a stable situation, low-teens to mid-teens kind of expectation is set, which is both on account of pricing as well as discovery of subscribers that may not be paying currently.
Okay. Just sort of on broad [indiscernible] what could be the subscriber growth expectations linked into that number that you just spoke about?
Yes. See, as Punit also mentioned during the opening remarks, that there are 100 million homes that are yet to get their television set itself. So we continue to see at least 2% to 4% increase, depending upon the year in household -- I mean, television household population. So that is one growth driver. After that, some conversion to HD, some up-selling, there are other drivers. We continue to add more channels to our portfolio, that also enables us to take price hike, which is not plain-vanilla price hike, but that is a price hike on account of the fact that we are offering more content. So all this put together, low to mid-teens kind of revenue growth can be driven if the policy environment is stable.
Okay. Sure. And just finally a data point. So there were certain sale of overseas mutual fund, that was pending in the last quarter. So has that happened during the quarter?
Yes, that has been received.
The next question is from the line of Arun Prasath from Spark Capital.
So my question is on -- more on -- sorry I got in -- disconnected in the beginning, if it is a repeat question. When is that your...
[Operator Instructions]
Yes, so I hope now it is all right. Okay. So my question is on ZEE5 DAUs. So daily active users has been more or less stable around 5 million to 6 million for last many quarters. So I just wanted to understand what would be your medium-term targets in terms of this metric? What is your expectation from this platform? And to achieve the target, what are the strategies we have in place apart from increasing spends on the content?
MAU to DAU conversion is still going to be focused largely from catch-up TV for us, Arun. So we are not really going to be investing capital behind MAU to DAU conversions. Our expectations on the investments will be largely on the original content and the movie content that we'll build for the subscription acquisitions. Our conversion rate from MAU to DAU, we would be targeting in the mid-term around 15% to 18%, let's say, by end of the next fiscal. That will be a industry benchmark that we should be looking at.
Okay. But even within that, you see the average time spent, this is still lagging behind most of your peers with a similar content or the subscription rates. Is there any particular reason for this, some kind of lagging behind the peers?
The fact, Arun, that -- because I said earlier, it is catch-up TV and some of the key shows may not be performing as well on television. So that same effect is seen on OTT as well. So as and when you have more hit shows on television, the catch up consumption also gets drive up. So it's a kind of a same situation that is impacting both the linear business and the [indiscernible] business.
The next question is from the line of Kunal Vora from BNP Paribas.
On the new strategy, you mentioned that with that, there could be some pressure on margins. Would you also see an acceleration of revenue growth? And would that happen in FY '22? Or it will be back-ended? And is it fair to assume that the 30% margin you have earlier guided to will not come through? But will the sales be higher to offset the impact, and does the EBITDA growth should be strong -- I mean, I understand that you're going to give more color next quarter, but anything which you can share here will be good.
Certainly, we will not be able to deliver on the 30% EBITDA margin guideline, given the fact that the full-fledged growth level, even we can't predict right now for fiscal year '22. So we have to wait and watch and only talk more granular in the next quarter. But I do expect some impact on margins to happen.
But would there be an impact on sales as well or sales impact would be better?
So Kunal, definitely, as we are spending more money, there will be incremental sales. But I mean in many of the business like digital and also to an extent, in television, we'll first have to make investment and typically revenues followed in due course of time. So there will be definitely immediate impact on sales, which will be positive. But full impact of the investment which we are making would be visible over a period of time. So as Punit mentioned during the opening remarks, that in FY -- around 10 years back, around FY '12 we were making investment, near-term has actually impacted margins; but over next several years, it helped us grow much ahead of industry. So that's the broad thesis with which we are in. So initially, it will have an impact on margin; and later years, we will benefit on account of that.
Understood. Second one on content syndication deal, has the cash already been collected? Or is it reflecting in the balance sheet as I see that receivables have increased.
No, the cash has been received.
Okay. So in that case, the receivables has increased. Any reason for that, further increase in receivables?
Yes. Firstly, there is more sales in quarter 3 itself, so receivables would go up on that account. Secondly, there is a whole amount of incentive, which needs to be paid out on account of distribution, that is sitting in our liability, were still reflecting in our receivables as well. So it's apples-to-apples comparison from that perspective.
Understood. Understood. Understood. And lastly, post the pandemic, have you seen any changes in content costs, as there could be demand-supply mismatch as various broadcasters look to strengthen their content slate, while production might not be fully back? Similarly on movies, the -- have the prices changed compared to pre pandemic level?
