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Edited Transcript of EROS earnings conference call or presentation 15-Nov-18 1:30pm GMT

Q2 2019 Eros International PLC Earnings Call

Mumbai Dec 4, 2018 (Thomson StreetEvents) -- Edited Transcript of Eros International PLC earnings conference call or presentation Thursday, November 15, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Kishore Arjan Lulla

Eros International Plc - Executive Chairman, Group CEO & MD

* Prem Parameswaran

Eros International Plc - Group CFO & President of North America

* Rishika Lulla Singh

Eros International Plc - CEO of Eros Digital & Director

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Conference Call Participants

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* Jigar Shah

Maybank Kim Eng Holdings Limited, Research Division - Head of Research of India

* Theodore P. Cronin

Citigroup Inc, Research Division - Research Analyst

* Timothy Wilson Nollen

Macquarie Research - Senior Media Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Eros International Plc's Second Quarter Fiscal Year 2019 Earnings Conference Call. This call is being broadcast live on the internet, and a replay of the call will be available on the company's website. This morning, the company published its earnings press release on its website, erosplc.com.

The company would like to remind everyone listening that during this call, it will be making forward-looking statements under the safe harbor provisions of the federal security laws. The company's actual results may differ materially from those projected under forward-looking statements. During the call, the company will also discuss non-GAAP financial measures in talking about its performance. You can find a reconciliation of these measures to the GAAP financial measures in the company's press release.

I would now like to turn the call over to Mr. Kishore Lulla, Executive Chairman and CEO of Eros International Plc. Please go ahead, sir.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [2]

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Thank you. Good morning, ladies and gentlemen. We are pleased to announce another strong set of results this quarter, including sequential revenue growth, improving margins and a solid capital structure.

The media market in India is robust and growing, driven by rapid technological and socioeconomic changes. We benefit from all areas of this growth from ticket sales, digital downloads, advertising to pay television, whilst digital continues to be the main driver for our growth for the future.

It's important to bear in the mind that the television market in India is still growing at a strong pace, projected at 15% for the next few years, which provides strong tailwinds to our television syndication business.

We also delivered outsized growth at Eros Now, crossing 13 million paying subscribers, a growth of 28.7% over the previous quarter and now have 128 million registered users as of September 30, 2018.

We remain focused on the OTT customer and consumer, and we have an exciting pipeline of cutting-edge original content lined up for the next year.

This is in line with the Eros strategy of developing its own intellectual property and concentrating on the content-driven films rather than the high-budget, star-driven films to that, and we have planned approximately $750 million in content investment over the next 3 years, which we expect to generate a meaningful ROI for our business.

Being a part of the largest independent Indian film studio, with the biggest content library, we are in the pole position to establish and maintain our leadership position in the Indian OTT space given our brand name, know-how and the long-term relationship built over decades.

As the most established and the prestigious Indian film studio, we are also blessed with one of the deepest and the richest content libraries.

Over the last 10 years, Eros has been responsible for more than 29 out of the top 100 highest-grossing Indian films at the box office.

We are fortunate to have complete control over the content we create, benefit from the fact that our in-house content give us the ability to create strong franchises, support and nurture new talent and ultimately give consumers the best possible entertainment choices.

Eros Now pioneered online video streaming in India which, we believe, there is a significant opportunity ahead as consumers continue to discover and consume consumer entertainment they enjoy. We want to help them on their journey. Thank you so much.

I would now like now Rishika Lulla, the CEO of Eros Digital, to address. Thank you.

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Rishika Lulla Singh, Eros International Plc - CEO of Eros Digital & Director [3]

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Thank you, very much, KL. Good morning, everyone. Our latest results are a reflection of the Eros promise to deliver viewers a premium entertainment offering at the right price worldwide.

The recent launch of Eros Now originals, Smoke and Side Hero, is indeed a testament to our strategy of delivering quality cinematic narratives to digital audiences.

We are humbled and excited by the audience appreciation and adoption of our originals, which has received several accolades and more importantly many firsts.

