Q1 FY2012 EARNINGS CONFERENCE CALL Call/105537_20110721.pdf · Earnings Conference Call for the...

1 Earnings Conference Call for the Quarter ended June 30, 2011

Q1 FY2012 EARNINGS CONFERENCE CALL

July 21 2011, 1500 HRS IST

Moderator: Ladies and gentlemen good afternoon and welcome to Zee Entertainment

Enterprises Limited’s Q1 FY2012 results conference call. As a reminder all

participant lines will be in the listen only mode. There will be an opportunity

for you to ask questions at the end of today’s presentation. If you should

need any assistance during this conference call, you may signal an operator

by pressing “*” and then “0” on your touchtone telephones. Please note

that this conference is being recorded. I would now like to hand the

conference over to Mr. Kanwaljeet Singh of Zee Entertainment Enterprises

Limited (ZEE). Thank and over to you.

Kanwaljeet Singh: Thank you Farah. Ladies and gentlemen thank you for joining us today. This

conference call has been organized to update our investors on the

Company's performance in the 1st Quarter of fiscal 2012 and to share with

you the outlook of the management of Zee Entertainment Enterprises

Limited. We do hope that you have had the chance to go through earnings

release and the result, both of which have been uploaded on our website

www.zeetelevision.com.

To discuss the results and performance joining me today is Mr. Punit Goenka

– Managing Director and CEO of ZEE, along with the members of senior

management team of the company including Mr. Hitesh Vakil – President

and CFO and Mr. Atul Das – President and Head Corporate Strategy and

Business Development. We will start with a brief statement from Mr.

Goenka on the 1st Quarter performance and we will then open the

discussion for questions and answers.

I would like to remind everybody that anything we say during the call that

refers to our outlook for the future is a forward-looking statement and must

be taken in the context of the risks that we face. We would also like to add

that this call is purely for our analysts and investors and if there are any

media companies on the call, we request them to please disconnect. I now

request Mr. Goenka to address the audience.

Punit Goenka: Thank you Kanwaljeet. I would like to welcome everybody to this call and

appreciate your joining us for the discussions of the results for the 1st

Quarter of fiscal 2011.

Let us begin with the details of some of the key financials of the quarter

which should give a clearer picture of the financial performance. ZEE’s

http://www.zeetelevision.com/


advertising revenues during the quarter were Rs. 3.8 billion, an increase of

0.5% as compared to the corresponding quarter last fiscal. As many of you

may be aware, the advertising spends on television have started on a weak

note during this fiscal. In our view, there has been some pullback seen

amongst the broad spectrum of advertisers, especially after very strong

spends in the last quarter, both on sports as well as non-sports channels.

The subscription revenues for the quarter were Rs. 3.1 billion registering an

increase of 16.7% over the corresponding quarter last fiscal. Domestic

subscription revenues stood at Rs. 2.1 billion, while international

subscription was Rs. 1 billion. Revenues from domestic DTH operators, part

of the domestic subscription revenue, were Rs. 1.1 billion, up 55.9% year on

year. Subscription revenues from international operators were lower, while

subscription revenues from domestic cable increased by 8.4% on year on

year basis.

As you all are aware, we have entered into a joint venture with Star for

distributing our channels together under the new company MediaPro. Many

of our new deals have yet to be signed and therefore the domestic cable

revenues have had a slow start to the year, but we hope the same would

pick up as we go along the rest of the year and the full impact of the JV will

start reflecting only with a lag of 2-3 quarters. There has been some decline

in our international subscription revenue due to greater churn in Europe.

On the cost front, programming and operating cost in the quarter was Rs.

3.4 billion as compared to Rs. 3.1 billion in the corresponding period last

fiscal, representing an increase of 12.2%. Employee cost increased by 25.1%

over the corresponding period last fiscal. Selling and other expenses in the

quarter were flat at Rs. 1.3 billion. This also includes an additional one-time

expense on marketing and rebranding exercise undertaken during the year.

We have also started our new media business, which has had some pre-

operating costs. As a result, total costs incurred by the company in this

quarter were Rs. 5.4 billion, showing an increase of 10.7% over the

corresponding period last fiscal.

One also has to keep in mind that when we started planning for the year, we

were doing so against the backdrop of very buoyant advertising

environment. Accordingly, to better monetize our content, we had taken

steps to increase hours of programming on our channels. The weakness in

advertising has impacted the operating profits to a greater degree than

envisaged earlier. Also, the regional business requires investments for long-

term gain irrespective of any short-term slowdown.

