U.S. Markets closed

Edited Transcript of SUNTV.NSE earnings conference call or presentation 12-Nov-19 11:30am GMT

Q2 2020 Sun Tv Network Ltd Earnings Call

Chennai Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Sun TV Network Ltd earnings conference call or presentation Tuesday, November 12, 2019 at 11:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Rajaraman Mahesh kumar

Sun TV Network Limited - President, MD & Additional Director

* S. L. Narayanan

Sun TV Network Limited - Group CFO

* V. C. Unnikrishnan

Sun TV Network Limited - CFO

================================================================================

Conference Call Participants

================================================================================

* Alankar Garude

Macquarie Research - Analyst

* Ankit Kedia

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

* Jaykumar Doshi

Kotak Securities (Institutional Equities) - Equity Research Analyst

* Kapil R. Singh

Nomura Securities Co. Ltd., Research Division - Executive Director

* Kunal Vora

BNP Paribas, Research Division - Analyst

* Naval Seth

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Rohit Dokania

IDFC Securities Limited, Research Division - SVP of Research

* Sanjay Chawla

JM Financial Institutional Securities Limited, Research Division - Research Director

* Sonaal Kohli;Bowhead Investment Advisors;Analyst

* Vivekanand Subbaraman

AMBIT Capital Private Limited, Research Division - Media Analyst

* Ankur Periwal

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day, and welcome to the Sun TV Q2 FY '20 Earnings Conference Call hosted by Axis Capital Limited. (Operator Instructions) Please note, this conference is being recorded.

I now hand the conference over to Mr. Ankur Periwal of Axis Capital Limited. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [2]

--------------------------------------------------------------------------------

Good evening, friends, and thanks for logging into the call, especially on the trading holiday.

So as usual, the call will be initiated with a brief management discussion on the Q2 and H1 performance, followed by an interactive Q&A session. Management team will be represented by Mr. R. Mahesh Kumar, Managing Director; Mr. S.L. Narayanan, Group CFO; and Mr. V.C. Unnikrishnan, CFO.

S.L., would you like to add any opening comments? Or should we get into Q&A?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [3]

--------------------------------------------------------------------------------

I think get into Q&A straightaway for maximizing available time.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [4]

--------------------------------------------------------------------------------

Sure, sure.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We have a first question from the line of Vivekanand from AMBIT Capital.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [2]

--------------------------------------------------------------------------------

Can you help us with the revenue split? And then I'll ask my questions afterwards.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [3]

--------------------------------------------------------------------------------

Yes, advertisement is INR 337 crores; broadcast is INR 8 crores; international revenue is around INR 41 crores; analog is around INR 168 crores; DTH is INR 229 crores and movie revenue is around INR 13 crores.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [4]

--------------------------------------------------------------------------------

Okay. And could you also help me with the split of depreciation and amortization?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [5]

--------------------------------------------------------------------------------

Yes, depreciation is INR 22 crores, amortization is INR 122 crores. I think I just want to add on in terms of depreciation because of the new accounting standard 116, there is a reclassification of the lease cost and rental between the cost of revenues and depreciation. That's roughly around INR 6 crores for the quarter. This too (inaudible).

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [6]

--------------------------------------------------------------------------------

Okay. So could you talk a little bit more about -- so you're saying that some of the cost of revenue has gone into depreciation, is it?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [7]

--------------------------------------------------------------------------------

Yes, from April 2019 on account of this AS 116, the rental and the lease costs we pay, which needs to regrouped between the cost of revenues, it gets regrouped between the finance cost and leasing provision. So in the case of depreciation, normally depreciation is a down trend. We have INR 6 crores largely as the swing is on account of this.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [8]

--------------------------------------------------------------------------------

And this was earlier in other expenses?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [9]

--------------------------------------------------------------------------------

In the cost of revenues.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [10]

--------------------------------------------------------------------------------

In the cost of revenues, okay. And…

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [11]

--------------------------------------------------------------------------------

But with the revenues, there are -- sorry, within cost of revenues. And also, the reference charges were in the other expenses. You're right.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [12]

--------------------------------------------------------------------------------

Okay, okay. And -- okay. So the increased cost of revenue that we see despite this charge being -- part is in depreciation, INR 6 crores, that is because of the movie release is it? What are the costs from that?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [13]

--------------------------------------------------------------------------------

See, that is largely driven by increase in the programming costs for Bangla and the cost increase associated with this NCN-related charges for distribution. So that is something, because of the new dry order, we are now spending a lot of money on the payments to the distributors. So largely on account of those, we have a higher expenditure.

It is something which was necessitated because otherwise, there was a risk of the connectivity getting impacted, which will impact the ratings, which will impact the advertising. So at the time when our ratings are improving, I don't know if you've noticed, in the last 5 months, our ratings are up there in the flagship channel, gone from 900 to 1,200. And from 38%, 39% market share, we are now at 44% consistently, with further growth happening in the coming days.

So we just had to ensure that during this period of disruption, we didn't have any kind of impact arising out of lack of connectivity. So we don't expect this expenditure to be at such higher levels. It will moderate, but in the meantime, this was the necessary yield.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [14]

--------------------------------------------------------------------------------

Okay. Is it possible, S.L., and only to help us with the extent to which the costs can moderate?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [15]

--------------------------------------------------------------------------------

No, at this point in time, that too -- in fact, this quarter, there are a lot of one-offs the rate impact. You should also note that because of the CSR now becoming mandatory, earlier, we were booking expenditure as and when the activity was happening. Now we've started accruing, and we've also now taken the backlog, whatever was not done prior to 1st of April, 2018, also has been now spent to this quarter. So we've had a net-net impact of about INR 18 crores, hitting us on the CSR-related provisioning.

Plus, also last year, we had a write-back of bad and doubtful debts because one of the large distributors, which we thought was becoming doubtful, the money came. So we wrote back INR 5 crores. And this is a quarter, going by our methods of accounting conservatism, we have put in an additional about INR 10 crores in provisioning. So net-net, there is a swing of about INR 15 crores on account of doubtful debt. But we have absolutely no doubt in our mind that it will come back, but we need to do this as a conservative accounting policy.

So there are some one-offs that have hit us this time. That is something that you need to note when you're looking at the numbers.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [16]

--------------------------------------------------------------------------------

Sure. This was very, very helpful. So would it be possible for you to tell us the total quantum of one-offs. I know you called out these 2 costs, the CSR and the impact swing or provision swing. But are there any other one-offs that are missed? If it is possible to quantify the total number, that would be great.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [17]

--------------------------------------------------------------------------------

Yes. What we can do is you can just park this now. So INR 18 crores plus INR 15 crores, INR 33 crores is an extraordinary cost this quarter, which is on account of CSR getting fully expensed and fully provided for and INR 15 crores on account of provisioning because last quarter was -- last year, same quarter was a write-back and this time, it is an additional provision because of one of the -- a couple of the people getting delayed.

We have a very, very merciless method of provisioning. If it is more than 90 days, we provide it in full. And then money comes back, we write it back.

--------------------------------------------------------------------------------

Vivekanand Subbaraman, AMBIT Capital Private Limited, Research Division - Media Analyst [18]

--------------------------------------------------------------------------------

All right. This was very, very helpful. Just some more color on the subscription growth and how we should see this...

