MIHIR MODI,

CHIEF FINANCE
AND STRATEGY OFFICER

Q How would you describe ZEEL’s financial performance in FY17?

A We are happy to deliver yet another year of industry leading growth. The Company registered a double-digit growth despite the impact of demonetisation and without launch of any major new product. We were also successful in rationalising some of the costs and the Company will continue to benefit from the same in coming years as well. Our EBITDA margins improved further to 29.9%. The performance of this year, save for the impact of demonetisation, is consistent with our performance over the last five years. We have registered 16% and 21% CAGR in revenues and EBITDA during this period on the back of strong operational performance.

Q How was the ad spends growth for television during FY17? What was the impact of demonetisation on your revenues?

A FY17 was a story of two halves. In the beginning of the year, television ad spends for the industry was growing at around early double digits. Our company posted 17% YoY growth in ad revenues during H1FY17 led by the strong performance of our regional and Hindi movie channels. The growth in advertising spends was gradually accelerating before demonetisation halted the progress. Though advertisers remained committed to invest in their brands, they recalibrated their spends to suit the change in dynamics. Despite this, we delivered a growth which was higher than the industry, even in the second half. For the full year, our ad growth stood at 9.2% which is satisfactory given the circumstances. Going into FY18, the advertising growth appears to be back on track.

Q The growth in your subscription revenue seems to have decelerated. What are the reasons for this and what is your outlook going forward?

A Our domestic subscription revenue growth stood at 11.8% in FY17 and adjusted for the impact of sale of sports business it was more than 13.5%. After multiple delays, digitisation of phase III areas was largely completed during the fiscal year. Although the official deadline for digitisation of phase IV areas has elapsed, there is still some way to go for complete digitisation of these areas. At present, our focus is on improving the monetisation of recently digitised Phase III markets. In the current set-up, there is a lag between digitisation of an area and its monetisation due to the contract renewal cycle. It is also important to mention that during the year, the industry regulator - Telecom Regulatory Authority of India (TRAI), introduced a new regulation for content agreement between broadcasters and distributors. We are still awaiting clarity on its implementation due to pending litigations. However, we are confident that with our strong competitive position in almost every genre, we should be able to drive our subscription business if the proposed regulation is implemented.

Q What is the outlook for growth and investments for the new businesses and initiatives?

A In the last couple of years, we have scaled up our movie production business, started a music publishing label and entered the live events space. We are simultaneously working on our digital offering and entering new international markets. Our movie production is ramping up and we intend to gradually make 10-12 movies a year. The music label business has gained strong traction and continues to expand its catalogue. Our Live Events business rolled out its first two properties and several others are under development.

The movie production and music businesses will entail limited working capital investments while investments in live business would be small and linked to events. In the coming year, digital business will see increased investments, on all the three fronts - content, technology and marketing. The expansion in international business will ride on our repository of content and hence will not require substantial investments. We expect to maintain healthy margins despite these investments.

Q Can you explain the reasons for increased investments in working capital during FY17?

A The increase in working capital is primarily due to investments in satellite rights of movies. Movies is one of the most important genres for the Indian consumer, especially for the male viewer. The viewership share of movies on television has been rising in India. Number of movie channels in our portfolio has increased substantially over the last few years. Movies are also an integral part of our content strategy for general entertainment channels. We now have 11 movie channels across four languages and aspire to launch more in future. During the last year, we significantly increased our investments in acquisition of movie rights. We have also paid advances to acquire future rights of movies that are under production or whose rights will come up for renewal at a later date. The investments in movie rights are likely to remain high in the near term and will come down subsequently.

Q Can you throw some light on the major corporate actions during the year?

A There were two major corporate developments during the year - sale of the sports business and acquisition of Reliance Broadcast Network’s television channels. Regarding the sale of the sports business, let me begin by saying that we believe sports is an important part of the entertainment bouquet. At the time of acquisition of TEN Sports Network, it was expected that digitisation will lead to a significant increase in subscription revenue, which is critical to viability of the sports business. However, the subscription revenue did not increase as envisaged, and the cost of sports rights, especially cricket, increased substantially. Sports business was a constant drag on our financials and there was a limited visibility on its improvement.

Acquisition of the broadcasting business of RBNL is in line with our strategy to expand our offerings in key genres and focus on the regional space. BIG Magic, a comedy channel, will complement our Hindi GEC portfolio. BIG Ganga, the leading Bhojpuri channel, will give us entry into the attractive Bhojpuri market. On integration with our portfolio, the two channels will see improved monetisation of its ad inventory and substantial cost savings.

Q What are your thoughts on payout to shareholders?

A Rewarding shareholders has been one of our key focus areas. We have maintained a consistent payout while simultaneously investing adequately in the business. Over the last five years, our payout ratio has averaged at 29% (including dividend distribution tax). In addition to dividend, we have rewarded our shareholders through buy-backs and issue of bonus preference shares. We had issued bonus preference shares of approximately ₹ 21 billion to our equity shareholders in FY14, which roughly translates into ₹ 21 per share. Accordingly, the actual payout to our shareholders is much larger than the equity dividend. We have announced our intentions to extinguish the preference share liability using sale proceeds of the sports business. As per new dividend policy approved and adopted by the Board, 25-30% of consolidated net profit will be paid as dividend which is in-line with our past practice.