Zee Entertainment Enterprises Limited analyst Q&A

Thank you very much. Our first question comes from the line of Abneesh Roy with Nuvama. Please go ahead.

I have one strategic question for PG. Given limited time, I'll first start with that. One is ZEE is a content and entertainment company. I wanted to understand why invest in back end in terms of global VFX and Phantom VFX, how does it help? How much investment? What can be the impact on revenue longer term? Second strategic question is, yes, ZEE5, you have delivered on the guidance of EBITDA breakeven. Will FY '27 be a reinvestment year in terms of content given you've achieved that profitability metrics. Now would you need to change the overall strategy in FY '27,

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given competition is quite fierce, and you have achieved the breakeven. Now would you want to go back to the content in terms of investment?

So, to your first question, Abneesh, and thank you for the questions. The reason we are investing in these back-end businesses because just like we invested in music and in the studio business, all these are complementary to the way the entire entertainment landscape is changing. And VFX and these kinds of things will come into the television space as well. So, we cannot ignore it. We can always keep trying to outsource it. But we believe that having it internally could be far more beneficial and cost effective in our perspective. So that was the first one. The second one, I believe that we are at optimum level of investments on the ZEE5 or the digital front. At some point in time, we may choose to up our investments, but they will not move the needle to the extent that it will start impacting our EBITDA line. So, from that perspective, a little bit here and ther e, but just as we do in the television business as well, this is the way we are looking at it, and that's how we are going to run it.

Sure. My second question is essentially in music business; we have got one unlisted player and then 2 listed players in which one is large. In your music business, would you want to invest more, do some kind of a value unlock because in a TV linear broadcasting and an OTT company, is music getting the desired val ue, of course, you'll have to invest in that. What are your thoughts on this?

No, we certainly want to invest in the music business because that's the only way to keep broadening and going ahead. And whether the question of unlocking value, that is always something that we keep considering all the time. But as of now, our objective is to just keep expanding from the 20,000 songs that we have today. Compared to my competitors, we are still a very small player. And we will keep investing and going ahead on that basis. But if opportunities come, why not? We will always evaluate and look at those.

Understood. Last question, you have 80 bps market share gain on the network level and Hindi GEC, you're claiming leadership. So, I wanted to understand that a bit more because clearly, I saw an advertisement also where you have claimed that in prime time, Hindi GEC is having leadership. Now every channel claims leadership given the way dissection of data happens.

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So, I wanted to understand, one, how strong is the leadership? Second, are you able to monetize this? Because of Iran crisis, everything gets hidden. All this improvement in market share, if it is there, is it reflecting somewhere in terms of revenue? Because in terms of reported numbers, obviously, we can't see given Iran crisis impact in March, if you could share that detail?

So, leadership, as you have rightly said, Abneesh, is only in prime time as of now. And the advertisement that you may have seen is a marketing thing that my team may have done. So don't hold me to that, but we are working towards getting full leadership, and that's what we want to attain. As you know, Abneesh, that any gain in viewership has a 13- to 16-week lag in terms of converting to revenues. So that's what we have to work towards. And my teams are working very hard to make sure that we attain that conversion of revenue as well.

Our next question is from the line of Sameer Gupta with IIFL Capital.

Sir, firstly, I wanted to understand the ad spend line in the cost. So, I understand these are costs incurred upfront. But when we, as a country, are staring at inflationary pressures and you have an expectation that most of the FMCG companies in all likelihood of protecting their margins will slash their ad budgets and part of it is already visible in our results in 4Q. And the subscription line item also consumers are likely to reduce discretionary spends, why not go slow on these expenses and protect margins? I mean these are up 44% this quarter. Full year it's fine. We didn't know that West Asia is going to happen. But just your thoughts on this, sir?

So, Sameer, when it comes to marketing, we have to look at it in multiple contexts. We have new businesses that we have just launched. And therefore, there is going to be marketing expense on that account. That's one part. Second part is that while we are run ning the business, we can't behave like selling soaps or detergents or things like that. Therefore, our business is about consumption on a daily basis by our consumers on content. So, we cannot pull back on marketing from that perspective. We have in the past and not necessarily that, that has worked for us. Therefore, I'm very, very cognizant of the fact that how do we make our marketing more efficient rather than cutting back, if I have answered your question.

