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Edited Transcript of ENIL.NSE earnings conference call or presentation 13-Nov-19 10:30am GMT

Q2 2020 Entertainment Network (India) Ltd Earnings Call

Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Entertainment Network (India) Ltd earnings conference call or presentation Wednesday, November 13, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Narayanan Subramanian

Entertainment Network (India) Limited - Executive Director & Group CFO

* Prashant Babulal Panday

Entertainment Network (India) Limited - CEO, MD & Director

* Yatish Mehrishi

Entertainment Network (India) Limited - COO

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Conference Call Participants

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* Ankur Periwal

Axis Capital Limited, Research Division - VP of Media and Logistics

* Jinesh Joshi

Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst

* Manoj Dua

Geometric Securities And Advisory Private Limited - CEO

* Pavneet Singh Keer;Skyline Equity Managers

* Prakash Kapadia

Anived Portfolio Managers Pvt. Ltd - Principal Officer

* Rohit Dokania

IDFC Securities Limited, Research Division - SVP of Research

* V.P. Rajesh

Banayan Capital Advisors Llp - Managing Partner & Portfolio Manager

* Yash Guptaes;Prince Poly Plast Private Limited

* Yogesh Kirve

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Entertainment Network (India) Limited Q2 FY '20 Earnings Conference Call. We have with us today, Mr. Prashant Panday, MD and CEO, Entertainment Network (India) Limited; and Mr. N. Subramanian, Executive Director and Group CFO, Entertainment Network (India) Limited. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Prashant Panday. Thank you, and over to you, sir.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [2]

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Thank you very much, Tanvi, and welcome to this conference call, dear investors. I want to give you a quick update about the -- a quarter that has gone by. I'm assuming that you've received a copy of the presentation that we have e-mailed some time back.

At the end of my small talk, if you have any questions, we'd be happy to take them. Let me just straight away jump into the results.

The results, overall revenue growth has been 7% for ENIL in this quarter -- negative growth, I'm sorry, it's been a de-growth of 7% during the quarter. And as you know, this is primarily because of the overall weakness in the media markets. Over the last 35, 40 days, you would have seen the results of various media companies come out.

Just to give you a quick synopsis of them. We've had Hindustan Times newspaper group report a 6% de-growth in advertising; Fever, which is the FM business, report a 7% de-growth; HMVL has reported a 6.3% de-growth; Radio One 16.9% de-growth; Zee Media 18.8% de-growth; Dainik Bhaskar, the newspaper group, has reported an 11.2% de-growth; MY FM, which is Dainik Bhaskar Radio business, has reported a 16.2% de-growth; and TV18 has reported an advertising de-growth of 23.9%. Now these are, obviously, very shocking numbers because one expected a certain amount of de-growth to happen, but what one is seeing is that the scale is really very, very big.

And while in the first quarter, there were some buoyancy in the market, especially for radio players because of the political advertising that we got in April and May, there was no such buoyancy witnessed in the second quarter. And the results of the company, which is a de-growth of 7% in this context, in the relative context are actually better than the results seen by most other companies in the media company -- in the group.

Now the results are also a testimony to our strategy. And if I would explain that, then I would do it by saying that even ENIL's radio business has actually fallen by approximately about 17.5%. So the radio business has been weak, as it has been for our competitors, but the big boost that we have got has come from our solutions business.

Now we've been talking about the solutions business for a long time. It's been a long-term strategy of the company. And if you remember the numbers, solutions contributes about 1/3 of our revenues in a -- on a full year basis. We have also mentioned during the past that we see this growing rapidly. And in a 5-year horizon, we see the solutions becoming -- business becoming 45% to 50% of the overall revenue. So clearly, for us, solutions represents a big diversification, solutions represents building on the strength of the radio business. And more importantly, solutions represents catering to the clients' needs in a much more direct manner. In the solutions business, we actually look at the clients' business, and we say what can we do to grow the clients' business very directly.

We look at doing programs which touch multiple media vehicles. We take care of digital in that. We do influencer marketing. We do videos. We do on-ground. We do television. We do print. We do the whole work. But the whole focus of the solutions business is on generating results for the client and not just in selling inventory.

The solutions business has grown 33.7%. One of the worries that used to be there in this business was that the margins were not very robust. Well, I'm happy to report that this quarter, the margins have been very robust. Gross margins have come in at 45%. In the quarter 2 of last year, the gross margins were 33%. Again, we have been saying this repeatedly that after having grown the solutions business in scale, we are now focusing on the bottom line, and the growth and improvement that you're seeing is a result of several steps the company has taken.

One of the critical steps that we have taken is in managing vendors in a much more scientific and commercially efficient manner. We have a team today, which negotiates -- harder negotiates -- in bulk, negotiates for the full year, with a whole set of vendors that we have identified. We have brought in discipline into the solutions business. We are not doing the businesses, which, in the past, often caused us -- caused a loss for us. If you have noticed, we have not done any international concert this year. The whole focus has been on improving margins, and the 45% gross margins in the solutions business is a consequence of that.

Now coming to the business, in terms of pricing point of view, well, overall, this quarter witnessed weak demand, which had an impact on the volumes. Mirchi's volumes were down approximately 16%. Mirchi's pricing was down approximately 4.5%. However, the good news is that the pricing in the batch 1 and bath 2 stations seems to have stabilized. Pricing in the top 8 markets also has been relatively strong. Pricing in the 27 other legacy markets has been relatively weaker. But overall, I would say that given the very weak economic conditions, your company has -- ENIL has actually managed to keep its pricing strong in the market and also retained revenue -- volume loss at approximately only 16%, which is better than what the industry has done.

Now clearly, in adverse times, they say that big brands tend to become stronger, and we have seen the same thing happen in this quarter. Our revenue market share has grown by 1%. And I believe that the growth in revenue market share is sustainable. So even when the economic conditions improve, we will be able to enter the future with a higher market share.

Quickly going on to capacity utilization because the volumes dipped in this quarter, our capacity utilizations have reduced even in the top 8 markets, which are usually very busy. The capacity utilization was only 77%. In the 27 other legacy stations, the capacity utilization was 52%. In batch 1 stations, 25%; and in batch 2 stations, 11%. Clearly, the network is waiting for a demand creation to happen in the marketplace.

Now let me tell you a little bit about what happened to the demand. Now in radio, Radio Mirchi lost approximately INR 17 crore in revenues. But the thing is that the biggest component of this loss was the central government business, which was approximately about INR 8 crore. The central government, as you know, has not been spending much on any of its programs since the new government has taken over. Now it is our belief that the initial period of time often tends to be one where the government holds the spending back. But we believe that with all the programs that they have on their agenda and the communication objective that they have, we believe that the central government advertising has to start, if not today or tomorrow, then it'll start day after tomorrow, but the INR 8 crore that we lost in the second quarter sooner or later has to come back to the radio business.

