Saregama India Limited analyst Q&A

Thank you so much so much. We will now begin the question -and-answer session. The first question is from the line of Aditya Nahar from Alpna Enterprises. Please go ahead.

Just for my understanding. We have bought 52% for the amount mentioned and the remaining is on the basis of certain benchmark goals correct?

That’s correct Nahar.

And the fund for this has been from the QIP?

We will be closing the transaction shortly and we will be acquiring close to 52%. Within next 15 to 18 months our acquisition will be close to 92%. And yes, you are right, the QIP funds will be used for this inorganic acquisition.

So, with Digidrive the good part is, the shares have been credited to the Demat accounts. We’ve received approval from both the stock exchanges. We are in the process of getting the final clearances from SEBI, which we expect should be completed in about two to three weeks. And our endeavor is to get the listing as soon as possible.

Great. And sorry, Vikram my last question to you is, this is an open-ended question, any thoughts on the Taylor Swift controversy of she recording her old songs again, with licenses being renegotiated with newer artists, if you could just talk about that briefly?

So, I’ll not touch that. What I can tell you is the way rights in India are, they are very different from the way rights are procured or secured in the international world. And so in our case, we have both what are called Sound Recording Rights, that means the right to the song that ’s created, as well as the Publishing Rights, which is the right to the composition and the lyrics. That way, we are in a complete ly secure position at this juncture to do recreation of anything that we people want, and nobody else can do it.

Thank you. The next question is from the line of Saketh Mhalotra from Tusk Investment. Please go ahead.

So, I had a question on this Pocket Aces acquisition that you mentioned on the medium-term guidance. This is over what timeframe are we looking at this growth of 27% and 28%?

Anything around three years .

Okay. And secondly, are there any specific synergies with respect to being on the cost side, like, I understand that even Pocket Aces is into production. So, will we be running t wo cost centers or is it going to create some sort of savings do we have any actionable numbers for that to bring our cost down?

On the video side you are right both of us are into the production side and that’s the great part. We are doing more films from Saregama, and we are doing more series work for digital platforms targeted at youth from the Pocket Aces side. There are already projects that have been kick started to start doing benchmarking on both the sides and see that if we people are procuring simple things like lights, or camera work that ’s happening out there, can we start doing combined deals now, which takes care of both , the requirement of both sides of the spectrum and achieve more cost savings . So, yes, there will be cost benefits coming out of that side. The moment I’m talking about are music promotions, a large chunk of our music marketing budgets actually end up going and getting spent right now on various influencers that are active on social media. Now we have access to meet a large number of those influencers through Pocket Aces as they are representing them. So, we will be in a position to go out there and negotiate a far better deal for the same amount of money and get bigger bang for the same buck. So, there are advantages both on the revenue side that will accrue to Pocket Aces and to Saregama also on the cost side.

Thank you. The next question is from the line of Lokesh Manik from Vallum Capital. Please go ahead.

Couple of questions from my end, one was a clarification. In your presentation under music license and monetization, you did mention that strong revenue growth in medium to long term despite short term pressure due to minimum guarantees going on. Clarification was this was solely attributed to the music apps that are going behind the wall, they are going to pay.

It’s only attributed to that.

, okay great. Second was on the live artist management. In the event, let’s say does not work out and the artist is not successful, how is the exit plan then, do we have any liability to carry forward for the next 5, 10 years or the contract period that we get into, how does it work?

So, there are two kinds of artists as we mentioned, the one which are a 360-degree artist, there is a short-term commitment and I’m not going to run away from it. But the numbers are not that huge. And 360-degree play of ours is going to be limited at this juncture only to three artists at best it may become four or five artist s. That real numbers are going to be coming right now where we take the live Events monetization mandate of artists with zero commitment.

Okay, understood. Just a last one, so the growth rate that you have up to 27%, 28%. So, 27%, 28% would be from 2025 onwards just a clarification.

Yes.

Thank you so much. The next question is from the line of Pulkit Cha wla from Emkay Global Financial Services. Please go-ahead sir.

So, Vikram given that now the largest OTT platform has also restricted several features. Do you see that short term pain that you ’re talking about becoming slightly worse in the near term at least. And let’s say that all these platforms tend to be moved behind a pa id wall. Do you see it an impact on piracy also going up because of this issue. Second, as I foresee the payback period is also going up from the current target?