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [19]

--------------------------------------------------------------------------------

Subscription has been pretty good. In fact, post end of the quarter, we have seen some appreciable gains, particularly on the digital side. We have closed the deal with one of the large OTT platforms. And that deal has taken us to almost about 11 million subscribers now. And we've also finalized another deal with a very large telecom operator. And we believe that in the next couple of months, we should be touching close to 20 million subscribers on Sun NXT. So we're very, very positive on prospects for subscription.

We think the costs that we are booking on account of the provisioning of the channels, I think those costs should moderate as we go forward. But I don't want to guarantee anything at this point in time because, as I said, we've gone through some extreme disruption in the market.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

(Operator Instructions) We have next question from the line of [Sudhir] from [Ajay Capital Partners].

--------------------------------------------------------------------------------

Unidentified Analyst, [21]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [22]

--------------------------------------------------------------------------------

I think it's (inaudible). Can you maybe little back in the…

--------------------------------------------------------------------------------

Unidentified Analyst, [23]

--------------------------------------------------------------------------------

(inaudible)

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

I'm sorry to interrupt, please keep the mic a little away from and then speak.

--------------------------------------------------------------------------------

Unidentified Analyst, [25]

--------------------------------------------------------------------------------

Yes. I wanted to know the reasons for revenue for this quarter (inaudible)

--------------------------------------------------------------------------------

Unidentified Company Representative, [26]

--------------------------------------------------------------------------------

Sorry, [Sudhir], recent thoughts?

--------------------------------------------------------------------------------

Unidentified Analyst, [27]

--------------------------------------------------------------------------------

Different revenues...

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [28]

--------------------------------------------------------------------------------

Different revenues...

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [29]

--------------------------------------------------------------------------------

IPL. No, last quarter we had IPL. So the IPL revenues are fully booked in the quarter ended 30 June, whereas in the quarter ended 30 September, we don't have IPL revenues. That's why it is different.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [30]

--------------------------------------------------------------------------------

INR 224 crores was there in June '19 quarter, which is not there in the September '19 quarter. Okay.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

We have next question from the line of Sonaal Kohli from Bowhead Investment Advisors.

--------------------------------------------------------------------------------

Sonaal Kohli;Bowhead Investment Advisors;Analyst, [32]

--------------------------------------------------------------------------------

What I wanted to ask you was that there has been a change in accounting in terms of booking of subscription revenues in cost. So while in addition to the numbers you mentioned, could you throw a light on what would be the like-for-like changes because in (inaudible) book, I mean, the method of accounting was different because whatever you used to pay to cable operators, (inaudible) to book in the net revenues and a bit used to come in the costs as well. Now I guess you booked that portion in the revenues. And you booked that in the costs as well. So adjusting for this, how these numbers would look like?

And if you have any cost of movies which were produced by you or revenues occurring due to the past movies, so what was on account of that?

And going forward, let's say, once your cable revenues stabilize, where do you see in Q4 or Q1, your recurring run rate on overall subscription revenue?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [33]

--------------------------------------------------------------------------------

Yes. So this is Mahesh. So basically the reference to subscription, the accounting we are following is in line with what the mandate of TRAI is. So basically, if you look at -- there are 2 components in terms of cost. There is 20%, which is distributor commission, which the broadcaster has to pay. And extra, there is a 15% commission, which the distributor is eligible based on the positioning of the channel and the reach the broadcaster is able to achieve in that network.

So in terms of the cost you're seeing, is basically the 15% component, which depends on the network and the way our channel is being placed and how much of penetration we are able to achieve in the network. We are accounting that as expenditure because it is not given to everybody. It depends on the mutual agreement between us and the respective distribution platform, be it DTH or the cable and preferential positioning of the channel. And accordingly, the penetration level which we are able to achieve, which also will give us incremental revenue.

So that is the one element of cost, which previously we never used to have because this has come only after the post TRAI tariff order implementation.

So that will be a recurring thing which will happen. So that is [as back] 15% as for the mandate. So you will see that number, it is -- I think whatever it will be in what payback…

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [34]

--------------------------------------------------------------------------------

It will come on the cost of revenue.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [35]

--------------------------------------------------------------------------------

Concerning on the cost of revenue.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [36]

--------------------------------------------------------------------------------

Distribution charges. And just to add, we never had any significant payment towards carriage fees in the past as well. So the - it'll be a completely new item for the currently.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [37]

--------------------------------------------------------------------------------

Sonaal, to answer your question, we've got hit in 2 different ways. Earlier, we had a fairly dream run because the way it was being sold was also people bundled a lot. They wanted to actually tap the offering with as many channels as possible. So everybody get everything. And since DTH is one of the earliest adopters, the ARPUs are very high.

Now with this new regulation, because there is a network fee which has been added, so the price has actually gone up. And on top of it, people are now building their own personalized bouquet by adding some sports, some movie, some music, some knowledge and infotainment. And on top of that, with this mandated commissions which have come from the TRAI draft.

So we're just now making sure that we don't do something which impacts the connectivity. So we're incentivizing everybody to make sure that people are carrying our signals. So it's not to say that this is the way it's going to be there forever. But in this time of a transition where there was -- if you remember, around March, there was a lot of blackouts that happened. So that's the reason why we just stepped up those investments to make sure that in terms of connectivity and reach, we don't have any -- because we're also now making some significant investments to ensure that we go up the food chain in terms of ratings. And those are actually paying off. As I told you earlier in the call, from 38%, 39% we've gone to about 44% market share.

So we just want to make sure that we don't shortchange any of these investments in the interim and make sure that the channels' positioning is not compromised. So we just need to see this through for a few more months. And once the dust settles down, we would endeavor to go back to better realizations on a net basis.

--------------------------------------------------------------------------------

Sonaal Kohli;Bowhead Investment Advisors;Analyst, [38]

--------------------------------------------------------------------------------

So the number, just for our understanding, what was previous number in Q1? These numbers in Q1, my understanding was there was a number like around INR 37 crores or somewhere which had to be looked at also as competitive with the past, so like-for-like revenues and costs. If you could put some light on what these numbers were in Q1?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [39]

--------------------------------------------------------------------------------

One moment, we may just pull it up. This quarter is around INR 73 crores. Last quarter, it was around INR 46 crores.

--------------------------------------------------------------------------------

Sonaal Kohli;Bowhead Investment Advisors;Analyst, [40]

--------------------------------------------------------------------------------

And did you have any revenues or cost of any of the past maybe produced movies in this quarter? And my last question was your recurring subscription revenues, customers (inaudible) at one stage and this quarter, it is (inaudible).

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [41]

--------------------------------------------------------------------------------

On the second question, we have accrued revenues of close to around INR 13 crores in the current quarter. See, the movie was released on 27th of September. And so critically, I mean, actually it ran for 4 days during the September quarter and thereafter, ran for 2, 2.5 weeks in the current quarter. So we have balanced it out, proportionately. It's been charged off in the September quarter; the remaining will get charged in the current quarter.

--------------------------------------------------------------------------------

Sonaal Kohli;Bowhead Investment Advisors;Analyst, [42]

--------------------------------------------------------------------------------

And the cost you have charged?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [43]

--------------------------------------------------------------------------------

Our costs are around INR 13 crores. So it's almost breakeven in the last quarter. This quarter, we might have an upside based on the final numbers coming in.