Now if the 17 -- if the INR 8 crores was to come back, I think that will straight away go and boost top line and EBITDA and PAT margin in all. So we are -- while we are disappointed with the radio number of 17% drop, we are comforted by the fact that the biggest chunk of that has been from central government, one single client, and we believe that, that client will revise spending going forward.

Another big business which cuts spending on radio was the media and entertainment business. Now this is basically television channels and OTT platforms. Because their own business has been affected negatively by the economic environment, they have cut marketing spend. And the other companies are also which have cut spends are FMCG. Now remember, FMCG companies, the big companies, the Hindustan Lever, the Procter & Gamble don't spend much on radio because they are national players and television is a more cost-effective medium compared to radio.

However, radio typically gets the middle to lower run FMCG companies. Post the GST phase coming in, post the economic slump happening, we have realized that these smaller businesses are facing solid headwinds, and they have actually resorted to cuts in advertising. So these smaller -- the lower end FMCG companies have actually been under pressure, and we see a reflection of that in our radio performance.

Now it's a matter of question when the media and entertainment businesses, when the FMCG businesses will revive, but I'm confident that the central government business should pick up sooner rather than later.

Fortunately, auto has done well for the radio sector. Remember, in the last quarter also, we had mentioned to you that the auto industry has done well and it continued to do well in Q2 as well. And we believe that it will continue to go -- do well because there is pressure on companies and dealers to liquidate stocks and, therefore, they are using radio in a bigger way.

Organized retail also grew compared to last year, again, largely on account of the fact that to sell goods, dealers are offering discounts, and there is no better medium than radio to offer discounts.

Now in revenue terms, I told you that radio lost INR 17 crore. Now for a normal radio company that would have caused EBITDA hit of about INR 15 crore. However, you will notice that the underlying EBITDA of ENIL has fallen by only about INR 8.5 crore and not by INR 15 crore. And this is because of the fact that the solutions business is coming in and provided support to the overall business.

Now other radio companies who do not have the benefit of solutions have, of course, taken a much bigger hit on the EBITDA. One of the listed companies has reported an EBITDA drop, but on a reported basis, which is after taking into account the effect of Ind AS 116, if you strip that effect out, then the EBITDA decline -- the underlying EBITDA decline is far higher.

Now if you further investigate, you'll find that the EBITDA has been troughed up by a major reduction in HR cost, primarily because of the reversal of MIB provision for the first half of the year, all of which has been taken in the second quarter. But if you were to factor that in, then you will realize exactly what I'm saying that for a hit of INR 17 crore, the EBITDA should have gone down by INR 15 crore. Remember, we are a high operating leverage business, but the solutions business has provided ENIL that little lift and little support. And overall, our EBITDA has dropped by only INR 8.5 crore.

Likewise, our profit before tax has dropped by INR 6 crore. Again, it's the same event basically, when your radio revenues fall by INR 17 crore, it has an impact on EBITDA. The same impact goes through into PAT, now -- into PBT.

Now if you were to look at the market improving, then the jumps in EBITDA margin, the jumps in PAT margins also will be strong and significant. And remember, when I mentioned that our share has improved by 1% that basically means that we will get into the new phase in a much more stronger way than in the past.

Some other data points for you very quickly. We had cash flow generation from operations at INR 32.8 crore. We had free cash flow generation of INR 17.6 crore. We, obviously, have no debt on our books, which is a big strength for us. We have INR 172 crore of cash on our books.

Now many of you may be wondering what the status of the TV Today acquisition is. Unfortunately, I have nothing to report on that front. We still do not have an approval. We are still talking to the government. The government is still giving us assurances and yet nothing is moving on that front. So when we have something to talk about it, we will certainly come back to you proactively on it.

One last point is about the INR 172 crore of cash that I mentioned. Question that you have asked in the past is what we're planning to do with the cash. Well, our Board has been discussing this matter and we will be able to announce a more clearer plan of action by the time we announce our annual results at the end of the year.

With that, I would like to throw the floor open and be happy to answer any questions that you may have. We got Subbu available here and let me do take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Yash Gupta from Prince Poly Plast.

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Yash Guptaes;Prince Poly Plast Private Limited, [2]

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Our YouTube viewership has crossed around to be 1 billion in FY '20. What's the outlook on the revenue spend for the year?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [3]

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Well, the YouTube business has a different revenue model. The one, obviously, the one direct revenue model is when YouTube itself places ads on your screens and shares revenue with you. Well, that's relatively a smaller revenue stream for any company.

Last year, we made approximately $100,000 on direct revenues from YouTube when we had done 700 million views. If we do 1 billion plus views this year, I think the revenue number will be in the region of about $150,000 or thereabouts.

But the bigger revenue stream on YouTube comes when you place original content on your YouTube channels or when you place a content which has brands integrated it and you place that on your own YouTube channels.

Now again, I'm very happy to say that our YouTube channels have been growing very rapidly. We operate 11 channels on YouTube. These are full-fledged channels, with 7.5 million subscribers in total, and that makes us a big player over there. So when we put original content on these channels, we hope to make a far more revenue from brand integrations. That's the YouTube plan.

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Yash Guptaes;Prince Poly Plast Private Limited, [4]

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Okay. Sir, second question, how many radio stations have we rolled out in last 2 quarters? And what's the revenue growth from those stations?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [5]

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In the last 2 quarters, you mean from 1st April, we have rolled out 5 stations of batch 2. 5 stations of batch 2 we have rolled out since April 2019.

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Yash Guptaes;Prince Poly Plast Private Limited, [6]

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How it's expected to do for the Q3?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [7]

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Well, we don't comment on the future, but let's be honest over here. Q3 is more looking like a continuation of Q2. We saw some little strength in October, but that was largely because Diwali was 7 days earlier. And therefore, last year's base was smaller, so we expect that -- but November has turned out to be weaker than last year for the same reason. So overall, I think Q3 is expected to be no better than Q2. The pain will continue in Q3 as well.

Also remember, in ENIL's case, we had a substantially higher revenues last year in the third quarter from our international concerts. We have done 2 international concerts, but at a big loss. So those 2 concerts are not happening. So you will find at end of Q3, our revenues will be lesser than Q3 last year, but our profits will be improved because of the absence of these international concerts.

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Operator [8]

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The next question is from the line of Prakash Kapadia from Anived PMS.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [9]

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Yes. I had 2 or 3 questions. One, Prashant, you mentioned the current scenario. Now category growth of a market depends on a leader. So what are we doing to ensure our radio business grows because we've spent lot of capital in creating licenses, and last 5 years, it's been an investing phase. So if I just look at the financials, the ROCE has fallen, the fixed assets have seen a 10x increase. So how and when does monetization of these things happen? Obviously, you alluded to the slowdown. So when I -- if I look at industry estimates, radio advertising seems to grow at 8% or that is what the industry estimates say. So did we overestimate the revenue while bidding? How will all this change?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [10]

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Okay. Let me try to answer that, Prakash. You are very right in asking this question because those are -- that's the kind of question that we also grapple with every single day. But let me tell you that as a leader, we do many things to grow the market. Let me just tell you about all the initiatives we take on programming, which, again, is to boost listenership and to give -- create a buzz in the B2B circuits, in the business to business circuits. A lot of clients look forward to such kind of programming initiatives. So we continue to do that. We don't cut monies on that.