Of note, Side Hero was the first Indian original series to generate 10 million views on a trailer and has the highest IMDB rating of any original in India until Smoke, which by the way, was the only original from India to be screened at Mipcom 2018 in Cannes earlier this year.

We remain focused on the OTT consumer and have an exciting pipeline of cutting-edge original content lined up for the rest of the year.

This is totally in line with our strategy to develop our own intellectual property and concentrate on content-driven films rather than high-budget, star-driven films.

According to our proprietary data, overall platform engagement continues to increase. Long form content continues to deliver the highest levels of engagement, with the majority of Eros Now films being viewed in less than 2 sessions. An engaged viewer also returns at least 3 times a week, spending a minimum of 40 minutes on the platform.

During the second quarter alone, we've seen a 25% increase in the number of sessions per subscriber. Our registered user base of over 128 million people also provides us with a very unique opportunity to both monitor and learn viewing habits as well as the ability to convert a portion of this base into a monthly paid subscriber.

Our large registered user base also represents new revenue opportunity for us in the form of online advertising.

We look forward to rolling out over 100 originals over the next 18 months in multiple languages and further bringing the Indian entertainment ecosystem together.

I would now like to pass the call on to Prem, our CFO.

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Prem Parameswaran, Eros International Plc - Group CFO & President of North America [4]

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Thank you, Rishika. Good morning, everyone, and thank you again for joining us today on our earnings call. We've made a lot of progress this quarter, and I would like to share some of our major financial and operating highlights. We will then take your questions. This quarter, we generated $72.2 million in top line gross revenues before the impact of IFRS 15 compared to $65.4 million in Q2 fiscal 2018 on a like-for-like basis.

Adjusted EBITDA for the quarter was $24.8 million compared to $17.2 million last year, which represents an increase of 44.2%. Moreover, our adjusted EBITDA margin expanded significantly over the prior year period to almost 40%, reflecting our focus on ramping content and strategic investments, while at the same time, managing our cost base. We ended the quarter with $135 million of cash on our balance sheet. On a 12-month trailing basis, our net debt as of September 30, 2018, is $162.1 million, and our net leverage ratio remains conservative at 1.58x. The majority of our debt has a long-term maturity profile.

Now turning back to revenues. Our digital and ancillary business had a particularly strong quarter, generating $27.1 million compared to $20.6 million in Q2 fiscal 2018, which represents a growth rate of 32%. This was largely due to the contribution from our growing Eros Now platform. Our theatrical business generated $18.8 million in revenue this quarter based on 17 releases compared to $19.4 million in Q2 of fiscal '18.

Eros released 17 films this quarter, 4 medium-budget and 13 small-budget films as compared to 7 films in Q2 2018, 2 medium-budget and 5 small-budget films. Our TV syndication business generated $17.5 million of revenue this quarter compared to $23.2 million in Q2 2018.

As of September 30, 2018, our Eros Now platform had over 128 million registered users, and 13 million paying subscribers. We want to reiterate our guidance of doubling our paid sub base over this fiscal year, and we remain confident of achieving our guidance of 16 million paying subscribers by fiscal year-end March 2019.

As Rishika mentioned earlier, the success of our originals combined with renewed marketing push has increased user engagement and provided a nice tailwind to this business. We are also remain committed to improving our working capital position and targeting to maintain our DSO days at 200 to 250 level by year-end. Given the shorter collection cycle in the digital business as well as our revenue profile from our theatrical business, the change in our revenue mix alone will go a long way to achieving that end. Thank you for listening.

And now we are happy to take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will now take our first question from Jigar Shah from Maybank.