Payback period for music?

Yes.

Okay, so let me answer the second part. No, we are holding on to our guidance of a five-year payback period for music. We ’re not going to differ from that. So, if for whatever reasons, if there is a serious amount of pain in the market that means acquisition costs will have to come down. So, we are not changing our five-year payback guidance. That’s one part here. Let me try to answer your first question, will there be a pain right there?. Yes, there will be pain. The good part is out of the six guys who are all giving free access the movement to pay is happening in a phased fashion. . Three have moved to pay , other three have not moved to pay yet. It’s good news and bad news. I would have loved had everybody moved to pay in a single shot so that we were done with this. But from our commercial perspective, we still have three of the guys who have a large amount of free business that’s going on. If one or two of these guys start deciding to move to pay, yes there will be a serious pain in a quarter or two when it happens. But the jump that you are going to be seeing from free to pay in terms of our revenue is massive. there is a part two to your first question.

Yes. So, do we see an impact of piracy?

So, piracy, it’s a pretty good question. See, I am also chairing the apex body of the music industry in India called IMI, and we are working a lot with the commerce ministry in that space, because we come under DPIIT which is a part of commerce ministry, . We keep on working with the government a lot on various carrot and stick measures that are carried out to take care of piracy. Piracy is declining and if you talk about the Bombays, Delhis and Bangalores of the world, there is literally zero piracy. You will always have those kids who have a way right now to download some of the content on an illegal basis. But those days where music was available on CDs on every street corner , be it Bombay or Delhi are gone. So, what will the customer do ?, In the same part there is cricket sitting behind a paid wall, but people are still going out there and paying for it. The amount of piracy that used to happen earlier is not happening in our country any longer. And this has been the same journey that China has gone through. There was a serious amount of piracy problem there. As technology is evolving and people got used to the flavor of great experience on a streaming app, people are refusing to go back to the old days. So, I don’t see piracy happening at least in all, the tier one, tier two, tier three towns. In the smaller towns they may still be doing. But the good part is , those guys are anyways not on the OTT platforms today.

Thanks, that’s helpful. Just one more thing has there been an increase in the competitive intensity for the new content action?

There are a limited number of players which are sitting on newer content. So, if your question is saying has the pricing gone up substantially, pricing is complete disconnected to the dynamics of what music is doing well. If you have one language with 10 hits coming in a year and all doing pretty well then costing starts going up or some other language takes a beating in that case. So, it is a competitive market. No new guy can ever play this game because they don’t have the catalog to play this with. They don ’t have the number of songs that big labels should release . Among the existing guys we are in a fairly strong position today, which is reflected by the amount of content we are acquiring.

I had three questions. One is that , given that we are going through this transition of free subscriptions to a paid subscriptions, how should we see the music licensing revenues trending in the next let’s say a couple of quarters or so, because I would presume that there could be some pressure over there. And when we are guiding for 27 % to 28% consol idated growth are we expecting the music licensing business to grow at a similar rate or basically how much of that will be coming from music license?

Let me answer the second part first . Music licensing is the largest source of revenue that we have. If we are striving for a 27 % or a 28% growth three years from now onwards, I cannot achieve that growth unless music licensing also fires at the same pace. And I’m reiterating, this does not include the positive kicker, we will get the day everybody goes behind a paid wall. Accordingly, the streaming business alone can grow between 150% to 300% for us. But that will be over and above this. Yet even without that, just the synergy of the two companies will ensure that three years from now you are looking at a 27%, 28% growth with both businesses combined, including the music business.

The other thing was near term revenue trends?

In the near-term things will keep on fluctuating. We will hold on to our numbers of a 22- 23% growth , on the music licensing side . A quarter here and a quarter there might be missed but YouTube comes back and supports this. We are growing our publishing business in a significant fashion which is all about brands We are also trying to grow our public performance business. So, hopefully, we will be able to counter this pressure when I look at the 12-to-24-month horizon where all this transition from free to paid is going to be happening.

Got it. And the second question is with respect to one of the major platforms missing from your PPT with respect to the partners which are working with you. So, can you elaborate on that?