The second thing, of course, you know is that the Bennett Group has strong Brand Capital business. It has something else, which is called Springboard business. So we dip into those businesses. We have preferential access to those clients, which we then tap into to generate a higher share of revenues for ourselves.

The third thing is that we have a strong, not a strong, but let's say, a growing business in the United States, which I'm talking about Bennett Coleman. Bennett Coleman has a growing business in the United States. And they have tapped a lot of clients in the United States with their Brand Capital and Springboard businesses. We get a lot of revenues from the U.S. coming from those kind of clients, which come exclusively to Radio Mirchi. So we get that benefit as well. So there are a lot of initiatives we do take on in developing the core business. But the headwinds being what they are, when clients are cutting spend, there is very little you can do to really protect the core radio business. And that is why the strategy, which is basically to think beyond selling inventory and to think solutions has come in so handy.

If you ask me the answer to your question, that is the most definitive answer I will give that solutions business will protect us in every economic downturn. And when the economic downturn reverses, the solutions business will provide us the huge thrust that we will need when we come back out of this downturn.

Now you asked a question on bidding. And let me tell you that when we bid, we were very conservative in our bidding. We had actually factored in what we call a skip year in our future plans. So every fourth year was taken to be a skip year, which was basically a 0 growth year. And then we have also assumed a slowdown in mainstream advertising growth rates because of digital and all coming in the future. What we have been surprised with, of course, is 2 things. One is that the slowdown has come much earlier in our 15-year cycle, number one. And number two, by the continuity -- and the 3 years of continuous and gradual slowdown that we've been seeing. So certainly, to that extent, our planned numbers are a little awry at this point in time. Fortunately, we had not bid very aggressively with the exception of our second channel in Bangalore. And therefore, we see that a recovery from these levels is definitely possible.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [11]

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Sure. That is helpful. And one more question, do we see consolidation happening because if this continues the way the scenario is, do we see consolidation in the radio business, clear surrendering, exiting, willing to sell?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [12]

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See there are many legal problems when it comes to consolidation. Because the government does not allow you to own more than 1 channel in any city, except the top 13. So if 2 networks were to consolidate, then they would have to give up a whole lot of smaller cities where both have channels, okay? That's one thing. Second thing is there is a national cap as well on how many channels you can have. Like, Mirchi would have 76 after the TV Today acquisition, but I think the maximum limit is some 82 or something. So there's really low headroom left to grow from a regulatory point of view also. But more importantly, our strategy, particularly, is very different. We are not interested in dramatically investing more in radio business. But remember, the radio business is a costly business. It needs to be -- you need upfront investment in the form of license fees, you need to pay annual license fees, you need to hire a lot of people, you need to create offices everywhere. So it's a pretty expensive business to run.

Our -- and we believe that we have got an optimum network already. So we do not -- we are not looking actively at expanding via acquisitions. And I -- to answer your question specifically, I don't believe that there will be too much acquisition taking place in the future.

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Operator [13]

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The next question is from the line of Manoj Dua from Geometric Securities.

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Manoj Dua, Geometric Securities And Advisory Private Limited - CEO [14]

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I want to understand more about the solutions business. In terms of revenue, how much customers we have? If any particular top 10, how much they are contributing or particular industry, which is more contributing towards solutions business? It would be also helpful if you can understand which cities we are in more prominently? So I want to understand the architecture of solutions business in terms of demand side from the customer.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [15]

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Well, let me just tell you, without getting into too much detail because some of this would be stuff that we don't want to talk about in detail in public. But let me tell you, in basic terms, let me say that we provide solutions. We have several products that we use to provide solutions to a client. To a shop that wants to open a new business in a city in Vadodara or in Delhi, we may provide a solution which involves bringing Bollywood stars to the city, inaugurating the shop, generating public PR, shooting a video, posting it on social media and generating buzz for the launch way beyond what any single media can possibly do.

When it comes to other clients who wants to -- who do not see radio as a prime -- as a medium of interest, for instance, Ford Automobile does not see radio as a major medium for themselves. We create solutions, which include social messaging videos and on-ground activation. So recently, with our jock in Delhi, we created a campaign around noise pollution, which Ford was very interested in sponsoring and furthering because they have been talking about noise pollution for a long time. So we gave them a solution in that area.

For a very premium retail brand, which sells imported clothes at a very high price, they were not willing to take radio. We got money from them in the form of a concert sponsorship because the concert was talking to young people in affluent cities, and they were interested in that, that would be a solution for them.

So basically, what we mean by -- or let's say, the Mirchi Music Awards that we create is a television IP that we've created, which reaches 7 crore or 8 crore people across the country, and it provides us to tap monies from several clients who prefer the television medium but do not prefer so much the radio medium. So it allows us to, again, tap into new revenue sources.

So there are a lot of things that we do, but the single-minded focus of the solutions business is to not think inventory, but to think how we can generate leads or business for our own clients. And that is what the focus is.

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Manoj Dua, Geometric Securities And Advisory Private Limited - CEO [16]

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Okay, sir. And the second question is about radio. Now solutions business being also adding profitability, if we invert it, how much radio business should grow to make us good amount of money? It's 7%, 8% would be a good figure to make a good amount of money?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [17]

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Well, think of like this. If the INR 17 crore that fell this year were to come back, right? Let's say, if in the quarter 2 next year, we were INR 17 crores up, which means in FY '21 quarter 2, we were same as FY '19 quarter 2, right, which is just image that scenario, our EBITDA would be INR 15 crores higher than what it is today.

And in the meantime, our solutions business will start giving even more gross margins. So that's the point I was making that in this adverse times that we are in right now, when radio has taken a downswing, the profitability of the solutions business is actually shoring up the bottom line. So when the times improve, both will pull in the same direction. Solutions will add to profitability and radio will bounce back and recover all the profitability.

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Manoj Dua, Geometric Securities And Advisory Private Limited - CEO [18]

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In long term, how much we see -- for medium term, how much we can see the radio growth going forward when the recovery is there as a media for advertisement, how much we can see a radio as a growth version for...

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [19]

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Well, Manoj, I think EY had estimated for FICCI that radio will grow at 8% over a 3- to 5-year period of time, if I remember right. In all honesty, I don't see that, that number will change. It is certainly true that we are right now in the middle of a very bad patch. But whoever I speak to, when I'm talking about clients or others, I find that everybody is confident that the long term or the medium term story of India is not so badly disturbed. It's more a temporary phenomenon. So whether it will be another 2 quarters or another 4-quarter, I don't know. But if I were to take the next 60 months or 5 years, I think that the 8% number should hold.