So on the content cost for television, there has not been any change because on the cost per hour basis, things are pretty much stable. Because there is still ample supply available for content for television side. On the movie side, costs had gone up even pre COVID levels, with the advent of digital. But on the other side, for television, the content cost has come down on the film side. So it's kind of even -- evening out itself. But collectively, still the costs are higher on the film side in the short term, especially in the Hindi market. The impact is not as extreme in the regional market as you'll see in Hindi.
[Operator Instructions] The next question is from the line of Ankit Kedia from PhillipCapital.
Sir, just wanted to ask on the advertiser confidence on the BARC rating now post what we have seen in the press, while the court case going on the BARC rating, what's your thoughts on that? And how are the advertise...
So I will answer this as my current position, not as the other position. I think the BARC ratings impact largely the news genre and not so much the genre that we operate in, which is entertainment. As you can see, the ratings for the entertainment channels has been coming out as usual, and there is no change whatsoever to that. Therefore, I see no reason for any doubt in the mind of advertisers for the BARC rating system for the other entertainment channel. And the total impacted viewership that we are talking about is 7% of the viewership of this country, which is the entire new genre put together. Was that clear? Hello? You can take the next one.
The next question is from the line of Pratik Rangnekar from Crédit Suisse.
One quick question from my side on advertising. Sir, we've seen a very sharp pickup in the advertising run rate from minus 26% last quarter to 7.5% growth this quarter. Just wanted to understand, are there any particular sectors or segments that you're seeing growth in? Or -- and are there any particular segments which are yet to grow here? And what was the -- if you could provide your estimate on what was the industry advertising growth this quarter?
Bijal?
Yes. Pratik, overall, we are seeing growth across the sector. I mean I'm not sure you are asking Y-o-Y or relative to previous quarter. Compared to previous quarter, there is growth across the sector. If I look at compared to last year also, there is maybe growth across most of the sector. Auto has done pretty well as compared to what it was during last year. And FMCG continues to drive the bulk of increase in expense in the industry. At industry level, growth was minus 2, is our estimate, and that is excluding impact of IPLs. I am talking only about entertainment, where growth would have been close to minus 2% for the industry.
So any particular sector where would you think on a Y-o-Y basis is yet to pick up? I mean, I understand you said FMCG and auto have done well. Is there any sector which is yet to pick up?
FMCG itself is a very, very large sector. And auto was also doing pretty well. Then we saw good growth in e-commerce also. Consumer durable was also doing pretty well. So -- I mean, there might be a few sectors which have not have done so well Y-o-Y, but they are not really that large, but it will change overall growth of the industry.
My next question is on the content inventory pie chart that you guys provide. So on a quarter-on-quarter basis, we see that your shows and content advances have come down in terms -- in absolute terms. So is it that the syndication that was done has gone from shows and content advances?
Yes. So as Punit mentioned that -- I mean, the content relates to lot of international market, where we shut down or we are thinking of shutting down. So though, I mean, there were inventory in those market, so there still be talked about Germany. I mean there was lot of inventory. This was kind of dubbed in German language. And that is of no use because we have shut the channel. So many such content pieces have gone out of shows and -- so that's why you have seen that decline. And advances is normal. So this advances work for content. So on delivery of content, that advances moves into inventory. So that normal transition from inventory -- sorry, advances to inventory has happened during the quarter.
Okay. Fair. Sir, just one last question. Last quarter, you had mentioned content advances at around INR 400 crores. Is that number -- can you provide that number this quarter? What is the number now?
Look, content advances is around 14% of the 56.5 billion. And what you are referring to is the content deposit which we had paid and which were later on converted into advances, which were at around INR 4 billion, they are now around INR 3.6 billion. Total content advance is somewhere around -- just give me 1 second, I'll tell you. INR 7.6 billion.
The next question is from the line of Jigar Mistry from Buoyant Capital.
It was a little bit of a clarification from my end. So if you look at the prep note 8 on the accounts, the content monetization, would it be fair to assume that if I back calculate the cash from operation, pave for that content advances, it would have been a negative cash flow for operations? And if at all, can you give some more color on who actually purchased this content? And how one should look at it?
So Jigar, I mean, mathematically, that is correct. We received INR 5.5 billion on account of sale of this content and that money has been received. During the quarter, we have seen a significant investment in working capital, which was on account of the fact that revenues were going up. So we've seen working capital release in probably earlier quarter, and now we are seeing that as going up. That is on account of the fact that there was a decline in revenue and now there is an increase in revenues. So working capital release, which were happened during the first half, has got results. Secondly, there is also -- I mean, first half, if you remember, I mean, there was hardly any content which was produced. And content production itself had come to kind of standstill. So we have actually lost a lot of, I mean, almost like 6 months, so we have actually ramped up content production also. So that is also one of the reasons why we have seen some increase in working capital. And so overall, there is some negative free cash flow during the quarter on account of this reason.