So, all I can say is that this is a natural part of doing business here. If you look at any music label -platform partnership 90% of the labels will have some issue going on with some platform. So, we are in a commercial dialogue with them. The commercials are not matching at that particular time and we will hopefully sort it out. But it’s the usual way of doing business. Somebody will not be there on platform A, somebody will not be on platform B. We just need to go out there on any platform and look at the content we will come to know. The comfort that I want to give you is, that a majority of our deals in these cases are all variable in nature. If a customer does not find Tum Kya Mile, or What Jhumka on a platform A, that person does not start listening to some other song. Instead, the person moves from platform A to platform B. So, I don’t end up having a 100% loss of the revenue . The revenue to a great extent gets made up by some other platform where the revenue starts going up significantly. That notwithstanding, it ’s our intent to get the commercial deals in place with the said platform.

Right. And the third question is on the cost side. So, we have seen a significant sequential dip in some of the major cost items like royalty fee in the, and any other expenses too. So, how should we see them playing out in the near term, given I presume this is a and it has a direct correlation with the fact that music licensing is going through some certain pressures. But how should we see it cost side moving in the near term as well?

On the royalty front the absolute numbers are pretty much stable. Although as a percentage they have been declining and we ’ve explained the reasons why. On the other expenses , we spoke about it the last time when we said that we were addressing one contingent liability and there were some estimated provisions that we were taking, . Hence you saw a small jump last time . That cost has come down. When compared to the last quarter, they are pretty much in the normal state now. So, as we move forward, these fixed cost s as a percentage of revenue will always keep declining. Hope that helps.

Just one clarification, the A &P spent that we have right now of around INR 13 crore for this particular quarter that was completely attributable to the music licensing or does it also include Carvaan and few Films business?

On Carvaan as mentioned we don’t spend on the marketing side . The entire A&P that you see in the P&L consists of all other segments. There were some A&P spends on Events and Films last quarter which are not there this time. A&P spends a lso depend on music, what song gets released, when and w here we promote those song at the appropriate time. So, other than that, there is nothing specific as such to highlight on the A&P.

So, as he said, on the A&P side there was no change on the music linked A&P They were similar amount of numbers ., But since there were no Events or film releases in Quarter 2, there is no A&P spend on that front. The numbers will look different in Q4, when there will be large number of Films of ours getting released from the Yoodlee side. There will be corresponding marketing costs l also coming in.

Got it, very clear Vikram. Just one last thing, Carvaan continues to be breakeven or it is also contributing to some profits right now?

Carvaan, was breakeven. and now contributing to profits. But it’s a very thin margin.

Thank you. The next question is from the line of Vikas Tulsiyan from Vision Ahead. Please go ahead.

Sir, from the last eight quarters your results are flat basically. And at the same time, the listed peer like Tips Industries has performed so well. So, sir why you have not performed last eight quarters and what you will do to rectify it?

Let me not go on the competition part here. The revenues have to be firstly seen right now on the moment we finish our entire year. The Events business is the only business where you are seeing this kind of fluctuation happening and when we got into Events, we had given this heads- up. Because those are blocky and chunky in nature, they come in a quarter in a big fashion, and then they don’t come out in the other quarter. If I look at the steadier part of our business which is music, there has been a steady growth that we are seeing on the licensing side. At the end of the year, we always end up sharing the licensing revenue with you . But licensing revenue is growing at 22-23% per year and it’s not flat in nature. It’s the other parts of the business, which are chunky. There is Carvaan business that used to be big but has come down because we did not want to have any losses going out there and that business at this juncture is growing at a steady to little de-growth..

Sir, so why don’t you demerge the music division also, they are so many loss-making division or flat division and the result is.

We don ’t believe they are loss making divisions. We believe there are serious amount of synergies between the various verticals that we have . That ’s point number one. Remember there’s a big dip in our Company when we are looking at content IP. Saregama as a Company is not only looking at improving numbers in this quarter, but how to keep the Company in a very solid position three years, 10 years and 30 years down the line. So, we are taking all the steps to build the foundation for the next massive story. We don’t want to be just a profitable Company but be India’s biggest entertainment Company that is also generating large amount s of profit. Our approach is little more long run-in nature. The comfort I can give you is, films and series business is going to be riding a 15% margin this year it’s not going to go below that . We have just started the Events business and have requested for time of 18 months. We’ll take a call if that number is going up or not. It ’s critical to the artist management business , and the music business if you are also on the li ve side. You speak to the same singer and if you can manage the live business also chances are they will also give songs to you,, This may be difficult for some of the other competitors if you are not in this business.