--------------------------------------------------------------------------------

Sonaal Kohli;Bowhead Investment Advisors;Analyst, [44]

--------------------------------------------------------------------------------

Okay. And my final question on the subscription revenue, when considering in Q4 or Q1, whenever, you think the recurring number is still nice. And finally, considering the ratings are growing and last week was your best week, and I think since August 2018, the number, what is the kind of lag you see in which advertising pricing power and rate would come back to?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [45]

--------------------------------------------------------------------------------

Sonaal, this is a question that is to be viewed in the larger context of what is happening in the country. I don't think spending is improving at all. We saw some uptick during the Diwali season. Post Diwali, things are pretty lukewarm.

I think we will have to wait for at least one more quarter of lackluster growth. And I don't see things turning around dramatically because look at all around, whether it's telecom or auto or real estate or banks and financial services companies, there's very little propensity to spend. Everybody is hunkering down and cutting costs and rationalizing expenses and deferring special projects.

So my view is, at least for 1 more quarter, after this quarter, this is still at March, we should not expect any upside on ad revenues. But I think we will see some upsides on subscription because, as I told you earlier, we are picking up some solid numbers on the Sun NXT side. And we have also finalized the deal with this large telecom operator. And we think we will reach almost 20 million subscribers by end of December.

--------------------------------------------------------------------------------

Sonaal Kohli;Bowhead Investment Advisors;Analyst, [46]

--------------------------------------------------------------------------------

The final question is about the subscription recurring number. Let's say, Q4 of this year or Q1 of next year, whenever you think (inaudible) likely in terms of reaching all the potential households in Tamil Nadu?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [47]

--------------------------------------------------------------------------------

I think there is still an impact. We are picking up huge numbers in Tamil Nadu. There is still some upside. We think at least another 4 million to 5 million subscribers are there in analog, which will convert. And on that side, I mean, because wearing my hat as the group CFO, I can also say that we are going gangbusters on the DTH side. There is enough business and more coming. And in fact, we are converting in a very, very robust way. And indeed, winning market share because some of the competitors have either disappeared or substantially downsized in south. So we are picking up huge numbers.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [48]

--------------------------------------------------------------------------------

Just one clarification on this distribution cost, there is also a one-off cost which one of the operators, which pertains to Q1, which has also been accounted in Q2.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [49]

--------------------------------------------------------------------------------

Sonaal, you've got it?

--------------------------------------------------------------------------------

Sonaal Kohli;Bowhead Investment Advisors;Analyst, [50]

--------------------------------------------------------------------------------

Yes, sir.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

We have next question from the line of Rohit Dokania from IDFC Securities.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [52]

--------------------------------------------------------------------------------

Just 2 questions on my side. Sir, out of the INR 18 crores of CSR, can you quantify how much [particular] in the previous year's and how much is particular to H1 FY'20.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [53]

--------------------------------------------------------------------------------

The INR 18 crores relates to the previous year, Rohit.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [54]

--------------------------------------------------------------------------------

Okay. Perfect. The other is can you also talk about how ARPUs are shaping up post the new tariff order across both DTH and cable?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [55]

--------------------------------------------------------------------------------

I think basically in terms of cable, we are making some good gains, like what effort or efforts within Tamil Nadu which was one of the lowest penetrated markets. I think we are seeing very good traction on the digital cable among the private MSOs and also the RSOs, and still there is a huge gap, around 5, 6 million homes, which are yet to be converted.

And we have seen similar robust growth from the DTH also. I think Sun Direct is going at some phenomenal pace. So there has been a little bit of an issue in terms of settling down among the other DTH operators. So we have done the deal, and then things are looking stable now. So you will see more stability coming forward because there has been a major disruption because of the implementation of the tariff order and things have just started settling down now. So we hope from the next quarter, we will see a steady number and not much volatility in the subscription.

And in terms of the ARPU, I think we are more or less -- for the DTH, we are more or less similar to what it was in the past.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [56]

--------------------------------------------------------------------------------

Okay. Because earlier, you were expecting some fall in DTH ARPU, but you're saying it's more or less similar.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [57]

--------------------------------------------------------------------------------

So there is some (inaudible) basically. That's what I think if you consider the expenditures, which is basically -- which has been accounted, then there will be a bit. But if you take purely from a revenue point of view, because we have -- I mean, in terms of the rate, what -- we have the charges what we have declared to TRAI. So that rate is more or less similar in terms of the ARPU to what we have already been realizing. So if you net off this expenditure, then yes, there will be a marginal declining, right.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [58]

--------------------------------------------------------------------------------

Understood, sir. Understood. Also, can you give the exact Q1 and Q2 sort of disconnectivity charge because I think this (inaudible) and as you are also pointing out, there is some one-off towards Q1. Because if…

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [59]

--------------------------------------------------------------------------------

Yes, in fact, we'll just give -- we'll give you the number just now.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [60]

--------------------------------------------------------------------------------

So your 46 actually (inaudible) 54 for Q1. So basically, what we were saying is 46 and 75, this is actually 54 and 67.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [61]

--------------------------------------------------------------------------------

Okay, okay. Yes, because that 76 was almost 18%, 19% of subscription revenue, and I just said, you were accounting at 15%.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [62]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [63]

--------------------------------------------------------------------------------

Some portion of the previous quarters accounted during the current quarter. That's why this change. 54 and 65.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [64]

--------------------------------------------------------------------------------

Understood, sir. Sir, any large movies under production which will get released in H2?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [65]

--------------------------------------------------------------------------------

No. No, we just signed up with -- signing up and in the process of signing up with [a legal] so the possibly start towards the end of this quarter. But no release is expected during the second half as of now. (inaudible) will be next year.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [66]

--------------------------------------------------------------------------------

Sure, sure. And sir, lastly, in terms of the satellite amortization. I think the first 9 months is closer to about INR 320 crores, INR 330-odd cores, so -- and we have maintained somewhere around INR 400 crores for the full year. So would we like to sort of relook at that -- sorry, for the first 2 quarters, it's in the range of INR 220 crores, and we have maintained INR 400 crores for the sort of full year. So would we maintain that, sir, or there could be some more higher increase there?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [67]

--------------------------------------------------------------------------------

No. I think we should be in line with that. We've had some numbers done during the September quarter. And this quarter, being a festive season, will have a slightly higher number, I mean in line with last year. But I think, overall, we should be within that range.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

We have next question from the line of Jay Doshi from Kotak Securities. We have next question from the line of Sanjay Chawla from JM Financial.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [69]

--------------------------------------------------------------------------------

Just on the ad revenues itself. I mean we have seen a decline Y-o-Y, 4%, including the broadcast fee also. This is despite the fact that we had a very depressed base quarter last year because of some of the floods and some of the events which have happened. So I'm just trying to understand, I mean are we -- how optimistic we are of seeing a Y-o-Y growth in ad revenues on a full year basis?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [70]

--------------------------------------------------------------------------------

We are not optimistic about that, because the whole country is now in the grip of a very, very downbeat business condition, so -- which is why I also said that this year is going to be a very challenging year for delivering any growth on advertising because things are not looking good at all.