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Operator [20]

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(Operator Instructions) The next question is from the line of Ankur Periwal from Axis Capital.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [21]

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My first question is how is the breakup between national and local/regional ad now? And how have both the numbers behaved, let's say, for the H1 for this year?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [22]

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Ankur, I will give you that number as soon as I have it. In the meantime, do you have another question as well?

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [23]

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Sure, sure. Okay. So now the way -- I just wanted your thoughts on it. So the way I'm looking at the -- your solutions business is that is more trying to boost the local ad spends because, ultimately, the solutions business is more localized, which will probably change this equation of revenue contribution, probably higher revenue contribution coming from the local region. And as you rightly mentioned, in the era of downturn, probably this will help the company on the profitability front as well. Now from a medium to longer term perspective, with this downturn being the way it is behaving, is there any change in the internal benchmark that we had set in terms of the longer term IRR or ROC on the investments that we have made?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [24]

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Okay. Ankur, so basically, let me just correct you. It is not like the solutions business is more targeting local advertisers. In fact, the biggest spenders on our solutions business tend to be large corporates. I gave you the example of Ford, but there are many such examples of companies which are searching for solutions, which go beyond just inventory, right?

So we found that there's a lot of top level clients. Hindustan Lever is another example. Hindustan Lever is not a big spender on radio, but Hindustan Lever is very interested in doing videos with Mirchi and in doing original content with Mirchi. So that's something that I wanted to correct in your perception.

But to answer your earlier question...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [25]

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Retail is about 50% and corporate plus government is another 50%.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [26]

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And if you can cut the government out as -- out of that 50%.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [27]

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Corporate is about 38% and government is 12%.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [28]

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Okay. Ankur, corporate is 38%, government 12% and retail 50%.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [29]

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Sure. That's helpful.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [30]

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All right?

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [31]

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Yes. So just one follow-up on this. Now while I appreciate you mentioned earlier in the call as well that the decline in government spend has been impacting the overall ad growth. But looking at the overall contribution right now, there is a big chunk coming from corporate as well as retail as well in terms of the overall revenues. So any specific sectors wherein you are seeing significant downturn because you did mention auto has been pretty decent for you.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [32]

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Yes. I mentioned -- okay, I mentioned media and entertainment, which is television channels, OTT platforms, events, certain print publications, et cetera, that segment has been spending less because like Radio Mirchi, their business also has been affected.

The second segment that I did mention is FMCG, where I mentioned to you that the lower order FMCG, the middle and lower order FMCG clients, typically, regional players or typically small players who cannot get on to television, come to radio, and their business has been squeezed quite badly. One because of GST. Two because of the slowdown. And as you know, the bigger FMCG players are gaining market share and all that. So the smaller guys who have been squeezed out has cut their spends on radio.

The third category is e-commerce and IT companies in general. Again, it's been dominated by a few big brands, right? And those few big brands have spent money during the World Cup, during ICC. And therefore, this quarter, their spending has been more on television than it has been on radio. But again, we believe that's a temporary thing because they are all very -- they are very regular with radio. And I think these e-commerce and IT players will come back to radio soon.

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Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [33]

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Sure. Just a follow-up and which I asked earlier as well. So your long-term thought of IRR targets of 16%, 18%, they are still intact? Or do you think they may undergo some change?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [34]

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No. I think we did not guide towards a 16% IRR or 18% IRR for batch 1. Batch 1, I think, we had indicated about 14%. So that could come down a bit because the early years have not been very good. So that could come down a bit. Batch 2 numbers will not be impacted because batch 2 happened at a very, very low price. So our own internal numbers are higher. So batch 2 could be around the number that you indicated, but batch 1 will be lower than that. And the IRRs on the existing investments were pretty high because we will have a payback of close to 3 years on the existing licenses. So it is -- batch 1 which will be more of a problem in terms of IRR.

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Operator [35]

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The next question is from the line of Pavneet Singh from Skyline Equity Managers.

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Pavneet Singh Keer;Skyline Equity Managers, [36]

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Prashant, I'd like to know whether the contribution from the solutions business, has it crossed 30% of the total revenue this time around?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [37]

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This quarter is around 30%. It's 29.8%, so close to 30% this quarter.

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Pavneet Singh Keer;Skyline Equity Managers, [38]

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Okay. And then its contribution towards like EBITDA, is the...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [39]

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So around INR 8-odd crores of the EBITDA number came from the solutions business.

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Pavneet Singh Keer;Skyline Equity Managers, [40]

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Okay. And more so it's for next quarter if we are like not holding those international concerts, are we holding any?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [41]

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No. We're not till the time the market improves.

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Pavneet Singh Keer;Skyline Equity Managers, [42]

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Okay. So could you kindly like divulge as to how many number of concerts are we going to hold in this entire year?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [43]

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Well, we do a lot of activities, which includes concerts. And what is the number?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [44]

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So for the quarter, I will give the number. So for the quarter, we had 15 concerts.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [45]

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Yes. So during the quarter, we had 15 concerts, but we had other activation, these are not concerts. And I think all of that put together was almost 80, 8-0.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [46]

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Yes. Activations was about 80.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [47]

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Activations...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [48]

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Activations 80, yes.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [49]

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Activations 80, concerts about 15.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [50]

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And multimedia was more than 80.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [51]

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Yes. And so basically, Q2 is a weak quarter for concerts because of monsoons and all that. So I think we will probably do about 75-odd concerts during the year.

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Pavneet Singh Keer;Skyline Equity Managers, [52]

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So like you are persistent with those numbers like you did 70-odd last year and similarly 70-odd this year?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [53]

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Yes, but we are not -- so we are not scaling that business up. We are focusing more on ensuring profitability because concert business needs a lot of attention to be paid to things like the venue and the artist costs and production costs. There are lot of elements which can get out of control. And given a weak environment, your sponsorship revenues are a little tentative and your ticket sales are tentative. So we have to be very careful. So we are not looking at growing concerts aggressively this year, but we are in the focus on improving margins.

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Pavneet Singh Keer;Skyline Equity Managers, [54]

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About the equipment and fixtures...

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Operator [55]

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Sorry to interrupt you, sir. Sir, can you...

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Pavneet Singh Keer;Skyline Equity Managers, [56]

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It's regarding the question itself.

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Operator [57]

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Okay.

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Pavneet Singh Keer;Skyline Equity Managers, [58]

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Regarding the equipment and fixtures of the -- which you utilized during the concert, have we -- like invested capital in that or like we lease it from the vendors equipment?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [59]

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Yes, those are all leased. So there is hardly any investment in our non-FCT business. The overall investment would be in terms of working capital, and that's about INR 15 crores, 1-5.