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Jigar Shah, Maybank Kim Eng Holdings Limited, Research Division - Head of Research of India [2]

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I have couple of questions, first, to begin with, for Kishore, which partly pertain to the industry and partly pertain to the company strategy. We have seen a very strong emergence of the OTT industry in India in the past 6 months. The activity is increasing or accelerating, which is very visible from the kind of originals and the marketing done by the likes of Amazon, Netflix, Hotstar, Zee5 and Eros. These 5 seem to be the big players. One of the -- and you've also done very well on your first few originals. How do you plan to compete with these players having deep pockets? And the kind of acceleration in subscribers that you've shown so far, there's going to be a lot of competition. So there is a challenge both in terms of marketing and getting subscribers, creating content as well as maintaining and sustaining the creativity. So how do you plan to do that? That is my first question. So any elaboration on that will be great.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [3]

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So that is the right question you've asked actually. So I was asked this question actually in 2007 and 2008 when the emergence of the studio model had happened in India. So Eros had taken the lead in doing the emergence of the studio model in 2006 when the market was totally fragmented with the pair of production houses. And we had listed on London Stock exchange. We were the first Indian company to list on that and raise the money to consolidate that. And immediately after our -- starting of the studio model, we had the competition from the likes of Disney, Fox, Warner Bros, Viacom and Sony. And if you look at the last 10 years what has happened in the industry is that the industry got consolidated, and we are the only independent studio which is in this game, and the also the Zee has joined the studio business in the last 3 years. The same question was asked that how would you survive the competition, and how would you fight these companies with deep pockets of the sizes of Disney and Fox and everyone. And I think the whole result is in front of you. In the last 10 years, out of the top 110 films, Eros has market share of 36 films. So that speaks about the Eros management team that what happened in the last 10 years. We not only survived the competition, we also increased our market share slowly and slowly from 2006 by building on the best content, and it was not only the big 10 phone films which Eros backed, it was about the right content strategy at the right time, backing the right talent at the right time. And not overpaying in the overheated market. And that results you can compare in the last 10 years. Now come to the OTT market now. So I think nothing has changed. The only thing is the narrative has been changed whereby instead of the studio models, now it is the OTT market. Now the OTT market, the whole growth has been fueled by the 4G and it is thanks to Jio which has fueled the growth and thereby India has got 1.3 billion subscribers. So I think there is a room for 4 to 5 players in India unlike in the U.S., there is 2 to 3. The winner takes it all because of this major population of 1.3 billion people, and the diversity in the Indian population in India. So what is the difference between the television content, television and the OTT? I think OTT is an extension of the cinematic content on a binge watch. Basically, you saw the emergence of Netflix in the last 5 years. And what did change the game for Netflix was House of Cards and the series like Narcos and The Crown and all the Marco Polos of this world. And what was that actually, it was actually the similar cinematic content on binge watch, and that's what we're trying to concentrate on. We have a winning team, whereby which did deliver the results of the cinematic content, the cinema. So exactly the same team which knows how to back and which movies to back, we are following the same green-lighting process whereby what originals to back on. Now the first originals, if you look at what Rishika talked about, Side Hero and Smoke. Smoke has become the highest-rated Indian television show on IMDB with the ratings of more than 9.2. -- and the viewership figures and the reviews. Now we have been doing the research since the last 2 years on what sort of content should be made for OTT and also the data analytics we have. So come to the OTT platforms between Amazon, Netflix, Eros Now, Zee5 and Hotstar, as you said 5 of the big players. The major play is going to be between movies and the original content. So I will address first the movie part. Now if you look at the online content available on the movies in different languages on all the 5 platforms, and if you look the market share, Eros is about 45% market share of the content availability into different languages compared to all the 5 players. So if let's assume 10,000 movies are available between the 5 players, we have more than 45% market share on that. So that gives us the lead vis-a-vis the other players, which have been the late entrants into the market, even though they have deep pockets, the movie prices have shot up at exorbitant prices. Now also being as a studio, what we are doing, we are producing, coproducing or acquiring about 50 to 60 movies per year. Now that gives us the competitive edge because we are not competing with the other production houses or other studios to acquire and bid for those movies for Eros Now vis-a-vis Netflix or Amazon and the other players. So that is our own content which goes as a premier, and then we are also premiering the other movies. You've seen that, in the last 1 year, we have premiered more than 100 titles, new titles, and also the short videos and the other content. Now the game is shifting towards the movies as well as the original content which we are producing. So you will -- within the next 18 months, you will see about 100 new originals which the scripts have been agreed and into the different languages we are rolling out. And also I would like to address that how we are going to fund that. So basically, we are going to fund in the next 3 years, our CapEx guidance is about $750 million, which is inclusive of the studio slate and as well as the originals which we are planning every year. And within the next 3 years also the cash flow generation is more than $800 million to $850 million. So we are not going to incur a lot of debt to fuel this growth. It is coming from the internal cash flows because we have a deep library which is generating money from the syndication, and especially, the new markets which are opening up for us also like China. So for China, which has become a big market also whether for the theatrical releases or whether for the online, also is going to fuel our growth in the next 3 years for -- over revenues. And not just China, it is the other markets which are dub markets like Russia, Poland, Indonesia, Thailand, Malaysia, all those markets are embracing Bollywood in a big way. So we are in this unique position, Jigar, whereby we feel that we will would be definitely one of the players surviving this competition as we did amongst the studio business because of our management structure, because of our deep library and we are not leveraged at all and because of also the tailwinds on the other businesses also favoring us.