During the quarter the company’s operating profit was Rs. 1.6 billion. The

weakness in advertising revenues combined with a significant portion of


sports losses taking place in the 1st Quarter has resulted in squeeze in our

operating profit margins to 22.3%. Profit before tax for the quarter stood at

Rs. 1.7 billion, while profit after tax was Rs. 1.3 billion.

It is important for you to understand that while our sports business remains

on track as we have discussed before, a good portion of the losses have

accrued during the 1st Quarter itself. We continue to invest in the sports

business with a medium-term perspective. We do expect losses to continue

with sports business for some more time to come, but we are hopeful of

seeing a much more improved performance compared to fiscal 2011. Sports

losses during the quarter were Rs. 566 million. The India - West Indies

cricket series has resulted in good viewership for Ten Cricket, but has also

resulted in operating losses, as was expected.

As of June 30th, 2011 the company has a negligible gross debt of Rs. 16

million and net cash of Rs. 14 billion. Finance expenses in the quarter were

Rs. 30 million, down 40% year on year.

I would now like to cover the business performance.

The biggest event of the quarter for Zee TV, the network flagship channel in

the Hindi GEC was unveiling of the new brand identity featuring an

innovative aqua blue logo with the slogan “Umeed Se Saje Zindagi”, with the

objective of taking forward a progressive outlook for the channel. The event

“Umeed Ka Naya Chehra” showcased during the quarter created a buzz

around this brand repositioning exercise. The network undertook the

biggest BTL activity for viewers to be the central part of its new brand

identity exercise.

During the quarter, Zee TV averaged 201 GRPs recording a relative share of

23%. The performance was better in the All Day Prime Time band, where

Zee TV averaged 134 GRPs recording a relative share of 26%. The channel

delivered a weekly average of 23 shows among top 100 shows during the

quarter led by top rated shows like Pavitra Rishta, Ram Milaayi Jodi and

Yahan Main Ghar Ghar Kheli. The quarter saw the launch of SRGMP Li’l

Champs, Shobha Somnath Ki and Mrs Kaushik Ki Paanch Bahuyein.

The network’s Hindi movie channel Zee Cinema averaged 127 GRPs during

the quarter. The key properties of the channel during the quarter were Lage

Raho, Double Maza and Shanivaar Ki Raat Amitabh Ke Saath. The quarter

also saw the premiere of Pyaar ka Punchnama, Shaitaan and Chalo Dilli.

Another key marketing initiative in the quarter was Double Dhamaal Nite, an

evening of rip-roaring comedy with memorable gags and dance acts by the

cast of the film as also several artistes from under the ZEE umbrella.


The top rated shows on Zee Café were The Big Bang Theory, Keeping up with

the Kardashians and Americas Funniest Home Videos. The top performing

properties on Zee Studio were Shaolin Soccer, The 13th Warrior and Pirates

of the Caribbean.

Zee Khana Khazana, India’s first 24 hour food channel, lived upto its promise

of delivering rich programming mix from across India and abroad featuring

shows that define and refine the culinary expertise. The top properties

showcased on the channel were Gourmet Kitchen, Bawarchi and Simbly

South.

Zee Marathi delivered 192 GRPs during the quarter recording a relative

share of 32% with 35 of the top 100 shows. The top rated shows in the

quarter were Bhagyalaxmi, Mazi Priyala Preet Kalena and Fu Bai Fu. Zee

Bangla delivered 320 GRPs in the quarter ranking a clear second in the

Bangla GEC genre recording a relative share of 31%. I am also glad to report

that the Bangla GEC has conquered the number one position back from Star

Jalsha in July. Zee Telugu averaged 325 GRPs during the quarter recording a

relative channel share of 18% in its genre. Zee Kannada averaged 222 GRPs

during the quarter driven by popular shows like Parvati Parameshwara,

Arasi and Suryakanthi.

The key properties showcased on Ten Sports during the quarter were WWE

Wrestlemania, Extreme Rules and Over the Limit. The quarter saw the airing

of UEFA Champions League matches on Ten Action+, whereas Ten Cricket

aired the popular cricketing event West Indies vs India series in HD mode

through DTH service providers. Ten Cricket, in partnership with YouTube,

also made the entire series available on the Internet – both in Live and On-

demand formats. The sports business revenues in the first quarter of FY12

were Rs 873 million, while costs incurred in this quarter were Rs 1,439

million, resulting in operating losses of Rs 566 million.