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Fair enough, sir. But then I know I'm asking a difficult question here, but in the context of where we are today, how do you see the FY '27 then pan out in terms of growth and margins? We have finished at 8%, 9% on the full year basis. Start of the year, we had ambitious plans on the margin front, but what needs to change? And how do we get to that high teens’ kind of a margin, if at all?

No, Sameer, most of your colleagues will tell you that I am an optimist by nature. So, I do believe that once we have hit rock bottom, the only way to go is up. And that's what we are going to do going forward as a company, your company. And that's what we are working towards. That's our sole objective. So, whether we get to the high teens or this thing number, I can't guarantee right now because I can't give you a guidance. But we are certainly going to continue to work to make sure that we create value for our shareholders and for you all.

And sir, last question, if I may squeeze in. The employee cost down 16% this quarter, 9% for the full year. Just trying to understand what is going on here?

No. As Mukund mentioned in his speech that we have done a lot of optimization in manpower through our omnichannel strategy. A lot of people have taken on a lot more responsibility towards achieving their KPIs and all those things. So that's how we've opti mized it. If you go back 4, 5 years before the pandemic, we used to operate at 9% people cost to revenue, and we are trying to bring it back to that, and that's what our objective is going to be.

Has there been a major rationalization in the amount of manpower also?

Yes, there has been. And that's not happened overnight. This has happened over a period of 1 year. So, we've evaluated every role, this thing and then taken conscious calls on what we need to do.

So, Sameer, just to add to Punit, there was a major activity in the previous quarter and the results of which are being reflected in the current quarter. And as I said, we also continue to invest in our human assets, and we will continue to keep adding on to the skill sets wherever needed, while additional responsibilities being taken by current team, which also gives them a growth opportunity. So, I think we are maintaining a fine balance here.

Sir, my first question is on the amortization charge that we took in this quarter to the tune of about INR300 crores. So, can you share what is our revised amortization policy for movies?

PG, I'll take that. So Jinesh, as we've mentioned in our annual reports and our disclosures previously, we are amortizing the movies over a period of 5 years on a straight-line basis. We've had a look at the various patterns of consumption, and we have changed that estimate to make it more front-ended to increase it to 50% in the first 2 years and then the balance in the next 3 years. So that's the impact which we have taken, which is reflected in the notes.

50% in the first 2 years and balance 50% in the next 3 years, right?

That's right.

And this change, I mean, in the presentation, we have stated that ex of this change, ZEE5 was EBITDA positive in 4Q and for the full year of FY26. So is it possible to share the adjusted EBITDA numbers for ZEE5.

So, the EBITDA will be below INR100 crores, I can say, ex this effect of the inventory adjustment, but it's a little complicated accounting because there are some inventories which are being used in both platforms. So hence, we will not be able to give you more specific s of that. But ex this adjustment, it will be below INR100 crores for the quarter.

Sure. And sir, my second question is on our ratings. So, while on a Y-o-Y basis, we have seen an improvement come through. But if I look at our sequential ratings, I think, we are down from about 17.8% to, to 17.4%, I think, in this quarter. But while I think in some of our markets like, say, Hindi, Marathi and Tamil, we have seen very sharp improvement in ratings come through. In that case, why on sequential basis, we are seeing some kind of fall in our viewership share?

So, Jinesh, you have to understand it with what is happening in the market. So, you had T20 World Cup. We had the Bengal elections. We have had several other incidents that have possibly caused that drop to happen. But overall, our improvement is still significant, which I had mentioned in my opening remarks and even Mukund mentioned. So that's how you have to look at it. You have to cut down and look at a little bit more in terms of granularity of the data before you can come to that conclusion that you may be looking at.

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Our next question comes from the line of Kavish Parekh with 360 ONE Capital.

Punit, continuing a question asked by one of the earlier participants on Zee Music. So, value unlocking, you did mention that you may look at it at some point in the future. But if I remember, a few quarters ago, you had mentioned that you are open to disclosing the metrics, maybe revenues, maybe some operational metrics for Zee Music. Any thoughts on that? Why was that not disclosed?