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Jigar Shah, Maybank Kim Eng Holdings Limited, Research Division - Head of Research of India [4]

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Okay. If I can ask one more question. If we see your results in the last 2 quarters and also generally in the industry, we're seeing a down trend in the theatrical revenue, and also the television side to some extent. The growth rate is either declining, or overall revenue is declining. Obviously, over time, as we have seen in the West, the digital will score over the other 2 streams of the revenue. So in that situation, how do you see Eros evolving in terms of the digital revenues and the kind of profitability loss that you have in other businesses? How do you make up, and if you can give some roadmap in terms of what kind of revenues you are looking from the digital or the OTT side of the business over the next 3 years?

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [5]

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Yes, so I think, Jigar, we are in this position today whereby our other business -- so let's assume Eros has got 2 divisions, one is the content division and one is the OTT division. So let's assume today, this last year, OTT generated about roughly maybe 14% of the revenue, way going forward in 3 years, I reckon this 14% will go to 50% to 60% because of the growth which is igniting fuel from the subscriber revenues which will come. But the other revenues which is on the theatrical, I want to shed some light and also on the TV syndication revenue. So the theatrical revenue, the way we had actually very early in the game predicted in 2015 that the big-budget movies could be riskier. So we want to shift it -- we wanted to shift from that time, from a risk profile of big budget, not taking the risk and the smaller kind of content-driven movies which will produce a big box office. So you have seen this, this year -- not only this year, last year, the big-budget movies have flopped on the box office and whereby the small movies have performed bigger than the big-budget movies on the box office. So that in fact gives you a better profiling and better revenues and a better margins on your business of theatrical. So say suppose, even if a small B-movie does bigger than the A-movie, that's what we are looking for. So that will produce a better ROI for your business. And that's also fueling the growth is from China, whereby we had 1 big release in China which did about $50 million in China alone, which was a old release. And we've got another 2 movies coming, which have been -- which will go for the China release from our old catalog. And then we are doing this China coproduction, that will fuel the theatrical growth also. Now the television syndication we have seen in fact, as you've seen in my statement that still the television is doing very well in India. It is growing at about 15%. I agree that in the next 2 to 3 or 4 years, the digital will take the lead and television will take a dip maybe, but that time has not come yet. We are seeing the markets opening up international, for the dub markets whereby the television syndication is getting better and better. And even in India for our deep catalog, the price we are getting is not less, in fact, more than the last year. So it is so good to be in that position whereby you have a theatrical also by changing our strategy and the mix, we have a better revenue and also on the television and whereby the focus is going to be on the digital front and the subscribers.

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Operator [6]

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(Operator Instructions) We now move on and take now our next question from Tim Nollen from Macquarie.