ZEE’s International operations contribute a significant part of the

Company’s revenues. During the quarter, the Company undertook a number

of initiatives to further strengthen its dominance. Another highlight of the

quarter was the launch of Ten Cricket in the Cricket pack as well as the Mega

Pack on Dish IPTV. In the Middle East, Zee Aflam’s rating crossed the 40

mark for the first time (TG: All Arabs). In Malaysia, Zee Variasi is now

available with dual sub-titles.

We have started the year with mixed bag. While our fundamentals remain

strong, a weak advertising environment has pulled down our performance.

We continue to adapt to the environment and believe that our content

focused approach combined with better monetization of subscription

revenues, will contribute to an improved performance ahead.


With this, I thank you again for joining us and would now like to open the

floor for the questions and answers session.

Kanwaljeet Singh: Ladies and gentlemen, we are ready for questions now. I would request all

the participants to kindly limit themselves to two questions each, so that we

can take as many people on as possible.

Moderator: Thank you very much, sir. Ladies and gentlemen, we will now begin with the

question and answer session. The first question is from the line of Abneesh

Roy from Edelweiss, please go ahead.

Abneesh Roy: Reasonable performance in a tough quarter. The sentiment in advertising

turned suddenly. So my question is how much was the slowdown due to the

IPL World Cup and what is the full year guidance that you would now give

for the industry? Earlier you were saying around say 12-13%. Obviously that

looks a bit difficult. So in Q2, do we think a sharp come back in terms of

growth or will it be largely in the second half only?

Punit Goenka: Well Abneesh, the first question, definitely World Cup and IPL did have an

impact on the entire advertising spends. From our estimates, close to 1400

to 1500 crores actually went towards both these tournaments, which has

caused some of the slowdown in advertising spend. But apart from that in

June, we have seen slowdown in various sectors as I mentioned and I do not

see any immediate recovery of that happening. Therefore, our outlook is

that a double-digit growth looks very unlikely. But given that there is still

very limited visibility, I would like to think that still single-digit growth would

be possible, but more to follow once we see a few more months into the

year.

Abneesh Roy: My second question is on your strategy in the regional markets. You have

come back very strongly in the Bengal market, but on the other side, in the

Marathi market, Star has really come very close. So wanted to understand

these two markets, what is the strategy. And if you could give us more color

on the Telegu and Kannada market, where do you really want to be from a

medium to long-term perspective in these markets? And in Tamil Nadu, any

re-think on re-entry because now things are very different, new

government, new regulation, wanted to understand Tamil Nadu market.

Punit Goenka: As far as Bangla is concerned, we have always maintained that we will come

back to our leadership position and I think we have demonstrated that in

the last three weeks of our performance and I am sure that we will continue

to build on that further. Marathi, in the beginning of the year also, Abneesh

if you remember, I had said that this is one genre that requires investments.


We have reaped the benefits of our earlier investments in this genre for

quite some time and it was time for us to invest back and that is the strategy

we will follow for this current fiscal where a lot more content initiatives will

be taken in the genre.

As far as south is concerned, in Telugu and Kannada, we have consistently

managed to maintain our position. We are number three in those markets

and as you know it has not been an easy task to break into those markets

given the kind of monopolies that exist there. But yet we have done fairly

well and if you look at how we have grown in our content in terms of fiction

versus non-fiction versus films, I think it is a commendable job that the

teams have done there. As far as Tamil Nadu is concerned, I think we will

still wait and watch what happens in that market. It is still early days. I guess

there is nothing more I can report on Tamil Nadu as of now.

Abneesh Roy: Thanks for this and I will come back if I have more.

Moderator: Thank you. Our next question is from the line of Nitin Mohta from

Macquarie. Please go ahead.

Nitin Mohta: I had a question regarding the one-time impact you talked about in the

quarter. Can you provide a break-up so that we get a margin trajectory going

forward?

Punit Goenka: In terms of on the re-branding exercise, the total impact is close to the tune

of 21 crores. And on the pre-operating expenses in the new media, it is a

small number. I cannot share that figure.

Nitin Mohta: The second question was on the international subscription revenue side. I

understand the macro is tough out there, but as we look forward for fiscal

2012, do you think on a year-on-year basis, we can remain flat or is there a

possibility of a decline there?

Punit Goenka: I think we will be flat in that market, at least for fiscal 2012. As we have

shared in the past, we are working on strategies to address the non-South

Asian Diaspora in these markets. We have launched Zee Aflam in the Middle

East, and Zee Variasi in Malaysia and Indonesia. Similar experiments are

underway in the markets of Russia. So once things find critical mass, that is

when we start expecting growth from there. On the subscription side, I do

expect it to be flat going forward.

Nitin Mohta: Thank you and best of luck for the coming quarters.