I'm happy to say that our relative positioning has considerably improved, not only in Sun, but also in other channels. In fact, we are very, very bullish that with the continuing investments, one thing great that we have now done, we are very liquid. We are investing heavily in top-quality content. Just a matter of time before our ratings move up and once the revival comes, we will ride that wave. I'm just giving the -- I'm requesting Mahesh to give some additional color on Gemini and other channels.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [71]

--------------------------------------------------------------------------------

Yes. So like I think in the past, I mentioned, we have made some significant gain on Sun TV, close to 6% to 7% in terms of the market share. And I think in terms of -- overall, if you look at our all cluster of channels in respective markets, we are maintaining or we are growing pretty much. I think we are focusing more on stability numbers, so we are focusing on the fiction and the nonfiction numbers.

So you can say if you see it compared to last couple of quarters, even in Gemini, from 138 GRP in fiction, last week, week 44, we have 210 GRP, so -- which is close to 40%, 50% jump in the fiction number. Similarly, there has been a 20% growth in the fiction numbers in the Kannada channel. And if you look at Bengal, like last time, we had some concern at launch, and we were hovering at around 30 GRP. Last -- we have done some complete revamp of the content and last 3 weeks, we are around 60 GRPs, where we have doubled the GRP. So we're very close to some of the nearest competitors like Colors and Akash and all that stuff.

So our overall focus in terms of the fiction and nonfiction and also taking the numbers to the next level, I think we have a lot of lineups in terms of launches which are planned for the next couple of months across all languages. So I think we're very, very confident that we'll be able to maintain or further improve on the overall -- our market positioning across all languages. I mean, that's the key message that we want to deliver.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [72]

--------------------------------------------------------------------------------

Right, right. Okay. And on the subscription side, I wanted to ask you this NCN cost (inaudible) I mean, that's a cost which I believe every broadcaster was incurring pretty much on the cable side. Is it something now you're also incurring, the (inaudible) station marketing, the NCN related you mentioned, are you also incurring the cost on the DTH front now post the NTO?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [73]

--------------------------------------------------------------------------------

It's mandated, so any DTH operator is entitled to this NCN commission depending on if he is able to demonstrate that he is able to carry channels over 85% of the universe. They are entitled to get this 15% share. So that's very clearly defined in the tariff order expense. So I think it has benefited us. To some extent, it is beneficial to us because if the penetration is below 85%, because if -- for example, 60%, which means he will not get subscription revenue for incremental 25% of his base. Once he is able to exceed the threshold of 85%, it helps us in our distribution reach, indirectly reflecting improvement in rating, increase in subscription revenue, and the 15%, there, initially, people used to be doing deals on a case-to-case basis. Now it has been brought under the regulation itself.

So irrespective of the distribution platform, the 15% cost is there, be it cable or DTH.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [74]

--------------------------------------------------------------------------------

So has this cost gone up quarter-on-quarter also in 2Q compared to 1Q?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [75]

--------------------------------------------------------------------------------

That's what I said. So Q1, I think there were some one-offs, which has come in Q1, where we did the deal with one of the biggest DTH operators. That cost has come to us in Q2. So if you just normalize it, it is INR 54 crores versus 63 -- INR 65 crores, INR 54 crores versus INR 65 cores.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [76]

--------------------------------------------------------------------------------

So INR 54 crores -- sorry, can you just repeat it? INR 54 crores, in this quarter?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [77]

--------------------------------------------------------------------------------

INR 54 crores in the quarter ended 30th June and INR 65 crores in the quarter ended 30th September.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [78]

--------------------------------------------------------------------------------

Okay. And this reflects some booking of the 1Q cost in 2Q?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [79]

--------------------------------------------------------------------------------

Correct, correct. Otherwise, the booked cost is around INR 46 crores and INR 73 crores.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [80]

--------------------------------------------------------------------------------

Okay. So INR 54 crores, okay, booked cost is INR 46 crores to INR 70 crores -- sorry INR 63 crores?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [81]

--------------------------------------------------------------------------------

Yes. In terms of the actual quarters, there is -- like Mahesh was mentioning, one-off, the -- a couple of them were done during the current quarter. So we have accrued that during September as well.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [82]

--------------------------------------------------------------------------------

But your domestic subscription revenues have not grown quarter-on-quarter. So even though the booking may be slightly staggered, coming on -- the ramping up in this quarter. But your normalized costs should not change, right? I mean because we haven't seen an increase in your domestic subscription revenues quarter-on-quarter. So why would the 15% change other than the shifting part?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [83]

--------------------------------------------------------------------------------

Come again?

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [84]

--------------------------------------------------------------------------------

Domestic subscription revenues have been flat quarter-on-quarter. So that 15% NCN marketing component, that should not change if you were to look at it on a normalized basis?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [85]

--------------------------------------------------------------------------------

No. These have changed. We -- the agreements are finalized, one or more parties during the September quarter, which dates back from April onwards, so that accrual has been accounted. The incremental amount has been approved in the current quarter.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [86]

--------------------------------------------------------------------------------

Okay, okay. And just a couple of housekeeping questions. Just you mentioned amortization cost this quarter was INR 122 crores. Can you just tell us what is the movie amortization cost this quarter?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [87]

--------------------------------------------------------------------------------

Around INR 13 crores is the movie amortization. The normal satellite is around INR 107 crores, and software amortization is INR 2 crores.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [88]

--------------------------------------------------------------------------------

Okay. And what is the total cash and cash equivalents as of September end?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [89]

--------------------------------------------------------------------------------

INR 2,800 crores.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [90]

--------------------------------------------------------------------------------

INR 2,800 crores?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [91]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [92]

--------------------------------------------------------------------------------

And lastly, the receivables have gone up quite sharply compared to March end, more than 20%. So what exactly is driving that? I mean which distribution segment is -- or is it related to advertisement?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [93]

--------------------------------------------------------------------------------

No. I mean, okay, there is still an increase in receivables, roughly around INR 240 crores or so. But most of it has already come in during the current quarter. We have -- advertisement is around 18%, DTH and state channel was around 30-odd percent and so all money is coming through the subsequent quarter -- I mean subsequent to September.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [94]

--------------------------------------------------------------------------------

So on a full year basis, we should not see any abnormal change in the receivable days?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [95]

--------------------------------------------------------------------------------

No, no, no. If there -- like if you look at the paid channel, again, there are certain -- the numbers get accrued towards the [end], so then the gift comes in. So there is some -- there was an accrual at the end of the quarter, which has come in now. And as we speak now, we have received most of the revenues, which have become the schedule date.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [96]

--------------------------------------------------------------------------------

Sanjay, just to give you comfort, we have a very, very strict policy on provisioning. So during the quarter, we've actually taken a net impact of plus INR 15 crores on provisioning. The same quarter last year, we had a write-back of a provision, which was set up because one of the DTH operators had delayed it considerably. So we had provided for that. And then, because we went on appeal, they paid out. So when the money came, we reversed it and there was a credit of INR 5 crores last September.