Thank you so much. The next question is from the line of Sukhriti from Laburnam Capital. Please go ahead.

Just a couple of questions, one on the minimum guarantees. So, it’s great, but they are sort of fading away. And we are going to see largely clean variable pricing-based numbers, any sense of dimensioning how big the fall will be due to that. Second question is, as we see a consolidation play out in distribution platforms, are we concerned that our own revenue share may come under pressure, because for the last few years you’ve had multiple platforms trying to build viewership, trying to build growth and they may have been a little more generous with payouts, but going forward, would that change and specifically folks like YouTube, or maybe Spotify that become more dominant could you see them squeezing harder . Finally, on Pocket Aces, you articulated your rationale for doing this very clearly. I’m just curious if we did a build versus buy analysis, how do we feel in terms of time and costs that would have taken to build this out organically versus what we paid for it?

So, let me answer your Pocket Aces question first. In the case of Pocket Aces, we indeed debated between build and buy. The issue is, culturally, we are a traditional family culture driven organization. We create content which appeals to the more mainstream audience that wants to watch content along with their families. For me to go back and say that whether within the fold of Saregama we could go out and create content, which is more rebellious in-your-face kind of content, it would be a difficult task. We would have had to go back and start it completely outside Saregama, not leveraging any of the benefits of Saregama . We realized that is going to be a Herculean task, and most likely it is not going to happen. And it’s going to take a very long time. So, it’s better that if we are able to get the number one player in this particular space , which is professionally run, and has got a formidable reputation in the market. From the cost perspective also right now , may make much more financial sense. And mor e importantly, we are able to capture that digital audience today when that transition is happening, rather than later. And we are immediately seeing the impact of that. Every major movie studio head has already called us up. And they have taken notice of this fact and congratulated us about how we people are thinking of the future. So, we know that it is going to give us the benefit immediately in the content acquisition space. That’s the second part of your question, the first part on the consolidation that may happen on the OTT side. Firstly, I have already stated how big the kitty can be. I will repeat we believe that when the transition is happening from a free economy to a paid economy we are looking at the kitty that we generate from streaming platforms to go up by anything between one and a half to three times in the short run. The dynamic is very simple. I will explain it to you. On average when a free customer listens to a Saregama song, we get paid on an average Re.0.10.. But if you are a paid customer listen ing to my music, then our deal primarily is that whatever ,the customer, has paid to the streaming platforms, around 50% of that is going to be earmarked as content pool. And that content pool will get divided equally among all the songs that you heard during the month. So, now let’s take through a number that suppose you are paying Rs.100 to your streaming platform on a monthly basis, which means that content pool is equivalent to Rs.50. An average Indian customer is listening to 64 songs on a streaming platform.. If I look at that number, then everybody gets paid close to Rs.0.80, Rs.0.90 let’s not look at that. Let ’s say you are hardcore customer and you listen to 100 songs in a month that means I get paid Rs.0.50 per stream. Even if you are not committed Rs.100 per month you commit a Rs.50 bucks per month. Then also we get paid Rs.0.25 per stream. So, there is a large amount of upside which is sitting in there with all of us music labels once the movement happens from the free to the paid side. Your other question was , if consolidation happens, remember India is a very competitive market. But if I look at America to day, there are only three big platforms playing out there. There’s Spotify, Apple, and Amazon, there is nothing else. It’s not gone out there and diluted the position of the three of the big music labels that are sitting in there. We have seen a similar situation happening in India, because what we are selling or licensing is not commodity. If you are fan of a song that you have grown up with, or if you have a favorite Shahrukh movie or Amitabh movie or Ranveer movie, then you are going to listen to that song. That song cannot be replaced by some other song on the platform just because my song was not available. You make go out and switch platforms. So, in the IP vs platform game, we strongly believe that we people have equal footing with them.

Got it and really helpful, could you use any dimensioning around the extent to which things should fall as the MG is falling?