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [7]

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I have got a few actually. So could you please elaborate a bit more on what you're doing in China? You had an announcement about a distribution deal there in the period. I know in the past, you've talked about coproduction. You just mentioned that as well. Just a bit more on what you're doing in China, please, both in terms of the box office and the digital distribution. Secondly, I appreciate that lot of the sub growth is due to these telco distribution relationships. I wonder if there's any commentary you could provide on conversion to B2C direct relationships. What does that take to enact a conversion? And if there's any evidence of progress there? And then lastly, you have a line in your release talking about forming an internal committee to explore potential options to simplify things. I wonder if you could just give us what you're talking about, what you're thinking about at this point.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [8]

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Perfect. So let's start with your question #1 on China. So China as we discussed our strategy, was that we will have our theatrical releases of Bhajrangi Bhaijaan which released this March, did about more than $48 million at the box office. And we receive about net of the P&A, about 22% of that box office in our earnings. So we have now 2 more releases which we have finalized from our catalog, which should be released before the March this fiscal year-end. And that should be quite well received for us. The second deal we did was with iQiyi, whereby we licensed some of our titles on their platform at a minimum guarantee. And that is basically to get inroads into China, so the Chinese audiences can get used to the Indian content more and more, and we have seen through the different pieces on the theatrical side. So it's not only theatrical side, we are also syndicating to the online and as well as to the broadcasters and the terrestrial television like CCTV and other platforms in China. And we are seeing more and more kind of that deals which will generate and straightaway add to the bottom line. And the third part is the coproduction, which 2 of our scripts have been approved by the [Soft] and with our local partners. Hopefully, the production should start next year, and it should see the release in year 2020, which are 2 big releases. And that will be the Indo-China coproduction, whereby the Chinese partner funds 50% and we fund 50%. And the budget is around $20 million to $25 million each, and we distribute India, and that will have a Indian star also, and we'll do the P&A in India, and the Chinese partner does the P&A and the expenses for the China shoot. And then we do 50-50 whatever comes to the joint venture. So that will be quite exciting, and you'll see more and more kind of these deals coming in China, not only licensing to iQiyi and others, but you will see it growing and more titles releasing in China, and that's what is the -- very overwhelming from us that the response we're getting from the Chinese audiences. On the second question, what was the second question, Tim? Sorry.

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [9]

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It's a question about Eros Now and your B2C strategy.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [10]

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B2C. Yes.

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [11]

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Via the telcos, and the question really is -- maybe if I could ask it again in 2 parts. One would be, is there any comment you could make on ARPU for those B2B2C customers, if there's any change in that? I know it's just the numbers going up with more subs, more distribution, but ultimately, then the second part of the question would be, you have talked as well about converting some of those to B2C direct relations. So I just wonder where that stands.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [12]

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Yes, I think you see as we said that, 95% of our subs will come out of India and 5% the subs will come outside of India. So if you look at the addressable audiences of 1.3 billion, eventually in 5 years’ time, we are talking about anywhere in the region of 100 million to 300 million subs, which should get converted because of the scale in the mass. What we are seeing now, and especially I don't think that thing's changing that much in the next 1 year or 2 years, is the telcos which are subsidizing and including into the data pack and selling to the customer because the -- from the content. So we are seeing the upsurge of the subscribers coming from these telcos because of the content and the movies we have, and that will keep on continuing. And the way we are looking at the adoption is to also work with telcos in the future instead of B2C also D2C. So whereby we have also that app experience directly, the customer will pay, and we will have a revenue share with the telcos. And the ARPUs on the B2B2C today is roughly anywhere between $4 to $5 average for subscribers, and ARPU from the international subscriber is anywhere between $30 to $35 average. So like how we launched our Eros Now channel on Amazon on U.S. and U.K., we had gotten an overwhelming response on that also on the subscribers. So we are launching with various B2B, whereby we have a revenue share or we are launching with the cable operators and also B2C markets and also the telcos within the international markets. So you would see in the next 1 year the growth -- more and more growth coming from the telcos in India, and eventually getting into D2C and B2C, and that could be the game changer afterwards because the -- even the telcos will start increasing their ARPU and increasing their rates within the India and for their audiences. And the third question?