At this time, as of 30th September, because there was some slippage in terms of the bucket slipping to more than 90 days or 120 days, our provisions went up by INR 10 crores. So on a net basis, it is a INR 15-crore impact, which is sitting in the other expenditure. So one thing I can assure you is our receivables are absolutely squeaky clean.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [97]

--------------------------------------------------------------------------------

Right. Do you expect this provision to be actually recovered over time?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [98]

--------------------------------------------------------------------------------

Yes, yes. You see, that's why when we said not at the moment, things come into [OTT], we automatically reverse them. This is something -- so that we are not second guessing anybody. We just provide it and put the pressure on the sales guys because unless they collect, they don't get their bonus. So this is more an internal hygiene and discipline which we set up.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [99]

--------------------------------------------------------------------------------

Right. So now did this decline in the corporate -- this is my last question, decline in the corporate tax rate of -- my question is should we expect the increase in dividend per share this year compared to INR 12.5 that you paid out for last year?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [100]

--------------------------------------------------------------------------------

Certainly, because I think we are -- generally, we distribute every quarter. I mean this Board will, of course, take note of this because at the end of the day, no point sitting on so much of cash at 6% yield. Might as well give it to the shareholders, and they can do whatever they want with that money. So I'm sure the Board will look at it.

--------------------------------------------------------------------------------

Sanjay Chawla, JM Financial Institutional Securities Limited, Research Division - Research Director [101]

--------------------------------------------------------------------------------

So sir, last year, you had that extra payment also because of the anniversary. So my question is should we look at dividend pressure growing relative to a INR 10 normalized level or compared to INR 12.5 that you paid out last year? So if you have to look at growth at all.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [102]

--------------------------------------------------------------------------------

I think -- my own feeling is it will go up because I think, generally, the Board is also -- we are into the view that there are not many opportunities to invest on inorganic initiatives. So we will, I think, possibly step it up.

--------------------------------------------------------------------------------

Operator [103]

--------------------------------------------------------------------------------

(Operator Instructions) We have a next question from the line of Kunal Vora from BNP Paribas.

--------------------------------------------------------------------------------

Kunal Vora, BNP Paribas, Research Division - Analyst [104]

--------------------------------------------------------------------------------

Continuing on receivables, we're expecting collection coming from foreign group companies, like [Bay City], et cetera, are you facing any such problems from these distributors or anyone else? Because you also have increased provision, receivables have gone up. You mentioned it's all squeaky clean, but I just wanted to get further clarification.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [105]

--------------------------------------------------------------------------------

Kunal, very, very tricky question. Unfortunately, I can't deal with specific names. But suffice it to say that last year, we had an issue with one of the DTH operators, and therefore, we had provided. And then we had to do whatever we had to do to secure our interest, and therefore, we went through the business. And then that the money came because nobody wants to fight a winding up position.

We are very, very professional in that sense that if the money doesn't come, we will go and knock every door to get justice, because end of the day, nobody likes to be shortchanged by not getting paid.

So the same principles operate with any DTH company or cable company that we'll be doing business with because if the money doesn't come, we will do whatever is required in terms of putting notices that we may be stopping supply of signal. And then we actually stop supply of signals and then we actually go on legal notices that in the event that we are not getting paid, we will sue for winding up.

So there have been some stressed situations with some players in the distribution ecosystem. But I'm assuring you that we are taking enough steps to ensure that we don't lose our money.

--------------------------------------------------------------------------------

Kunal Vora, BNP Paribas, Research Division - Analyst [106]

--------------------------------------------------------------------------------

Sure, and that's helpful.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [107]

--------------------------------------------------------------------------------

I can't name names, but I think you are smart enough to figure out.

--------------------------------------------------------------------------------

Kunal Vora, BNP Paribas, Research Division - Analyst [108]

--------------------------------------------------------------------------------

Sure. And then can you talk about total spending you've been making on new initiatives this year, which includes OTT original Bangla channel, like what's the incremental spending this year on the new initiative?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [109]

--------------------------------------------------------------------------------

So OTT, as I told you that we are looking at a INR 150 crores spend between second half of this year and all of next financial year. That plan is very much on the [angle]. As I said, without putting any fresh investment into OTT specific content, just by refocusing content which is already there on the shelf, we have built a fabulous OTT business. We will be now starting originals for OTT. And other than that, we are spending about roughly INR 80 crores to INR 85 crores on Bangla content -- about INR 50 crores, sorry.

--------------------------------------------------------------------------------

Kunal Vora, BNP Paribas, Research Division - Analyst [110]

--------------------------------------------------------------------------------

Okay. INR 50 crores on Bangla. Lastly, like any number which you can give for Sun NXT, how the revenue contribution, daily, monthly active users, any numbers we take what you've already given?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [111]

--------------------------------------------------------------------------------

See -- well, we are now -- see, one of the large media houses has started an OTT platform, which is free-to-use, and they have now signed a minimum guaranteed deal based on which our Sun NXT app is available to their users. So that has actually taken our numbers almost 3x in the last 1 month. So we are now at about 11 million subscribers. This number we think will go to at least 20 million by end of the calendar year because, as I told you earlier in the call, we've also finalized a very attractive deal with a large telecom operator, whose product will feature Sun NXT as an app within an app. So that realization may not be as high as (inaudible) which we are be getting directly. It will be far lower. But the more important thing is people will start sampling that product. And because the telecom operator also is naturally interested in driving up his data consumption, so they are also going to promote this in a big way.

So once I'm fairly well entrenched into the smartphone universe, we can certainly look at increasing the ARPUs as we go forward. I'm very excited about that opportunity because, everywhere, people are now basically sourcing for content. In fact, one of the large OTT players has actually approached us for supply of content. We're just figuring out whether we'd be doing something suboptimal by giving our content away to those people or whether we should build it on the back of our own proprietary Sun NXT platform.

So these are all very strategic questions we are grappling with. But be that as it may, whether we'd be riding on the back of large international OTT platforms or whether we build our own OTT into a position of strength, I think subscription revenues will be a very, very robust number in the coming quarters.

--------------------------------------------------------------------------------

Kunal Vora, BNP Paribas, Research Division - Analyst [112]

--------------------------------------------------------------------------------

Okay. Can you give some sense on what the 11 million customers are watching? Is it mostly running content or it's a whole movie library?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [113]

--------------------------------------------------------------------------------

I don't think we have that kind of analytics because it's still very, very early. But I think we have some agreements that we will get some analytics. Maybe -- as I told you, it's just about a month old because this contract went through some very, very laborious negotiations. It was concluded only by first week of October, but the results have been absolutely stunning.

So what I'll do is maybe a few days from now, I can get this data from our Sun NXT colleagues. And I can share this with you because they are kind of analytics that are possible on the digital side. It's absolutely awesome. They give you exactly number of minutes, who's watching, where and all that. So we should be able to get a lot of data.

--------------------------------------------------------------------------------

Operator [114]

--------------------------------------------------------------------------------

So we have next question from the line of Alankar Garude from Macquarie.