Understood. And more color on like who actually helped monetize this content?
This is again our aggregator who does content across markets in the international thing that has taken the content from us.
The next question is from the line of Rakesh Jhunjhunwala from Rare Enterprises.
Yes. Congrats on a fine performance. My first question is that traditionally the IPL has held in the first quarter. And this time, part -- the last part of the IPL was in the third quarter. So how much of the advertisement affected because of the IPL being in the third quarter?
Sir, part of it would have impacted us, but it also helps us in a way because the way IPL sells advertising, it is category exclusivity. So all the competitors or the people who buy IPL actually for share of voice go to competition. And so it also helps us in one way. And therefore, while it had some impact, but also some help to us.Overall, from the industry point of view, IPL from quarter 3 would have taken away, both on TV and digital put together about, correct me if I'm wrong, INR 1,400 crores of advertising.
And what was the total revenue of advertising, digital and TV?
For both is about INR 2,000 crores.
No, total industry-wide revenue?
Industry-wide revenue for quarter 3 -- just give me a second. About INR 8,000-plus crores.
So that means about 15% -- 14% to 15% of the revenue, which in every quarter wouldn't go to IPL then this time?
That's right.
And extent you're affected -- everybody is affected to the extent of 10% to 12%.
That's right.
Second question is, Sir, you have economic growth, which, in the third quarter, was, say, a breakeven level? Now there are predictions of 15% to 16% nominal GDP growth next year. So how can the advertising not go up, you tell me? When the delta is so high in the economic growth from nearly nil to 15%, and after all advertising is a product of the total growth in the economy. So I don't understand that. How can there not be a substantial increase in advertising revenue next year if the GDP growth is at 15%. I mean, the GDP growth is at 15%, revenue of the advertising should grow by at least 20%, 25%.
Jhunjhunwala, you're right. It should grow by that amount, but you see that will be the advertising growth for the entire industry overall.
Yes. So you are part of that industry. You may gain some market share, you may lose some market share. But if the industry grows at 20%, I mean, there should be substantial and your marginal costs are very few. So it will reflect in higher rates. So I mean in my personal opinion, your profitability should show far greater growth. And I don't understand your hesitation in saying that.
Sir, give me a minute to try and explain to you. See, there are certain parts of the industry, which we don't play. For example, in the digital side, which is not related to video, which is a large part of the industry today, which is -- search and display advertising. So we have no role to play in that part. And that part also grows significantly higher...
No, no. But Punit, I understand that. But how much percentage of search and the other part in which you are not there is a [indiscernible] in the revenue? It will be 10% of total advertising revenue. So you may grow at -- if the industry grows at 20%, you may grow at 15% because you don't participate there. I mean, I do understand. If the advertise -- if the economy is to grow at 15%, 16% nominal, then how advertising growth can less than 20%? So you're not in those segments today, no? So your segments should also grow 20%. You're not there in those segments even today.
I pray sir that your [Foreign Language] comes true, sir.
No, my [Foreign Language] is based on certain facts. I mean, if growth tapers off, I could be wrong. I don't think if the growth comes at 15%, 16% nominal, advertising growth in your segments can be less than 16% to 20%. And as companies prosper more and compete more, they tend to advertise more.
Sure, sir. Also we are coming from a lower base. So yes, the number should be higher.
Right. And your marginal profitability should be very high, no? Because your content cost doesn't go up with the advertising revenues.
That depends, sir. It will go up because of the other sectors. Television profitability, absolutely, you're right, will go up because the cost will not go up in that same proportion. But the investment in other pockets of our business will impact profits.
That you may invest [indiscernible] the advertising is the bulk of your revenue, no?
Correct, correct.
So advertising should be 75%, 80% of the revenue.
No, its about 65%, Sir.
Sir, 65 is 2/3, boss. So 1/3 may not gain, but 2/3 you will gain, no? And there, the marginal profitability is very high. I mean, to my mind, I can be totally wrong, but this kind of delta in economic growth, all people whose businesses are high fixed-cost base should become very, very profitable here.
Sure, Sir. Sure.
So I thought it will be better if you -- when I don't know, let's see, time will bear us out.