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [13]

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Great. Any commentary then on -- yes.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [14]

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So the third question on the...

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Timothy Wilson Nollen, Macquarie Research - Senior Media Analyst [15]

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Is there anything more that you can provide on that?

Yes, simplification of operations.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [16]

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On the B2C? Oh, simplification. Basically, the board has appointed a committee, and the committee is looking at simplifying the structure that how we can have the best structure for the investors, whereby we have today a structure on New York-listed company, and we have a structure in India. So if we can simplify India's structure and have a better returns for our investors. The committee will come up with some suggestions and work with the investment banks which is the best for us.

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Prem Parameswaran, Eros International Plc - Group CFO & President of North America [17]

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Yes, and Tim, if I can just add to that. I mean we basically want to simplify the corporate structure, right? So you'll basically have 1 listing, and that's -- that's what we want, and that's how it'll be beneficial to our investors in 1 reporting, et cetera. And so we want to make it, keep it simple. That's really what we're trying to do. And that's what we're undertaking.

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Operator [18]

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(Operator Instructions) And we take another question from Jigar Shah from Maybank.

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Jigar Shah, Maybank Kim Eng Holdings Limited, Research Division - Head of Research of India [19]

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Yes, I have one question for Rishika and one for Prem. The question to Rishika is that the September quarter jump in the subscribers is very good, but I believe the originals were more towards September and in October. So the kind of traffic data you mentioned thrice in a week and 40 minutes on the platform, have you seen any further change in that during October which you can share with us? And is that having or will it have really any kind of impact on your monetization deals with the telcos, considering that if the time spent is more, whether you get to -- get any further increase in the amount that you receive from them?

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Rishika Lulla Singh, Eros International Plc - CEO of Eros Digital & Director [20]

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Last point, very nicely noted. I think obviously, the success of our content obviously for Eros Now in the pull position, and when it comes to renewals and negotiations and is obviously very helpful to the brand. So we'll see how we move on that front. And yes, you are absolutely correct. Side Hero launched on the 24th of September and Smoke on the 26th of October. Side Hero typically is actually a shorter form of content. Each episode is approximately 22 minutes, whereas Smoke is more long form, at approximately 45 minutes. So the data that we have seen, even between September and October, there's been a very, very encouraging jump, which I would like to share with everyone at a later stage. But yes, there's definitely been

(technical difficulty)

Eros Now, as a brand, has been trending across social media pretty much the past few months, be it our campaign, be it the visibility, et cetera. So we do look forward to rolling out more originals. In terms of the negotiations and ARPUs, et cetera, that is something, we may look at further down the line, but right now, we are actually quite happy. And I think we are going to build on something that KL mentioned earlier in terms of B2B2C relationships. When we look at India, over 50% of the population is still not connected to an online digital ecosystem. That is larger than the size of the entire United States. So as we want to penetrate into rural areas, go from 50 cities into 100 cities, it's very important that we continue to nurture and grow these relationships, which fall in line with our ambitions to be the first brand that any new digital maker comes onto within the ecosystem. So we want to keep those relationships in place.

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Jigar Shah, Maybank Kim Eng Holdings Limited, Research Division - Head of Research of India [21]

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Okay. The question for Prem is about the -- I think Kishore mentioned about the investments. I mean how do you manage the investments in terms of the CapEx and yet generate a free cash flow or not very major negative free cash flow. If you could give idea about that and your -- the receivables have improved, and what's the kind of sense on that going forward?