--------------------------------------------------------------------------------

Alankar Garude, Macquarie Research - Analyst [115]

--------------------------------------------------------------------------------

So my first question is on the domestic subscription revenues. Any particular reason which you can cite for this flattish sequential growth, both in cable as well as DTH, and especially in the context of digitization happening in Tamil Nadu as well as better traction in Sun NXT? So any reasons you can highlight for the flattish growth sequentially?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [116]

--------------------------------------------------------------------------------

Sun NXT is -- the traction has actually accelerated only after the end of the quarter. So let's take that piece of the question out. But on the other side, as I said, we have seen some rationalizations because of the way people are now packaging the bookcase. So where we were possibly selling 2 or 3 languages, because of the price point is becoming unaffordable, my gut tells me that some people are taking less number of channels, and that's the only reason why despite this prodigious increase in Tamil Nadu, the quarter-on-quarter, numbers haven't taken. But as I said, this is a temporary phase because, I mean, this is happening in our own home. We have some [forms], suddenly the bookcase didn't have the second or third cricket channel. So we had to call and have it activated for a payment of an additional INR 19. So people are basically creatures of habit. It will come back.

I think -- as I said, there's a very, very disruptive kind of thing. A lot of people have done [flash] on one kind of strategies and repositioning their own product. So that's the reason why it seems like it's flat, but net-net, the undertone is bullish.

--------------------------------------------------------------------------------

Alankar Garude, Macquarie Research - Analyst [117]

--------------------------------------------------------------------------------

Understood, sir. A quick follow-up to this, sir, would be last quarter, we had spoken about INR 500 crores of quarterly domestic subscription revenues, maybe over the next 3 to 4 quarters. So are you still aiming for that number to come through?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [118]

--------------------------------------------------------------------------------

Yes. We are now at about INR 400 crores. I think we should be able to reach that number.

--------------------------------------------------------------------------------

Alankar Garude, Macquarie Research - Analyst [119]

--------------------------------------------------------------------------------

Understood. And just one last bookkeeping question from my side. What should we expect our tax rate to be in FY '20 and '21?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [120]

--------------------------------------------------------------------------------

25%.

--------------------------------------------------------------------------------

Operator [121]

--------------------------------------------------------------------------------

We have next question from the line of Kapil Singh from Nomura.

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [122]

--------------------------------------------------------------------------------

Firstly, I wanted to check, you've seen various down cycles previously. So with some [caution], when the recovery takes place, what kind of growth do you see? Is it any normalized growth or sometimes we see a spike-up, which is stronger than what we normally see?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [123]

--------------------------------------------------------------------------------

Actually, we've seen -- I mean I was not in the company. But I -- from the data that I gathered from our side, post Lehman Brothers' collapse, I think that the growth came back, I think, Sun TV global, some 40%, 45%.

And we've also seen that happen post the extremely high inflation we saw in FY '12. I think FY '12, if my memory serves me right, we degrew by 2.5% in advertising. I think the entire industry degrew by almost about 8% that year. The subsequent year when things normalized, things were looking pretty bullish. We grew by about 17%, 18%. So I would say that -- I mean we are all hopeful that it won't be like this forever. Suddenly, there will be an upturn. And the beauty of this has been very difficult to predict the exact moment it starts, just as the disaster also strikes. I mean nobody expected in December 2007 when the stock market will fall from 22,000 in SENSEX to 9,000 in a span of 11 months. So when it happens, nobody had a clue. And similarly, when it bounces back, also nobody has a clue.

So we just have to make sure that the basics of the business are being done right. And as Mahesh mentioned a short while ago, we are investing in the right kind of content, we are getting the right kind of people. And as long as in our relative ranking, we are either defending or improving our strength, I don't think there's anything to worry because in the long run, things will just come back. And when it comes back, we'll be really ready to harvest the games. So that's the way we are looking at it now. Just make sure that when a [pipe] shifts, make sure that we get the right assets, make the right investments, and leave the rest to God.

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [124]

--------------------------------------------------------------------------------

Sure. That is quite helpful. And just a small query on the net distributor fee as well. Sir, it's been -- from Q1 to Q2, it's been going up. So should I expect that this will stabilize at this level of INR 55 crores and will be around, say, 15%, 16% of the revenue? Or do you see it going up further?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [125]

--------------------------------------------------------------------------------

It would be at this level. It is definitely not right, it will probably fall.

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [126]

--------------------------------------------------------------------------------

Okay, okay, okay. And lastly, just wanted to check in terms of the ratings improvement that we have seen. When do you expect it to have some impact on the ad revenues? And also, any color on Bangla channel performance, like what kind of losses it has?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [127]

--------------------------------------------------------------------------------

So I think the -- in terms of the improvement in the revenue, it will take the margins around 6 to 8 weeks in terms of incremental realization provided overall, we -- there is an improvement in the market sentiment, and people are actually spending money. So I think if we have, for example, the next [lifted] season, I think we should be able to demonstrate better growth than what I think we have been doing in the last couple of quarters.

So what is the second question? Bangla?

--------------------------------------------------------------------------------

Kapil R. Singh, Nomura Securities Co. Ltd., Research Division - Executive Director [128]

--------------------------------------------------------------------------------

Bangla. Yes. What kind of loss are you having there currently?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [129]

--------------------------------------------------------------------------------

Bangla, now I think in terms of the net, the cash burn should be, this financial year, around INR 40 crores, which, probably, I think the gap will get narrowed down substantially which are able to further improve on the overall number. So I think by -- like what we have committed in the past, I think year 3 should be the break-even year for us.

--------------------------------------------------------------------------------

Operator [130]

--------------------------------------------------------------------------------

We have next question from the line of Ankit Kedia from PhillipCapital.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [131]

--------------------------------------------------------------------------------

Could you share some [pointers] of the big deals which you have done on the OTT space? What could be the revenue traction recorded in such over the next 3 years?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [132]

--------------------------------------------------------------------------------

I think 3 years is too much of a crystal ball gazing. But I think the next year, we should be making at least INR 100 crores.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [133]

--------------------------------------------------------------------------------

On a INR 150 crores investment?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [134]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [135]

--------------------------------------------------------------------------------

Sure. And post that, would the investments continue on the original programming, which you said you're going to start soon? (inaudible) television content?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [136]

--------------------------------------------------------------------------------

No. The thing is it's a two-pronged approach, because, basically, what we are seeing is -- I mean this is something which is true of I'm sure you're watching all the top OTT platforms in your own home. There's so much of content with the OTT operators sourced from other content creators. Like if you look at Prime in the U.S., they show Game of Thrones, which is a product of Time Warner and HBO. Like in India, it is available on Hotstar. So -- and also, in each of these OTT platforms, you also have shows, serials, like Friends or [offers] or Apprentice. And you also have blockbuster hits, which people keep watching all the time. Like we just go and see some of these -- the thrillers are all there, whether it is Conjuring or Argo or any of these movies.

So we would like to make sure that whatever we are having for the regular TV staple is also available on Sun NXT because people want to watch this, especially people who want to catch up on lost series. So that will definitely be a main thing. But today, most of them are going to YouTube to watch it because if you see Sun TV serials, within 24 hours, it's available on YouTube.

