Zee Entertainment Q4FY21 Conference Call Highlights

Q4 Financial Highlights:

• Revenues and operations were significantly impacted during the first half of the financial year. However, the second half witnessed a sharp recovery with the advertisement revenue growth rising close to double digits. Due to consequent lockdown advertising revenue in the first quarter of FY22 will be impacted to some extent.
• Consolidated revenue stood at Rs.19.7bn, stable yoy and 28% down QoQ.
• Ad revenue increased 8% YoY to Rs.11.2 bn. Subscription revenues stood at Rs.8bn, up 8.4% yoy. 
• EBITDA for the quarter was Rs 5.4bn with a margin of 27.5%.
• Net profit stood at Rs.2.8bn vs. a loss of Rs.7.7bn in Q4FY20.

FY21 Financial Highlights:

• The first half saw domestic advertising revenue decline by 46%, the second half grew by 8.2%, resulting in a full-year decline of 20%.
• Subscription revenue grew by 12.3% in FY to Rs.32.4 bn.
• The EBITDA for the year was 17.9bn, with a margin of 23.2%.
• Net profit stood at Rs.8bn vs. Rs.5.2bn in FY20
• The cash and treasury investments for the Company were 18.8 bn as of March 31 which includes a bank balance of 7.5bn, fixed deposits of 3.4bn, mutual fund investments of 7.4bn, and NCDs worth 505mn.
• Trade receivables dipped to Rs, 19.5bn from Rs.24.8bn and Rs.21.3bn at Q3FY21-end and FY20, respectively.
• Free cash flow for FY21 stood at Rs.13.4bn vs. Rs.681mn in FY20.

International Operations:

• Total international revenue stood at Rs1.2bn vs. Rs2bn in Q4FY20. 
• Ad revenues continued to be in the red and declined 6.1% yoy.
• International subscription revenues saw 31.5% yoy slump to Rs.553mn. 
• The drop in international subscription revenues is primarily on account of some accounting. From this quarter the company has started recognition of subscription revenues net of certain costs associated with the earning of the same.

Operation Metrics:

• Television network improved its all India viewership share by 70bps to 18.9% and continued to be India’s #2 TV entertainment network.
• The new channels which had launched around 4 quarters ago have already established strong positions in their respective markets.
• ZEE5 global MAUs and DAUs for March were 72.6 million and 6.1 million respectively. 
• ZEE5 released 14 original shows and movies. Over the last 12 months, despite the pandemic halting production for around 3 months, ZEE5 has released 75+ original shows and movies.
• Zee Music Company continued to be the second most subscribed Indian music channel on Youtube and the label witnessed a 50% growth in Youtube video views on a YoY basis.

25% EBITDA for next two years:

• The management indicated that they are planning to increase content investments in both broadcasting and digital in FY22.
• The management also indicated that due to NTO 2.0, they had lost opportunities to realign the pricing of their channels, which would result in subdued subscription revenues. NTO 2.0 order is still not out of legal hurdles and broadcasters are in constant touch with the regulators to keep it moving.
• On account of the same, the company guided for a 25% EBITDA margin for the next two years vs. 30% guided earlier.

Zee5 revenue dips on pending telco deal: 

• The 8.7% QoQ drop in Zee5 revenues was due to the non-renewal of a couple of telco deals. They indicated that negotiations are on and expect the deal to conclude in Q1FY22. 
• The company also indicated that MAUs and DAUs, which they report every quarter, largely come from their subscription plans and telco bundled deals do not contribute much. 
• The company also indicated that losses at the EBITDA level for Zee5 in FY22 would be in a similar line to that of FY21.

Investment Plans:

• The company is focusing on broadcast and digital business.
• For the broadcast business, the company wants to achieve a clear leadership position with an ambition to be India’s 1st network. This will be achieved through a blend of enhanced content offering, a broader channel portfolio, and an increase in original programming. In the short term, the company’s focus is to raise the network share in the Hindi General Entertainment genre and to recover losses that were incurred in some of the regional markets.
• For the digital business - ZEE5, the company’s primary focus will be maintained on two aspects in the coming years.

1. Increasing the value proposition of ZEE5 will be achieved through a combination of compelling content and competitive pricing. The company is in the process of creating a very strong line-up of movies and digital originals. As a part of this strategy, ZEE5 released its first mega movie ‘Radhe’. The company has reduced the price-point of our annual pack to Rs. 499. This approach will help in reducing the customer churn and is in line with a long-term strategy of an increasing share of B2C subscribers.

2. To work on enhancing the user experience. The company has drawn up a technology and product roadmap, to upgrade this digital platform to the next level.

• Zee is in the process of ramping up the movie production business. The primary objective of scaling up this business is to realize synergies across television, digital, movie distribution, and music publishing businesses. The strategy of co-producing movies with renowned filmmakers allows the company to build a strong movie catalog that can be monetized across the different businesses.
• The company is re-evaluating its investment in SugarBox and will be scaling it down in the foreseeable future.
• Zee is targeting free cash generation of around 50% of profit after tax.

Covid 19 Impact:

• The business had seen a sharp rebound in the third quarter and that recovery continued in the fourth quarter as well as things on the ground became close to normal. This is also visible in ad growth numbers where Zee has seen 9% growth on a YoY.
• Demand from advertisers has softened a bit during the current quarter as lockdowns have come into effect.
• The company is confident that as soon as the restrictions ease, the company will see a rebound as they had seen last year.
• The company has spent more on content on account of change of shoot locations, maintaining bio-bubble, and taking other safety precautions.

Receivables:

• Zee has collected overdue of more than Rs.2bn from Dish. By FY22, it will be in line with other subscriber debtors. On Siti, it remains on a cash-and-carry model.

Other Updates:

• The company will maintain the current policy of distributing 30% of PAT as dividends.
• The company will be increasing original hours to reach optimum levels in some of the genres.