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Operator [60]

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The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [61]

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Sir, in the initial remarks, you mentioned that we expect the solutions business to be about 45% to 50% of our top line in the next 4 to 5 years. So if you can also kind of help me understand what can be the steady state gross margin and EBITDA margin for the solutions business? Because on a quarterly basis, there's a lot of volatility as far as margins are concerned.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [62]

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Okay. So if you look at our historical numbers, they have swung between around 28% to 50%. And so I think a number around 35% would be a number that we should be very comfortable at, 35% gross margin, 35-plus is the number, I think you can factor-in in the workings.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [63]

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And EBITDA. Also, if you can share?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [64]

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As we get scale...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [65]

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We -- in the current quarter, we had an EBITDA margin of about 24%, right? And that's also on the back of a very high gross profit margin. But going forward, we will have lot of scale, as Prashant said. So we should inch towards 25% EBITDA margin in our solutions business.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [66]

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Okay. And secondly, if my understanding is correct then the solutions business is slightly manpower intensive. So if you can just help me understand, say for example, if you spend INR 100 in a quarter towards the employee expenses, what is the breakdown between solutions and core radio, just a rough approximation will also help.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [67]

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Well, so there are -- so Mirchi has about 1,100 people. So all the overheads are required for the radio business, right, which means the programming teams and the support staff, all of that is required in any case to run the radio business, right? Now almost half of this headcount of 1,100 people is the revenue generation people. So let's say about 550 people, right? Now in the 550 people, there are about 100 people who are dedicated towards the solutions business. And then there are a few more people, designers and execution people, and those people who are again towards the solutions business. But this does not mean that the remaining salespeople are not supporting the solutions business because in all the smaller markets, the radio team also sells the solutions products, right? So if you go to, let's say a Vadodara or if you go to a Coimbatore, then we have a common team. So sales team is common for radio and for solutions. So they are selling the whole portfolio of products.

So to that extent, there is some sharing of people between the radio business and the solutions business, right? So that's how it's structured, but directly employed in the solutions business, I would imagine will be about 100, 125.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [68]

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If you look at our quarter 2 figure, we had approximately 1,050 people. More than -- the cost of more than 200 people have been considered in the non-FCT business, exclusively, the non-FCT business.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [69]

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Okay. One last question. With local advertisers being slightly more sensitive to the slowdown, is there any delay in ad spends from their side in this quarter?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [70]

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Any response, anything?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [71]

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Delay.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [72]

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Delay. I mean, are the local guys spending less, Yatish?

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Yatish Mehrishi, Entertainment Network (India) Limited - COO [73]

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Share has held a bit. It was 52% and 50%.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [74]

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Yes. So the share has held up. So I don't think that, that is true.

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Yatish Mehrishi, Entertainment Network (India) Limited - COO [75]

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52% is down to 50%.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [76]

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52% retail has come down to 50%, but that's very marginal.

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Operator [77]

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The next question is from the line of V.P. Rajesh from Banyan Capital.

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V.P. Rajesh, Banayan Capital Advisors Llp - Managing Partner & Portfolio Manager [78]

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Just a few questions on Slide 5. You mentioned the non-FCT gross margin was greater than 45%. And if I heard you correctly, you were saying that the long-term gross margin guidance is around 35%. So did I get that right?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [79]

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Yes. So 2 things. Typically, what happens is that our gross margins are very high in the first half, right? And the gross margins tend to be lower in the second half because the current quarter also has got a mix effect. When we talk about our solutions business, there's actually an aggregation of about 10 products, okay? There are products which have margins of sub-10% and there are products which have margins of close to 90%, right, okay? So our mix has been very good, in addition to the efficiencies that we have had, okay? So I was assuming a normalized mix when I gave you 35%, as we improve the mix, the margins will tend -- closer to 45%. So 35% is a very comfortable number.

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V.P. Rajesh, Banayan Capital Advisors Llp - Managing Partner & Portfolio Manager [80]

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Understood. And what's the EBITDA loss on the U.S. radio stations?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [81]

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So we'll come back to you. It is shown in the subsidiary.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [82]

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Rajesh, we'll come back to you. It's -- we'll come back to you.

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V.P. Rajesh, Banayan Capital Advisors Llp - Managing Partner & Portfolio Manager [83]

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Okay. And...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [84]

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EBITDA numbers are in the subsidiary numbers, which are part of the Regulation 33.

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V.P. Rajesh, Banayan Capital Advisors Llp - Managing Partner & Portfolio Manager [85]

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Okay. I'll look at them. On the radio side, I was just wanting to ask you, let's guess, where we are in the cycle given this is probably your third or fourth cycle running the radio business for a very, very long time.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [86]

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Sorry, what was the question? Where are we on the cycle, means what?

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V.P. Rajesh, Banayan Capital Advisors Llp - Managing Partner & Portfolio Manager [87]

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In the radio -- so you have been in the radio business for a very, very long time. And my question is that, what's the best guess where we are in the cycle, meaning are we -- your sense is that we've bottomed out or are your sense is there is more things to come as far as the radio business is concerned?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [88]

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Okay. So like I said earlier in the call, we are also a little surprised by the length of this slowdown. We have seen slowdowns in the past, but they haven't lasted this long. And this slowdown has started from the demonetization period and has been gradually inching down quarter after quarter after quarter after quarter. So we haven't seen such an extended spell of slowdown, that's one.

The second difference, normally, when you see an economic slowdown, as happened after the Lehman crisis or I think happened also in 2012 or '13 or somewhere, typically, what happens is that brands start advertising discounts much more. And therefore, the radio medium actually benefits from economic slowdown. This time, however, what has happened is that there has been probably such a big slowdown that advertisers are actually cutting back price quite strongly across all kinds of advertising. So these are the 2 differences from all our experiences of the past. Now our view is that in the future, government advertising will definitely pick up, whether it is now or 3 months from now, but it will pick up and the government will have to advertise its programs.

When it comes to the private sector, the best estimate we are getting from market is that this slowdown will continue for another couple of quarters at least, maybe this financial year will be a bit of a washout and then business will be back to better terms from April. But another picture that we are also hearing is that MNCs will start spending more from January. So again, we're waiting to see how this plays out.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [89]

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And also to go back to your earlier question on the U.S. operations, we had an EBITDA profit of INR 50 lakhs in the U.S. business, but the overall results of operations are a loss because of depreciation and interest under Ind AS.

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V.P. Rajesh, Banayan Capital Advisors Llp - Managing Partner & Portfolio Manager [90]

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Great. And finally, in terms of the advertising -- local advertising, do you think some of that has shifted to PVR type of operators because they are showing quarter-over-quarter growth in their advertising business and obviously, it's on a small base?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [91]

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No. Actually, Rajesh, these -- all media vehicles are very different from each other. They serve different purposes. Like look at you said PVR, most people visit multiplexes or theaters once in 6 weeks or some number like that. So advertisers don't get repeat. So they just do a little bit of extensions and all that. So the purpose is different. It's more like a brand refresh rather than actually selling goods.