I mean even those where we are not the IP holders, where we are sourcing it from independent third-party producers, and there are notably between some 10 million, 12 million views. So that's the reason why we are saying that this whole idea of an exclusive content only for OTT, that may not be the right way to do. Because as long as it is fully backed up with a lot of content, lots of movies, lots of originals, I think the stickiness will be there, and people will be happy to pay a nice price and get it. So that's going to be our strategy.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [137]

--------------------------------------------------------------------------------

Sure. So second question is on the radio business. Year-on-year, we have posted a flat number for the radio business, while the industry is showing 15% to 20% decline. Where is this number in the radio business coming from? And what are we guiding in the radio business?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [138]

--------------------------------------------------------------------------------

We are also very pessimistic about radio. In fact, just the other day, we had the review. We are slightly better off than the competition. I have a feeling many weaker players will just fall off because we simply can't make these kind of license repayments if you don't have a strong parent. And my own feeling is the kind of competition that is now available on the radio side for advertisers, that range will go on because I can see a lot of distress. Some of the radio stations, which are weak, are already sounding about if we'd be interested in buying them.

So I have a feeling that the radio business is in for a shakeout. So my impressions are next year, it's going to be a very different team. We will probably have fewer operators, and therefore, the ability of existing legacy players could possibly improve.

--------------------------------------------------------------------------------

Ankit Kedia, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [139]

--------------------------------------------------------------------------------

Sure. And sir, my last question is again on the payments to the MSOs. If I look at our subscription revenue of INR 400 crores, on that 15% cap, should be around INR 60-odd crores vis-à-vis INR 65 crores what we have paid. So is this on the gross number of INR 500 crores where we pay 20% net from the revenues? And then on INR 400 crores we pay INR 60 crores? How does the math work in this?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [140]

--------------------------------------------------------------------------------

I guess what we have recorded the revenues is based on the net of 20% and this NCM -- the cost, which is based on the agreements with them in terms of the need to achieve the parameters which Mahesh was mentioning earlier, right? So we have provided for that.

And based on the reports which come in, there will be a plus/minus going on, so that traction will happen quarter-to-quarter depending upon the subsequent events happening. So we have the bidding arrangement or the agreements with them that they need to achieve a certain number of subscribers, visibility, and I mean a couple of other parameters which was mentioned earlier. So on that basis, we also accrued this cost of 15% payable to them. So that gets recorded.

Now -- so quarter-to-quarter, there's variances there because certain quarter -- certain months, they are variable versus 1 or 2 months. We're not good in the third month. So if there is any change in that, accordingly, the number is 15. That's a sort of flat number, which you can take it there on the gross revenues.

--------------------------------------------------------------------------------

Operator [141]

--------------------------------------------------------------------------------

We have next question from the line of Jay Doshi from Kotak Securities.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [142]

--------------------------------------------------------------------------------

My question is on subscription revenue. So if I look at your gross DTH subscription revenue, it has grown about 6% in the first half. If I were to sort of factor in the distribution cost, it probably could have declined in mid- to high single digits. And with Tamil Nadu digitization, I'm assuming that there will be at least 10% increase in DTH subscribers.

So is it right to sort of -- is my math correct that the INR 42 -- INR 40, INR 42 DTH ARPU that you used to enjoy about a year ago would have come down to about INR 30, INR 32 after TRAI tariff order at a net level?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [143]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [144]

--------------------------------------------------------------------------------

Okay. Now what does this mean for your target of subscription revenue of INR 1,800 cores to INR 2,000 crores by FY '21? So would you sort of -- in the first half at the net level, on a like-to-like basis, the growth is 4%. You were earlier -- prior to -- or just around the bank, tariff order was being implemented, you were confident that you will see some benefits from the tariff order and maybe 15%, 20%-plus growth. So would you sort of like to revise your guidance for domestic subscription revenue on a net-net, like-to-like basis?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [145]

--------------------------------------------------------------------------------

Well, I think, basically, what -- we are still very [optimistic] on the overall growth in numbers. So -- because I think in some of the key markets where we -- like in Tamil Nadu, we have still huge analog [still surviving too]. I think majority of the growth will be partnered by digital cable and the DTH. So I'm saying that I think in terms of the growth, though this quarter there has been a little bit of a evidence in the -- because I think I can say, even in terms of the overall industry growth, cable, I think a lot of people have just stabilized, understanding what is -- I mean what is the tariff and how it can be implemented, resolving billing issues and all that. I think it would get settled down in the next 1 or 2 quarters. And after that, I think we should see robust growth in the overall volume, keeping the ARPU constant at where we are now.

So as we can say, like in our own DTH company, as compared to last year, same time, we have demonstrated 60%, 70% growth in the net subscriber base. So that's the pace at which the DTH is growing in this part of -- in this market.

So I think, though, that could be a little bit of an impact in this quarter. But I think we should bounce back in Q4. And like -- I think it in Tamil Nadu, again, the digitization starts and you should see some really growth numbers happening.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [146]

--------------------------------------------------------------------------------

Understood. And so in that case, that 60%, 70% growth in net subscriber base of the DTH company, then is it right to assume that they would be getting much higher? The distribution costs paid to the DTH company as a percentage of gross revenues would be higher given that there'll be incentives as well as the commission fee, 20% commission? Is that right?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [147]

--------------------------------------------------------------------------------

So whatever the percentage, like what we had like this, it's coming close to 15%. I think in terms of the percentage, it will stabilize at this level. So a [9]. So in absolute terms, it might grow, but it will grow with the increase in revenue as well.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [148]

--------------------------------------------------------------------------------

Understood. So this INR 397 crores of domestic subscription revenue in this quarter, can it move to INR 450 crores, INR 475 crores by the end of the year? INR 450 crores? Or...

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [149]

--------------------------------------------------------------------------------

At the gross level, you are saying?

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [150]

--------------------------------------------------------------------------------

Yes. Gross level.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [151]

--------------------------------------------------------------------------------

So at the gross level. I think INR 420 crores to INR 430 crores is what we're looking at [with the exit] (inaudible) completes its process.

--------------------------------------------------------------------------------

Operator [152]

--------------------------------------------------------------------------------

Sir, I'm sorry. Can I ask you to come back in the queue and wait for the next question?

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [153]

--------------------------------------------------------------------------------

Hello?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [154]

--------------------------------------------------------------------------------

Complete your question, Jay.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [155]

--------------------------------------------------------------------------------

Yes. I have got one more question, if I may. Secondly, on the Sun NXT deal, is it -- I mean I've read some article. That's the one -- the one you're referring to is the one with JioCinema, is that right? Or have I missed something? The big deal which...

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [156]

--------------------------------------------------------------------------------

Yes, yes.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [157]

--------------------------------------------------------------------------------

Okay. So I was just doing some broad math. If you're expecting 10 million, 11 million subscribers, or you have already got to that number and about 20 million subscribers, INR 100 crores for 20 million subscribers is essentially less than INR 4 a month. Are you pricing your content a bit too cheap? INR 4 per month for all the content, all the movies available to Jio subscribers? That's my question. How do you think about it?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [158]

--------------------------------------------------------------------------------

No. In fact, it will be much, much better than that, because the number that I gave was a very, very conservative number because I don't want to oversell this idea. But you're very right. It is definitely a number which can go more because -- I'll just given you some numbers in terms of the overall possibility. It is reported that about 330 million subscribers are there on Jio. And I'm told that active subscribers are at about 250 million, so there, about 80 million is inactive. And even assuming that we take 50 million out because these are marginal people who may not want to pay something extra, so on a 200 million base, it is reasonable to presume that at least 1/4 is in south of India. So 1/4 is an addressable market of 50 million. And I think we should be able to get at least 10 million to 12 million out of that addressable market in this financial year itself. So which is why I said that the number, which is already at about 11 million, could go up to 20 million by end of the year.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [159]

--------------------------------------------------------------------------------

Understood. But you did indicate the INR 100 crores of revenue number right at annualized level?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [160]

--------------------------------------------------------------------------------

Yes. That number could be much, much higher. Yes, I agree with you.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [161]

--------------------------------------------------------------------------------

Is INR 100 crores minimum guaranteed or...