Sure, Sir. We'll see how it plays out. But I can assure you, if industry grows at whatever place, we'll beat that place.
So I like that attitude. Okay. Thank you and once again perform -- congrats on a good performance. And you're going to make some changes in your Board of Directors. So when can we expect that to be done?
We've already brought 2 new directors onto our Board that we announced last quarter itself.
Are you contemplating any further changes?
Not till we have any retirements coming up, Sir.
The next question is from the line of Vikrant Kashyap from Kedia Securities.
Congrats on a good set of numbers. I have just one question. Can you please share update on our investment in SugarBox?
Bijal?
So I mean -- so far, as far as our investments are concerned, you are talking about that we will -- we will discuss with railways. Because of COVID, there has been an impact. So post our discussion, what we've seen is that we will start our CapEx primarily in 1Q of FY '22 and entire rollout of the project will happen over the next 3 years. And so you will start seeing the CapEx for the project from the next fiscal.
Okay. So when we are continuing with the CapEx from next year onwards, when SugarBox will start generating revenue for our company? And what's our outlook for SugarBox for next 5 years?
SugarBox already generates [indiscernible] right now. And the outlook for SugarBox as per the projection is that within [indiscernible] year of operation, it turns cash flow positive for us.
The next question is from the line of Naval from Emkay Global
I have 2, 3 questions. First is on CapEx and margin guidance. Punit, if you can share that for FY '22 because we are now heading for normalized scenario as ad growth has bounced back, and would be improving in the ensuing quarters.
For CapEx, Bijal, you want to just take?
Yes, so CapEx for the coming year you are talking about?
Yes, '22.
Yes, so there is nothing very special in the next year. There might be some increase in CapEx in the development of ZEE5 is there, but nothing really very large as compared to our regular CapEx of INR 2 billion to INR 2.5 billion in a normal year.
I missed out on that? ZEE5 development of...
Yes. So I mean, we are spending some on 2 things, one is improving consumer experience and another is [indiscernible] So on this, there might be some incremental CapEx in the coming year, but nothing very, very large to scale overall outlook for the CapEx. Typically, in a normal year, we end up spending INR 2 billion to INR 2.5 billion, should be in that vicinity.
And on margin guidance?
Margin guidance, now it's still early for us to give that. As Bijal talked about and I also said in my opening remarks, that we are in the midst of our finalization of our plans for financial year '22, but it will certainly not be as per the guidance we have given of 30% in the past. But we'll come back to you with more granular details by the end of the year.
Okay. And on the other operating income, as we had large syndication revenues. So can you provide some details of how much of content was sold, bought from where? I mean, some details on that, because that number seems to be quite large.
So it is around -- the number is given in the earnings release. It is around INR 4.7 billion of content, that is the book value of the content. And that is mix of some content being bought, but large part of that, we've developed internally or developed by us. And that content being sold to our content aggregators. So it is not something which we bought and we traded in. So it has been there in our balance sheet for a while. And as we thought that this content may not be so much useful for us given our change priorities in international market, we decided to put it on blocks and we found a buyer and we sold it.
Understood. And how would have cash flow change adjusting for this? Because if I am correct that your receivable increase would also have a bigger chunk arising from this sale as well on sequential basis, if I look at it.
No. No. As we mentioned, that entire money with respect to the sale of INR 5.5 billion have been received. So there is no increase in debt on account of that. Debt has increased as I explained to one of the earlier participants, is all account of the fact that -- see, we get seen capital release -- working capital release in one half, where we have seen almost like in first quarter, 60% kind of decline in ad revenue. In the second quarter, there was another 25% plus decline in ad revenue. So that is the time working capital got released. Now as our revenues are coming back to the normalcy, the working capital increase. Now and also on the subscription side, if you see, typically, what happens is that through the year, we see subscription receivables going up. And towards the end of the year, we see subscription receivables going down because there are some of the negotiations which are going on. And til the time negotiations are not fully over, many times, there are delay in payments. So that is normal cycle. You would have even in past see that our receivable on account of subscription goes up during 2Q and 3Q and normalizes in 4Q. So that is the reason why we have seen an increase in working capital.
Understood. And apologies for being repetitive, I missed out on the initial remarks, I joined call late. And wish you all the best for the quarters.
That's the next question is from the line of Alankar Garude from Macquarie.
Congrats on a good performance. My first question is on the advertising revenues. So broadly, Punit and Bijal, in your conversations with advertisers, how are they thinking about 2021? Because what we hear in the market is that after the -- even after the festive season or this time around in December, especially, there was a significant increase in the advertising activity. So are you seeing that momentum continue? And then secondly, because now IPL will come back again in the next few months, does that really change how advertisers are looking on the -- about advertising on the entertainment side?