When they come on to radio, the objective is to sell the goods, right? When they go on to print, it is immediacy, I want the result tomorrow, right? When it go on to television, it's usually about brand building. Wherein they go on to digital, it's, again, more transaction. I want to sell products, right? So the objectives of each mediums are very different. Their usage are very different. One does not hit or cannibalize the other. And therefore, PVR growth would have no impact -- would have no relevance to what happens to the radio industry.

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Operator [92]

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The next question is from the line of Rohit Dokania from IDFC Securities.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [93]

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Sorry if my question is a repeat because I missed some part of the call. So Prashant, you mentioned that there was -- it was rather Subbu, you mentioned that there was almost INR 8 crores of EBITDA from the solutions business. So if I strip that out from the underlying non-Ind AS EBITDA, there's just about INR 11-odd crores from radio, which should mean a 14% margin. So what's the sort of -- why is the radio margins so low, could you please allude to that?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [94]

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Rohit, it's a very simple answer. It's a high operating leverage business. Whatever you lose on top line goes straight to the bottom line. But equally, the recovery is that fast. So like I told earlier in the call, INR 17 crores drop in radio revenues would actually -- should have resulted in INR 15 crores of my EBITDA going down, but the solutions business provided the boost.

So if, let's say, the INR 17 crores would have come back, I mean, my EBITDA would climb by almost INR 15 crores from the current level, which is arguably above what I was last year.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [95]

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Sure. So will it be possible to give a breakup of the sort of both revenue and EBITDA for both this quarter and the base quarter across the 2 segments, which is the radio and the solutions business, that would probably help us understand.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [96]

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Yes, we'll share that separately, Rohit. So for the current quarter, I'll give you the numbers. As I said, about INR 8-odd crores, INR 8.2 crores came from the solutions business. There was also a drag on account of U.S. cost and Qatar cost booked in our books. That's approximately about INR 50 lakhs and the balance is from the radio business.

For the corresponding quarter of the previous year, just hold on, okay? It's a much smaller number. The non -- the solutions business was about INR 2 crores. So INR 2 crores has moved to INR 8 crores in the solutions business, right? You also had a small expenditure on account of U.S. and Qatar last quarter as well. That was approximately about INR 40 lakhs, INR 50 lakhs. So the balance is the radio number.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [97]

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Understood. That's very helpful. The other piece was, during the last quarter, Subbu, you had alluded to the fact that the underlying EBITDA could grow higher than 12% to 15-odd percent. Obviously, we understand that there's been a sharp deceleration as far as the overall economy is concerned. So would you want to revisit that? Do you think even sort of matching up last year's EBITDA would be difficult -- the underlying EBITDA, which is a non-Ind AS 116 EBITDA, would it be difficult?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [98]

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So it will be very difficult, given if -- if you have a decline in radio, then the non-FCT growth will have to be actually 3x to sort of offset, right? If I take a 35% margin, so close to 3x sort of a number we need in the non-FCT business. While we are growing very rapidly there, it will be very difficult to double and triple non-FCT business so quickly. We may be at that number 3, 4 years down the line, but today, it is very, very tough. So you will see a decline in the overall EBITDA.

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Operator [99]

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The next question is from the line of Yogesh Kirve from B&K Securities.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [100]

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Sir, just what I wanted to understand the drivers of the solutions business. So I understand some international concerts, we do not plan to do for now. And even the domestic concerts, you said you're not looking to increase the number of events. So what will be the drivers? I mean, which are the scalable business within the solutions group?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [101]

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So one of the products in the solutions group, we have a subcategorization, which you call -- so basically, we work on either client solutions or we create our own solutions, which is our own IPs, right? So client solutions is going to grow very fast because clients who are under pressure in the market are looking for partners who can give solutions to them to increase their own business, right? So client solutions business is a very big piece. And we have a relatively small place there right now. We can really see that expanding very rapidly in the times to come.

Then there is a second business, which is the IP business, where -- which have concerts and we do a lot of IPs activation like we create our own properties or we do television IPs and all that. So those businesses are you need to put in much more effort and time and it takes a long time for the margins to build over there. But once you achieve those higher margins, then those are very long-lasting IPs and they generate a future cash stream, which is sustained and regular. So those business -- the IP businesses is where -- so concert falls into the IP businesses. And that is where our effort has been on cutting costs, managing vendors much better, managing artists much better, and that is how the improvement in margins has come. But if the economic environment is slow, then building IPs becomes that much more difficult because generating revenue becomes more difficult. In a slow economic environment, client solutions will tend to be growing faster. Your own IPs will grow a little slower. That's how it works.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [102]

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Regarding the digital initiatives that we are planning, so this would fall in one of these things? Would that be part of client solutions?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [103]

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Yes. One of the brands -- one of the solutions businesses is our original concert business. Now original concert, as explained in the past, has 2 revenue models. One is, of course, a model where we can get brands to integrate into the story line, and then this original content is released on our YouTube channel. That is one revenue model.

The other revenue model is where we do not release it on YouTube, where we do not get brand integration, but we sell the content or we lease the content out to OTT players like Voot or MX Player or so many others, right? And there are a whole lot of them waiting for content. Now we have a lot of strength over here because we are strong regional language players. We have 300-plus creative people. We have more than 200 ex-Mirchi people who are now outside in the free world, and many of them are creating video content. So we work in an ecosystem where getting good video content, getting good original content scripts is relatively, we are in a strong position over there, right? So yes, that is very much part of the solutions business. There is original content and there is YouTube and there is videos in general. All of that is part of the solutions business.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [104]

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That's helpful.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [105]

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Let me just give you -- let me give you an example. See when we went to Tinder. Now you know what Tinder is, Tinder is a dating app, right? Now when we went to Tinder, Tinder was not interested in radio advertising. Now if you go to another radio company, they would have lost the client, right? But what we said is, it doesn't matter, what do you want to do? They say, "Hey, we want to talk to college kids, and we want to know what they believe about Tinder, we want them to start discussing Tinder, chatting about Tinder with each other."

So we said, why don't we take our popular RJ, go to college campuses, and he interacts with the various young college kids, jokes with them, plays with them, talks to them about dating, talks to them about Tinder. And we shoot it on video and we release it on a very popular social media handle. We did that, we got a lot of money from Tinder because Tinder is very interested in digital. Tinder is very interested in videos. Tinder is not interested in radio.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [106]

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Right. And from what I understand the client solutions -- so the client solutions are, basically, the smaller part of the business, which would scale, right?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [107]

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No, no, client solutions has a very high potential. It's a massive opportunity, it's a massive...

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [108]

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Right now in terms of the contribution, if you look at the overall solutions group, so...