So, Kavish, I think it is competitive in nature from our perspective. And therefore, we chose to delay that. And certainly, we will be evaluating on a quarterly basis when to start disclosing. I am certain we will start disclosing it sooner than later. But for competitive reasons, we have not done it so far because as you are aware, and I'm sure you are aware that a lot of the international players are coming into the country, trying to make acquisitions on various companies. And therefore, we chose not to disclose it right now.

Understood. But are you open to any such partnerships? Or maybe whenever you happen to think about value unlocking, that would be more of a, say, demerger route or something on those lines?

No. As I mentioned in my opening remarks and in the earlier question somebody asked me that if I get the right offer, why would I not be open to considering and demerging Zee Music from ZEE to a separate entity and bringing in a strategic partner there. Why not?

Understood. Secondly, on your relatively newer initiatives, Bullet investments of about INR100 crores planned over the next few years. Currently, I understand, of course, it remains pretty small. What kind of monetization potential do you see here? And similarly, on t he live events, what is the strategy here? What kind of events are you targeting? And any scale that you envisage that you would want to see this business, say, in the next 3 years?

So, Bullet, it's a new business from our perspective, but it's a unique business that a lot of the world is already doing a lot on with Micro -Dramas and small format or short format content, it's something that's worth as a media company, we have to be there. We cannot ignore it because that's also an audience base that we cannot ignore. The potential of that we are still studying and evaluating. But I believe that already the Micro -Drama market or short -form content market has reached almost, correct me, Mukund if I'm wrong, INR3,000 to INR3,500 crores.

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Right.

So, from that perspective, it's not a market to be ignored anymore. That was the first one. Second question was what, can you repeat again.

On the live events?

In live events business on an organized manner, in our estimate is close to INR50,000 crores in this country. And I'm not even including the segment, which is your B2B and what happens in small towns and all those things. And forget about shaadi and all those things. So, there is a huge opportunity in the live business that we need to look at. And given what we are seeing today . We did one show with Hanuman kind and these kinds of things are becoming a complete rage. So, this is also becoming a part of our entertainment business. We cannot ignore it.

And Kavish, this is also complementing our current business as it is also a platform for us to market for Zee talent and Zee content. And it has synergy with our advertising clients as well. So, these are other benefits of being in this business.

Our next question comes from the line of Umang from Kotak Securities.

In ZEE5, I believe last quarter, we had a catch -up revenue. And despite that on Q - o-Q, you've seen a big jump. So possible to share any qualitative colour or any quantitative metrics on DAU, MAU, paying subscribers? It would really help to appreciate what you are trying to do there.

So Umang, I'll just add a couple of insights for you. So, while we don't really disclose quantitatively MAU, DAU . Because of the entire telco pricing catch -up and, on account of the B2B side of the business, it has certainly seen active engagement and a better MAU metrics for Q4. And of course, the momentum on the underlying business, both on the digital advertising side and the subscription continues, coupled with, the entire focus on syndication vertical, all of this has aided our revenue growth and the improved profitability metrics on both quarter-on-quarter and on a Y-o-Y basis.

Got it. And possible to share what are the ad revenues from ZEE5 this year? Any ballpark share in total revenues.

So we don't really disclose that, but the good news, which is what I can tell you is it continues to grow extremely handsomely on a quarter -on-quarter basis, and it is

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moving into the territory of us with our aspiration of becoming ad and subscription more like balance of 50 -50 in the medium term. So, it's done an extreme leap in terms of growth on a sequential and both on a Y-o-Y basis as well.

Got it. And the second question was just pertaining to cash flows. So, I've seen this provision for bad debts or doubtful debts to be around INR70 odd crores. So, any colour you can share on that? I mean, what was it regarding? And why would we need to make a large provision?

These are made on a conservative basis, Umang, and they are all collectible, but we make these provisions especially at the end of the year, taking into account the age of the debtors and receivables, and we make these provisions. And they will be collected subsequently.

That would be our last question for today, ladies and gentlemen. I would now like to hand the conference over to Mr. Ankit Arora for closing comments. Over to you, Sir.

Thank you, everyone. Thanks for joining us. Do feel free to reach out to us if there are any follow-up questions as you do a deeper study of the numbers. We will be available and look forward to speaking with you and meeting you in person soon. Thank you very much and have a great evening.

Thank you. On behalf of Zee Entertainment Enterprises Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.