No. I think the buoyancy on advertising still remains intact. Of course, the natural lag of quarter 4 will play out because quarter 3 being festive season, will see the maximum peak. But year-on-year, there should still be growth in the fourth quarter of the current fiscal. And how IPL will impact, as as I said, again, IPL is part of our life. Nothing that impact -- the industry is also factored in that this event is going to happen every year. And therefore, there should not be any -- people will be planning around that for their advertising spend from that perspective. So I don't see that having an impact on the industry overall. So that INR 2,000 crores that has to be spent on IPL will get spent on IPL. And the rest of the industry will get whatever else is to be spent on.
Understood. And secondly, Punit, I'm sorry if you already answered this question. Can you comment on the outlook for subscription revenues, especially because we haven't seen any progress on the tariff order front.
Sir, without the clarity on the tariff order front, it's very difficult to give any outlook. Right now, it is going to be status quo. And until that regulatory issue doesn't get resolved, we are unable to take any price hikes or anything. So it's pretty much going to be status quo until that is resolved. Once that is resolved and stability resumes, let's say in a quarter or 2 close to be getting resolved, as I mentioned that, early teens to mid-teens kind of growth can be expected from the subscription side.
We take the last 2 questions now. The next question is from the line of Rohit Prakash from Marshmallow Capital
So my first question is on ZEE5. I mean, in my research, I noticed that there has been quite a sort of attrition at the in ZEE5 at various levels. So is that affecting the performance in terms of conversions and number additions as well?
So firstly, the attrition is planned attrition. So yes it would be impacting some amount of operations on a day to day, but that's very short term.
So has the team entirely stabilized right now?
Yes. Now the team that is in place is completely stabilized.
Great. So that's great to know. Sir, second question is on board composition. So it was very interesting to see the profile of the board members that the company has added over the last 1, 1.5 years. But one profile that I, at least, from my view, I find lacking is that given the move towards tech in general in media, we do not have anybody who's -- it doesn't seems like we have anybody who's globally or nationally renowned for his or her tech expertise. So given ZEE5 is a major part and SugarBox is also a part of our growth strategy, should we not look at plugging that gap?
Yes, Rohit. I think we should look at Mr. Mirchandani's profile. He has been investing in tech companies for the last 15 years, and runs a fund out of Mumbai. It may not be a very large fund on the lines of Sequoia or Softbank or anything. But as an individual, his capabilities and understanding of the tech world is far greater than anybody else. And that's the reason he was brought on the Board. And we can share his profile with you. No problem.
We take the last question from the line of Mayur Gathani from OHM Group.
Sir, couple of questions. There was some overseas funds that were due to come in this quarter. Have they come in or?
Yes, they have been duly received.
So all the funds, that is around INR 225 crores has been duly received?
That's correct.
And how is receivable positions from the group companies like DISH and SITI. Is SITI still paying you because you've taken a write-off in quarter 2. So where do we stand on that?
Bijal?
Yes. So we are aware that in the last quarter, we actually moved this SITI Cable to cash and carry model, and that cash and carry model continues. So they pay for the content which they buy, and accordingly, there is no outstanding at this point as far as SITI is concerned, which is not provided for. As far as DISH TV is concerned, DISH TV continues to make payment at per payment plan, which were submitted. And as per that -- I mean, basically, CITI Cable receivable has come down. So it was around INR 5 billion received last quarter, which has come down to INR 4.6 billion at the end of this quarter.
And [indiscernible] will we have the DISH TV receivables coming down to normal on cash and carry basis [indiscernible]
Sorry, sorry. DISH TV, I'm talking about. So DISH TV has been paying us per plan. And DISH TV's receivables came down from INR 5 billion to INR 4.6 billion during this quarter. As far as SITI cable is concerned, there is no outstanding which is not provided for. So SITI continues to pay on cash and carry basis.
And basically, return back to normal situation by September of this year.
So by September, that you were expecting them to pay the INR 460 crores, that's the balance outstanding -- previous outstanding?
[indiscernible] period of 3 to 4 months, that will remain -- which is normally the credit period allowed for any...
Right. So, majority of that will come back, too?
That's correct.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Bijal Shah for closing comments.
Thank you everyone for [indiscernible] Should you have further queries, please feel free to reach out to Investor Relations team. Thank you.
Thank you very much. On behalf of Zee Entertainment Enterprises Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.