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [109]

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Well, like Subbu said, there are about 10 products in the solutions business. Client solutions is one of the bigger pieces. But client solutions will be about, I would say, 20% of the overall solutions portfolio.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [110]

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Okay, okay. That's clear. And sir, another question I had regarding -- so was there any element of CapEx during the quarter because I understand free cash flow of closer to INR 15 crore, INR 16 crore, and I think operating cash flow was...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [111]

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So they're very hardly anything. If you look at -- in terms of CapEx, it was about INR 1 crore of outflow. There was about INR 3.5 crores of investment that we did in our U.S. company. So that's about INR 5 crores -- so totally, it's about INR 5 crores or less than INR 5 crores actually.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [112]

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So I think what you mentioned in the...

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Operator [113]

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Sorry to interrupt, sir. Sir, I request you to come back in the queue.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [114]

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Can I complete with the follow-up?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [115]

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Sure. Please go ahead, Yogesh.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [116]

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Yes. So what we have mentioned in the earnings presentation is that the EBITDA -- the operating cash flow is close to INR 33 crores.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [117]

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Yes.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [118]

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And cash has went up by INR 17 crores. So just trying to match to...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [119]

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So during the -- current quarter the dividend distribution impact is also there, right? So dividend about INR 575 lakhs. So if you factor that, the numbers will match up.

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Operator [120]

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Due to time constraint, we'll take the next question as the last question of this conference, which is from the line of [Manish Gandhi], individual investor.

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Unidentified Participant, [121]

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So in the first quarter also, we had 30-plus percent of FCT growth, if I'm not mistaken.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [122]

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Yes, non-FCT growth, yes.

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Unidentified Participant, [123]

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Non-FCT, sorry. So my question is, in the 6 months, so we have grown more than 30% in solutions business. And this is one of the worst 6 months economy had gone through last 10 years. So is it because of that, earlier it is to be radio, in bad times, radio used to benefit. So I'm just trying to figure out how the solutions business will pan out, say, 3 years, 5 years, when the economy grows, so that is one. And another thing, if you feel that no, it is growing not because of that. So in such a low investment and in a good base, INR 200 crore. So why nobody is entering this business? And why investor is also not still understanding?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [124]

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Okay. First, let me try to answer one step at a time. First, let me tell you, it is a very difficult business to do. It has taken us 15 years to come to this stage. People don't realize that we've been doing it for 15 years because creating solutions involves knowing the client in and out. And I'm not talking media agency, I'm talking client and creative agency. Most media companies don't have relationships with creative agency or with the client.

Two, creating ideas which span multiple media is very difficult because most media companies have specialists only in their function. A print company will have print experts. The TV company will have video experts, but a video company will not know radio, a radio company will not know print. We require those skills.

Three, execution is very, very difficult because this is the dirty part of the business. This is not like releasing one television order and releasing a film and it gets played very neatly on television or on digital. This is the dirty part of it. You go to a ground, you have to clean the ground up, you have to get footfall, you have to make sure the experience is good, you have to make sure that there are no problems, et cetera, that sponsors don't back out at the last minute, footfalls happen as you have envisaged. All those people who came to your event also buy the drinks and the foods that you serve. So there are lot more variables, lot more vulnerabilities over here. And that is the reason why it's not easy for any -- for many people to get into this business.

Let me give you one small example, [Manish]. We do the Mirchi Music Awards and we have done it for 11 years. We are getting into our 12th year now. In the meantime, there was another music award which came. And it wound up in 3 years. And this was from a large event management company, a very -- the biggest event management country -- company in the country created a music award and in 3 years, it shut shop because it is very difficult business to run. So we have a lot of entry barriers that we have created in the solutions business. We see INR 200 crores of growing to maybe INR 1,000 crores. I mean, I think the potential is that much because we have created the entry barriers for ourselves. So that's one question that I wanted to answer for you.

What was the other question, Manish ?

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Unidentified Participant, [125]

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Yes. So...

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [126]

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Yes. And the other thing is that what happens to the business when the economy rebounds, right? Now in our belief, the solutions business, now, look at the client solution part of the business. The client solution means a solution that you have been telling your client is -- see, okay, how does a client work today? Let's say, if you were -- let's say, Nando's, okay, the food chain that -- the restaurant chain, which has come into India. Now typically, Nando's would have a creative agency, Nando's would have a media agency, Nando's would have an event agency, Nando's would have a PR agency, correct? And typically for any program that they want to do, they would involve their creative agency and then one after the other, they would involve all the other partners. And all the responsibility is on their head. And yet, there is no way of knowing if this is the most efficient way to spend the money.

Now what happens is that when somebody comes with 20 years of experience in this area and say, "Hey, Mr. Nando's, let me tell you that maybe the better way to do this is to do it in this particular way." And then I bring in my personalities, I bring in my digital assets and I bring in all the other things, and I create a solution which is unique for Nando's. It is custom-made for Nando's. It is executed by my team. Very difficult to do, but it produces many, much more results.

What happened as a result of this is, nonradio advertisers get into my company. Two, I get larger share of monies from the advertiser because, certainly, they are spending on other things than just radio inventory. And three, because the client gets results and I'm interacting with the client directly, my relationship is far stronger. And therefore, I don't depend on media agencies for my business. So I'm more proofed and more secured from price negotiations and price cuts and all of those kinds of things. So every which way it protects my business, grows my business. So when the economy improves, I think the solutions business will grow even more fast.

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Unidentified Participant, [127]

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That's fantastic. So...

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [128]

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The thing is it's a great business, but it's a very, very difficult business. And having spent 20 years, I think, we are in a good spot now. Just think about it, it has taken us 20 years to hit INR 200 crores. I mean, it's a very slow progress because it takes a very, very long time. There are all types of SOPs that have to be written, there are all kinds of (technical difficulty) it's a really, really difficult business to do. And let me tell you there is no global example of that. There is no global precedence of that. Most global radio companies merely do digital in addition to radio. That's all they do. A clear channel does concerts in addition to radio, but no radio company worldwide has 10 solutions products, which are there in the book.

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Unidentified Participant, [129]

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Yes, but Prashant, I must tell you, INR 200 crores is not less because we are doing INR 400 crores of radio and this INR 200 crores we just invested, what amount of money?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [130]

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Yes. Like Subbu said, it's only working capital.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [131]

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INR 15 crores of working capital.

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Unidentified Participant, [132]

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So let us say, after 1, 2 years when the radio comes back...

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [133]

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Yes.

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Unidentified Participant, [134]

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You are saying the solution is also...

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [135]

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Exactly.

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Unidentified Participant, [136]

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So the confidence shows that you can easily grow 20%, 25%, even from whatever level?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [137]

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Correct. And because solutions is a very strategic business for us, in the coming quarters, you will see how we will ring-fence the solutions business in such a way that its growth will be independent of the radio business. Radio will grow because of its own growth and solutions will grow because of its own growth. Both businesses will grow at the same time. Today, the radio business is down, but the solutions is growing. But in the future, I see both growing at a fast pace. Radio will grow slow, solutions will grow faster, but both will grow.