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [162]

--------------------------------------------------------------------------------

No. See, there is a minimum guarantee with an existing OTT platform. And then the deal with Jio is on a different thing. I don't think we can disclose the actual terms there because it's not -- it's all covered by confidentiality clauses. But suffice it to say that this is something which is mutually beneficial, both for us as well as the operator, because they stand to gain if usage goes up because their business model is not driving up usage in terms of data consumption. And pricing is attractively through the gateway of Jio like a major is only good in terms of getting more and more people to sample the product.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [163]

--------------------------------------------------------------------------------

Understood. Just a final follow-up on that. Is there any exclusivity...

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [164]

--------------------------------------------------------------------------------

So I think one more -- I think we just want to clarify, there is no linear TV included in this deal. It's purely the content which is available on a separate deal. So I think we just want to give you the clarity.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [165]

--------------------------------------------------------------------------------

Linear TV, you have a Jio TV, or that's a separate deal?

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [166]

--------------------------------------------------------------------------------

That's separate. That's…

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [167]

--------------------------------------------------------------------------------

That has already been signed. Separate deal with linear television with whoever the telecom operator with Jio happened. That's a separate deal altogether. What we are monetizing now is purely the content, which is exclusively available on Sun NXT, which could be the movie library or a catch-up TV, and that's it. So that's understanding separately the linear television, which is the new -- I mean monetization opportunity, which we are just capitalizing on.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [168]

--------------------------------------------------------------------------------

Okay. Are you free to do a similar deal with Amazon Prime or other players? Or is there any exclusivity that you've...

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [169]

--------------------------------------------------------------------------------

No exclusivity. We can sign with anybody. We don't sign any exclusive deal with anybody.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [170]

--------------------------------------------------------------------------------

That's helpful. And finally, sorry, but CSR spend of INR 18 crores, I'm a little confused. Is this entire INR 18 crores pertaining to the previous year that was not utilized? Or is INR 18 crores also for...

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [171]

--------------------------------------------------------------------------------

No, actual expenditure this quarter was INR 26 crores, and INR 18 crores is on account of our [Pradiak].

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [172]

--------------------------------------------------------------------------------

Okay. The balance, INR 8 crores, is for this quarter. So that is the run rate on a quarterly basis.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [173]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Operator [174]

--------------------------------------------------------------------------------

We have the last question from the line of Naval Seth from Emkay Global.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [175]

--------------------------------------------------------------------------------

Okay. After this, we should call this up, because I think it's more than 1 hour, but we'll just take this one last question.

--------------------------------------------------------------------------------

Naval Seth, Emkay Global Financial Services Ltd., Research Division - Research Analyst [176]

--------------------------------------------------------------------------------

Question is on content investment. Mahesh did indicate that content spend have gone up because of the -- we have seen market share also moving up. If you can dwell a bit in detail how the spends are moving up in the sense that is there actual now sense for like-for-like content has gone up or we are focusing more on big ticket shows to drive up the market share. So something more on the spends will be helpful.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [177]

--------------------------------------------------------------------------------

Yes. I think if you look at on a like-for-like basis, one of the reason why our content costs have gone up this quarter regarding last year, primarily is because of the new markets where we have started operations, which is Bengal. So like I said, there, our run rate in terms of the content investment is approximately INR 50 crores on year 1, and we are hopeful that we will break even in year 3.

With reference to other markets, one key change which is happening in Tamil Nadu market is basically conversion of the slot model to commission model, which means that we are owning the IP, we are owning the content, and we are also upping the investment in the content in terms of look and feel and all that stuff.

So there, I think in this market, there will be incremental investment on the content, which is also is very helpful for us to monetize on the typical OTT platform. And we are not actually planning any huge, big ticket things although we are also contemplating some shows. But I think we are not that crystallized.

Basically, on the existing fiction and nonfiction, we are trying to just upscale and get some very good producers who can associate with us and focus on quality content.

--------------------------------------------------------------------------------

Naval Seth, Emkay Global Financial Services Ltd., Research Division - Research Analyst [178]

--------------------------------------------------------------------------------

So this [INR 100 crores], excluding Bengali, will be kind of new normal for the company now. So it is not something one-off, and then it will taper down next year? So if this is sustainable, what we are talking about?

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [179]

--------------------------------------------------------------------------------

Yes. Maybe 5%, 10% more than what our current run rate is.

--------------------------------------------------------------------------------

Naval Seth, Emkay Global Financial Services Ltd., Research Division - Research Analyst [180]

--------------------------------------------------------------------------------

So -- and what is the #1 in terms of commission and the production -- produced model now?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [181]

--------------------------------------------------------------------------------

I think in the prime time, we have 4 slots, which are the slot model, and the balance slots are all completely commissioned. In the afternoon, apart from 2 to 3 slots, everything is commissioned. Now we started doing originals from 10:30 in the morning. It's still up to 10:30 in the night. So basically, I think the overall level, it could be 7 to 8 slots, which are basically producer driven.

--------------------------------------------------------------------------------

Naval Seth, Emkay Global Financial Services Ltd., Research Division - Research Analyst [182]

--------------------------------------------------------------------------------

And any target by end of this year or next year how much reduction would be there further on this slot model?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [183]

--------------------------------------------------------------------------------

No. I think since the way we are looking at it is basically any show which is getting over or where we see the ratings are not stacking up, we are [more incented] to the commission model with the existing producer because I think there is -- so I think it's more to do with coinciding with when the show is getting over, rather than -- and the performance being the current.

--------------------------------------------------------------------------------

Naval Seth, Emkay Global Financial Services Ltd., Research Division - Research Analyst [184]

--------------------------------------------------------------------------------

So -- but fair to assume that this can go by down -- or go down by 30%, 40%, at least by FY '21, if not this fiscal?

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [185]

--------------------------------------------------------------------------------

Yes, maybe.

--------------------------------------------------------------------------------

Operator [186]

--------------------------------------------------------------------------------

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments. So over to you.

--------------------------------------------------------------------------------

Rajaraman Mahesh kumar, Sun TV Network Limited - President, MD & Additional Director [187]

--------------------------------------------------------------------------------

Thank you very much, everybody. We will be available for whatever follow-up questions are there. Feel free to call either me or Unni. Thanks very much, and see you next time. Bye.

--------------------------------------------------------------------------------

V. C. Unnikrishnan, Sun TV Network Limited - CFO [188]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

S. L. Narayanan, Sun TV Network Limited - Group CFO [189]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [190]

--------------------------------------------------------------------------------

Thank you very much, sir. Ladies and gentlemen, on behalf of Axis Capital Limited, that concludes this conference call. Thank you for joining with us. You may now disconnect your lines.