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Prem Parameswaran, Eros International Plc - Group CFO & President of North America [22]

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Sure. So as we usually outline on a yearly basis, we outline our CapEx, our content CapEx requirements and -- in our budget. And obviously, we have a very stringent process within our greenlight committee on both films and originals. And obviously, for every film we undertake whether it's produced, coproduced or acquired, we look at both the actual content, production cost as well as the returns that we expect. And we have internal models to project out those returns, okay? So that's the first objective. Two, as we mentioned, we spent roughly between $200 million, $250 million in -- on content CapEx per year. We're expecting to spend over $750 million of content CapEx spending over the next 3 years, as we see, obviously, an increase in subscribers for Eros Now as well as we see an increase in box office sales. As you know, Jigar, we have a TV syndication strategy with our studio business, and that has obviously helped offset the budget of our films. And on average, we can -- at risk will only be about 30% per film, sometimes 40% including P&A. So again that is all undertaken within the greenlight committee. So hopefully that helps on the CapEx spending side. On receivables, I think, again -- and this is something that we have been very focused on over the last couple of years, and we're bringing it down. The objective is to bring this down to between 200 and 250 DSOs by the end of fiscal year 2019. We're projecting that. We're on course to hit that, and obviously, with the rise in our digital business, we see that will -- should be achieved in a very easy manner. So again I think that we're -- we've certainly turned the corner over the last few quarters, and now -- where now it's onward and upward.

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Jigar Shah, Maybank Kim Eng Holdings Limited, Research Division - Head of Research of India [23]

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Prem, just to further understand this $250 million per year includes the partnership with Reliance, or it is exclusively to be done by Eros?

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [24]

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That includes the partnership with Reliance, Jigar. Basically, $250 million is our share. So about $150 million to $175 million will go into the Eros studio CapEx, so out of that CapEx of studio, say suppose $150 million, $175 million, that is in partnership -- the movies which are in partnership with the LLP, with Reliance, that's our funding. So there is the reason we are saying $750 million CapEx over the next 3 years. So one year could be $200 million, or one could be $250 million or $275 million. $750 million in 3-years period and the cash flow of about more than between $800 million and $900 million over the 3-year period. And to answer your question about the major negative cash flow, it'll not be major negative cash flow upfronted. So if there is a worry that it could be $100 million negative cash flow or something like that. No, not at all. Not to worry, we're not going to leverage the company with lot of debt.

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Operator [25]

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And now we take our next question from Jason Bazinet from Citi.

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Theodore P. Cronin, Citigroup Inc, Research Division - Research Analyst [26]

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Its Ted Cronin standing in for Jason. Question for Prem. Prem, I am curious if you could dig into subscriber growth a little bit more? You guys have made great progress there. I'm just curious if you considered raising the sub growth guidance at all. And as a follow-on to that, how should we think about sort of the implied churn based on that guidance of 16 million?

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Prem Parameswaran, Eros International Plc - Group CFO & President of North America [27]

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Sure, and that's a great question. Obviously, we put out our subscriber growth of 16 million paying subs for the fiscal year, obviously, last year or 2 quarters ago. We are now achieved, obviously, 13 million paying subs, so we have basically 2 quarters to hit our 16 million. So as you can imagine, we feel extremely confident about beating that. To the extent we would increase our sub growth, you could perhaps see that coming. Again we've looked at some of our competitors. We've looked at the industry. You don't see too much forecasting including from Netflix in terms of where they're going to show their subscriber growth guidance. So again, we do believe, we're going to beat our subscriber growth expectation for year-end, and again, if you just look -- if you just extrapolate, we're going to beat it by a lot, right? So we feel very, very comfortable, especially with our new 2 hits that we just released, both Side Hero and Smoke. And as Rishika had pointed out, the IMDB ratings as well as the actual views that we've seen over the course of the trailers, we're getting abnormally high subscriber growth numbers. And that hopefully, knock on wood, will continue over the course of the year, especially as we put out more originals.

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Operator [28]

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As there are no further questions, I will now hand back to Kishore Lulla for additional or closing remarks. Thank you.

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Kishore Arjan Lulla, Eros International Plc - Executive Chairman, Group CEO & MD [29]

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Yes, I would like to thank everyone, our investors, our stakeholders, our partners, Eros team for making Eros as a continued success, and thank you for all what you have done for Eros. Thank you very much. Bye-bye.

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Operator [30]

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Thank you. Ladies and gentlemen, this will now conclude today's conference call. Thank you for your participation. You may now disconnect.