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Unidentified Participant, [138]

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Right. So in a good times, it seems our ROCE and ROE should be far higher because of this.

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [139]

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Yes. So -- yes, because the growth is coming on the back of no further capital infusion, right? So with our capital infusion for this business is already complete, there is no further investment in terms of capital. So you will see an improvement in ROC.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [140]

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Tanvi, I see that there's only one more caller, let's -- you can take that and then end the call, conference call.

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Operator [141]

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Sure, sure. So the next question is from the line of Pavneet Singh, Skyline Equity Managers.

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Pavneet Singh Keer;Skyline Equity Managers, [142]

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I was fortunate enough to reconnect and because after 1 hour the call gets disconnected for everybody. It's all right. Prashant, the question is regarding this -- the listenership. You said that it was like growing at a very healthy pace, the car audience, which is stuck in the traffic is growing and everything. And despite this sticky listenership, why is that brands are not interested in radio to that a great extent. But the stickiness is increasing, the traffic is increasing, the numbers of cars holders increasing and in spite that the business is not increasing.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [143]

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No, Pavneet, that is not true. What is happening is that as more advertisers are realizing this, the kind of clients who come on to radio is changing. For instance, the importance of FMCG on radio is reducing. Because it is more -- in car listenership, it is more male listenership, it is more youth listenership, but not so much housewives listenership. So FMCG's importance is reducing. So what is increasing, auto is very strong, banking finance insurance is very strong, IT and e-commerce companies are very strong, government is very strong, retail -- large-format retail is very strong, real estate is very strong, the education is very strong. So the profile...

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Pavneet Singh Keer;Skyline Equity Managers, [144]

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Volumes are dipping. Prashant, volumes are not increasing to that extent.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [145]

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That's because of the current environment. I'm talking about the transformation taking place in radio listenership and advertiser profile on a larger timescale basis. Currently...

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Pavneet Singh Keer;Skyline Equity Managers, [146]

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And many a times, we are also like trying to like, listen to the radio just for the sake of understanding as who are advertising and we find that there are many brands missing out completely on radio, despite being a part of the consumption growth or the consumption category or many other categories, they have been missing out. You travel around different cities and many of the brands, you just don't hear them on the radio. So are we getting -- like are we not having the sales force segregated enough to like bring in those advertisers?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [147]

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Pavneet, I'll tell you the biggest brands that you miss on radio are the big FMCG brands. So there's no HUL, there's very little Nestlé, there is very little Reckitt or no Reckitt, there is no Dabur, there is very little. So these are the big brands. But remember that these brands are widely distributed nationally. It is more efficient for them to be on television. I would also recommend them to go television.

However, when they run a consumer promo in a particular state, then they come to radio. So you will find some action happening in one state, but it won't be done nationally. That -- so FMCG is the only category where you will find that the big brands are not on radio. But if you take auto, BFI, all the big names are there, whether it's Amazon, all the IT big names are there on radio. All the IT big names are there, all the banking big names are there, all the auto big names are there, you just name it, everybody is on radio.

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Pavneet Singh Keer;Skyline Equity Managers, [148]

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One last thing I'd like to squeeze in was that this -- the automobile inventory, which needs to be wound up before March comes to -- March 2020 comes up. And have you seen the influx of the automobile getting more and more during these quarters or the forthcoming quarters, I mean? And how is the scenario panning out until now? It's almost like half of them but it's gone now, who are they standing out?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [149]

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Just repeat the question, please? I didn't understand.

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Pavneet Singh Keer;Skyline Equity Managers, [150]

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One thing is like the automobile industry is in a state of loss, and they need to finish of their inventory, not only inventory, they also need to sell cars or their other automobiles flow to it. So like are they increasing their volumes because they need to like, show their -- like, would they want to utilize the radio medium as a medium, which you need to like highlight these stickiness towards the brand or are they increasing the volumes?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [151]

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Yes. In fact, the auto sector, volumes have grown compared to last year. That is -- it has grown by 11% compared to last year. Even in this slump, they have cut on television, they have cut everywhere, but their volumes have grown in terms of volumes by 11%. And in terms of revenue by 29% auto sector.

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Pavneet Singh Keer;Skyline Equity Managers, [152]

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Okay. And what about like until now in November, how is the current quarter had been until now?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [153]

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Like through the quarter 2 -- you're talking about quarter 2, right?

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Pavneet Singh Keer;Skyline Equity Managers, [154]

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Yes. Quarter 3, I'm talking about. Like, it's almost like 15 days have gone from November as well.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [155]

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I mentioned earlier in the call that quarter 3 is as weak as quarter 2.

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Pavneet Singh Keer;Skyline Equity Managers, [156]

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Despite being the festive quarter.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [157]

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Despite being the festive quarter. It -- October was better than last year October because Diwali was earlier, and there was a base effect. But November was proportionately weaker or is proportionately weaker. So if we take October plus November, it is pretty much where it was last year -- sorry, where it was in Q2.

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Pavneet Singh Keer;Skyline Equity Managers, [158]

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So you foresee the EBITDA like rounding about the same number as the last year because (inaudible) it was loss for the concert business, which you faced that will be absent this time around. So probably if anything grows okay and there is just -- the EBITDA will be like round about where we did last year?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [159]

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EBITDA will improve because the losses on international concerts will not happen, number one. EBITDA will -- should possibly also improve because my solutions business will come in strong as well in Q3.

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Pavneet Singh Keer;Skyline Equity Managers, [160]

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But not to the extent of 12% to 15% as Subbu forecasted last time, right?

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [161]

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Not to the extent of 12% to 15%, what?

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Pavneet Singh Keer;Skyline Equity Managers, [162]

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15%. It was being forecasted by Subbu that it should grow in that vicinity anyway?

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [163]

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Yes. So that number looks a little difficult. That was the number that we gave for the full year. So given what has happened in the first half, it will be very difficult to reach that number or it will not be possible.

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Pavneet Singh Keer;Skyline Equity Managers, [164]

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High single-digit numbers, can it be possible or even that is not like...

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Narayanan Subramanian, Entertainment Network (India) Limited - Executive Director & Group CFO [165]

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So the second half, as it looks, October, November, we'll have to see, because one of the things that you have to also note in the radio industry is that you don't have long campaigns. Most of them happen are 7 days, 15 days campaigns. So we want to see how the December numbers are before we give sort of revision outlook.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [166]

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Tanvi, we can call the conference over now.

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Operator [167]

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Sure. On behalf of Entertainment Network (India) Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.

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Prashant Babulal Panday, Entertainment Network (India) Limited - CEO, MD & Director [168]

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Thank you very much.