So, again, it all depends on phasing . You have three of the guys out from whom Mgs have completely gone and we are now building the subscription business there. There are three big guys - the number one, two, three players are still there in the market on the free side . It all depends on whether a single guy goes out and other two remain, in which case it will be all be in a phased fashion. If all three go out, it doesn’t make any impact. But that also means that the growth in subscription revenues is going to be that much deeper. So, there may be a big dip for a quarter, but a massive increase coming from maybe the third quarter onwards. If they go behind a paid wall in a phased fashion, then there may be small dips happening over one, two, three quarters and an equally gradual improvement that’s happening on the subscription side. All that is a matter of 12 to 18 months, and the endeavor of our Company is that we counter or neutralize the impact of this to whatever extent possible by increasing our YouTube revenues and our publishing revenue.

And could you give us a sense of what percentage of the revenue today comes from minimum guarantees?

I can’t get into those specifics. But remember there are only three platforms left. Everybody else is behind paid walls and all paid wall guys work on a variable basis.

Got it. And of those three, all of them are at the minimum guaranteed level or could some of them be paying you more than the MG?

You are getting into specifics. But what I can tell you is in majority of the cases, in the earlier days when everybody was there on a free si de, our M G numbers where typically anything between 90% to -120%. And these deals were renegotiated every year, to ensure that there is some amount of parity which is maintained.

Thank you. The next question is from the line of Yash Bajaj from Lucky Investment Managers. Please go ahead.

I had a couple of questions on Pocket Aces. So, first is that I wanted to understand how different the business model is if I compare it to the traditional Saregama model and it could be really helpful if you could answer that in context with the P&L and balance sheet , that’s my first question.

So, see our primary business model right now on the music side or the film side was to create IP and license it out to platforms - that’s a primary model. We don’t take our content to the customer directly; we license it.. The primary business of Pocket Aces is to create content and get brands get integrated into the content. That content is going to be hosted on their own Instagram pages or influencers’ Instagram pages. That’s why these guys have got a massive strength going on , on the brand relationships. Saregama wants to evolve in that space , so that we are not only dependent on platforms, but can make some money directly from the brands. When these two strengths come together the net result is more than the sum of the individual parts. Have I answered your question?

Yes. So, just to understand, Saregama is more of a catalog model where t he catalog is the inventory.

Not catalogue model. Catalogue is old content. We are an equally strong player in the newer content. Our business is to create IP, retain the IP and license it. Pocket Aces, on the video side, does exactly the same thing. They also create content , create more content on the web series side, than the film side . But that’s a video part of the business, which is a smaller thing. The bigger part again is, they create content and rather than licensing it to anybody they get brands to come right up front. And that becomes a business model.

Okay. So, is there anything significant on the balance sheet of Pocket Aces then?

No.

I am asking from how Saregama creates the IP, and it forms part of a balance sheet?

So, our IP does not form part of the balance sheet. If you look at my older songs, we are not keeping them on the goodwill basis right now on our balance sheet. These guys follow the similar model. They charge off the entire cost of the content in the years in which they are creating the content and booked the corresponding revenues, that are coming. I just want to clarify, that we have invested in Pocket Aces, not because of the IP that they have created. But it’s because of the digital follower base that they have, which believes in them and the capability to create content, which is relevant to the younger people,. The content that has been created and sitting with them as an IP owned by them is the least of the reasons because of which we have invested. I hope we have clarified that part.

Yes, thanks for that. And the second question is, for follow up to Pocket Aces only that are there any exclusive agreements with these influencers or how are the agreements like deals?

Typically, artists management contracts for whatever mandate artists is giving you are exclusive in nature. I want to clarify this in continuation with the question that asked - what is the artist looking for, why does an artist want to go out there and sign up with any Company and share his revenue with that Company? There’s a reason artist wants to do it - every artist wants to become even bigger. And how do you become bigger? By becoming more visible. Saregama has the ability to make its own artist big but the only access we had till now were to our own music videos. Pocket Aces, the only access they had was to create content for the influencer for the Instagram and the YouTube world. Now content creation for our artist is going to be done by Pocket Aces and for Pocket Aces the creators can now start appearing in the music videos for Saregama. So, for an artist it becomes the ultimate destination where he or she can become big using the IP creation power of both the companies’ combined. Which means Pocket Aces, which is already the number one player in the digital influencer space, should be able to grow that part of the business at a significant pace.

Thank you so much sir. The next question is from the line of CA Garvit Goyal from Nvest Analytics. Please go ahead.

Sir, you have earlier guided for 22% to 25% growth if we take the growth segments, then going by that we should have reached somewhere around 900 crore by FY24, but in H1 we did only 340 crore, so although we were supposed to be entirely organic growth, but even if I add Pocket Aces that will contribute in Q4, maybe around 30 crore. So, are you confident enough that we will be able to make the revenue 530 in the second half?

22% to 23% is the growth that we have been seeing for this financial year. You have to give me time till the 4th Quarter. We’ll see about 75% of the revenues for the Films verticals coming in that particular quarter. So, for this reason, though there are serious pressures on shorts and the streaming applications going behind the paid wall, we are still hopeful about our growth rates with these acquisitions on a combined basis, though we will get Pocket Aces numbers only for a few months, we should be somewhere close. We’re not changing our guidance for 22-23 as of now.

Understood. And sir secondly on the acquisition of Pocket Aces only, I agree it is beneficial for the Company in the longer term definitely it is going to be as you explained, but it doesn’t fall under the intended utilization of QIP, and it is not a music label, it is more of a web series creator. So, with this acquisition, don’t you think we are going against the strategy of strengthening our music IP with the songs that were released during 2005 to 2020 making at the time of QIP?

At the time of Q IP, since I was addressing at that time, I said anything that helps our music business. Now music business has got three arms which are helping music business today. One is just pure IP buying either new content or older content its somebody else’s catalog, that’s one. Anything that helps me make my position better in terms of acquiring newer content which is the marketing power that you ended up getting it. This is where Pocket Aces fits in beautifully when I now go to a movie studio and say that we want to acquire the content that you guys will be releasing on terms of the song. And we put combined power of 100 million o f Saregama on digital side, and another 95 million from Pocket Aces we become that much more attractive, vis- à-vis any of our direct competitors. So, this acquisition is helping us a lot in the new content acquisition space. I’m also telling you there ’s a third space also out here, which is the AI for technology space. The old ways of buying music is all about going out there and picking up a song, is valid but there are other areas today. It’s not just about just getting music but it’s about making the music become very big . Their marketing is very important . Technology start s playing a very important role here that tomorrow there ’s a great AI based firm which has built specialization in that area, we may even look at that - essentially anything that helps our music business. We are not going to start using these funds for our Films business or an event business or a Carvaan kind of a business, that will all be managed right now through our internal goals.

Thank you. The next question is from the line of Govindarajan C from CSIM. Please go ahead.

A couple of housekeeping questions to start with, in your notes to account there is a mention of 15.32 crores of provision written back. Could you tell us where this is directly to the balance sheet or has been taken through the P&L, the P&L that hasn’t been accounted for, that’s question number one. Secondly, we see a significant increase in inventory in the first half. What is that due to, and the third question is something that you answered many times but just wanted some clarity. What is the total amount that ’s spent by the industry on music acquisition every year. You’ve mentioned the number of 800 crores, and you want to be 30% of that. Is this the cash outflow or does it include commitments based on minimum guarantees, etcetera or is 800 crores will be outflow each year that is made by the label. These were my three questions.

So, let me answer the third one and let Pankaj take the first and second. The total size of the industry this year of total content sold should be closer to 1000 crore. 800 crore was the number two years back. When we are s aying 1000 crore, it doesn ’t mean 1000 crore cash flow will happen. Typically, when we acquire content, especially on the film side, music is the first right that any of the production house ends up selling. At that time, we just pay a token percentage to block and sign the agreement. Real cash outflow start s happening out closer to the release of the film. But that also means that a movie that we acquired maybe in FY22, or FY23 payouts may have happened, in FY24. Though we had acquired the rights in 2023 but the movie never got released, and hence the songs were not released. So, that answer to your question number three.

On the note that you’re referring to, this is in the normal course of business wherein we take provision based on estimates and we actualize that in the subsequent months or quarters. As a good practice, we’ve been disclosing this. That’s question number one. Question number two was on the increase in inventory. This is on account release of film music which we bought and our investment in Yoodlee Films.

Thank you so much. Ladies and gentlemen, we would take that as our last question. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us and you may now disconnect your lines.