Moderator: Thank you. The next question is from the line of Vikash Mantri from ICICI

Securities. Please go ahead.


Vikash Mantri: Question on the sports business. Given our 1st Quarter performance, would

you like to re-state our guidance for the full year from our earlier guidance

of sub 1 billion loss in sports? And also would like to know, by when Rs. 5.7

billion inventories in sports need to be amortized?

Punit Goenka: To the first question Vikas, we will not like to revise the guidance we had

given on the 100 crores maximum loss for this year. Hitesh?

Hitesh Vakil: On amortization, it will be amortized over next two or three years

depending on the period of rights that we have.

Vikash Mantri: But most of our rights expire by 2013 at the maximum.

Hitesh Vakil: Right.

Vikash Mantri: So for the next six quarters, if I may put it?

Hitesh Vakil: Right.

Vikash Mantri: Second question Punit. In the last few quarters, I have been asking on our

strategy on the programming and do we need to increase our programming

hours to be competitive in the Hindi GEC space. Any views on that or the

current environment is too challenging to accept more programming hours?

Punit Goenka: Vikas, as we had said in the beginning of the year also, we will be

strategically increasing the number of programming hours on the flagship

from the current 28-29 odd hours that we are at. Our expectation is that by

the end of this year we will go to about 34-35 hours, but given the dynamic

environment of how the advertising market is changing, things may change

during the course. It has not changed as of now.

Vikash Mantri: Thanks and best of luck.

Moderator: Thank you. The next question is from the line of Siddharth Goenka from JM

Financial. Please go ahead.

Siddharth Goenka: My first question is on the ad revenue front. Can you give us some sense

what has been the ad revenue growth from our regional entertainment

channels and the non-regional channels during the quarter on a yoy basis? It

has remained flat overall, but can you give us some sense on these two

markets?

Atul Das: Siddharth, Atul here. On the regional part, unlike print media where there

are specific advertisers which are bigger on regional space and not so much

on national space, in television, the broad spectrum of advertisers more or

less, kind of, mirrors. National advertisers also take regional media for


reaching different set of audiences. I would say the trend lines are more or

less similar. Of course, the impact mirrors more on national and slightly less

so on regional channels, but they are not very different from each other.

Siddharth Goenka: So is the slowdown also attributed to our low GRP ratings because we are

continuously being at a number three position? Of course, we are planning

to ramp up our programming base, but we are getting tough competition

from Sony, which is increasing its GRP ratings by launching new shows. So do

you have any comments on that front?

Atul Das: From a relative perspective Siddharth, we will not know the entire data of

the industry as of now. Our sense is we have done very well in the past 3 to

6 months. If you compare the viewership tracking data for, say, January to

June of the calendar year 2011, you will see that on a relative basis, we have

increased market share in most genres. There is very little reason to believe

that we would be impacted and the industry would be otherwise. Data is not

really available to us as of now to be able to make a comment. But from

what we understand, it is an industry wide phenomenon.

Siddharth Goenka: What kind of industry growth guidance are we giving at this point of time on

the ad revenue front?

Atul Das: As we started, we were looking at 12-13% on television industry advertising

growth. 1st Quarter has not panned out in the same fashion. So as Punit in

his opening remarks had mentioned, double-digit growth may look difficult

unless we recoup what we have lost in the 1st Quarter. So that is something

that you cannot have visibility at the moment. Maybe by the festival season,

things come back very sharply, but a double-digit may prove to be difficult.

We will have to wait for it.

Siddharth Goenka: One more question, our tax rate for the quarter has been quite low. So what

is the reason behind it and what kind of guidance are we giving on the tax

rate front?

Hitesh Vakil: Tax is lower because of the sports losses booked in India on Ten Cricket

channel and this is specific for the 1st Quarter. Going forward, for the full

year, we expect it to remain at around 31%.

Siddharth Goenka: One last question, what is the number of paid DTH subscribers for the

quarter?

Atul Das: This quarter, we have ended up with 18.5 million subscribers.

Siddharth Goenka: That’s it from my end. I will come back if I have more queries, thank you.


Moderator: Thank you. The next question is from the line of Deepan Sankara from HSBC

Invest Direct. Please go ahead.

Deepan Sankara: I want to understand more on the ZEE and Star alliance in the distribution

space? How much benefit will accrue to the broadcasters in case of

negotiation?

Punit Goenka: It is very difficult to quantify that in terms of annas and pies. But definitely

as the contracts get aligned between the two companies, which would have

started happening effectively from the 1st July of this year, we do expect that

in 2 to 3 quarters, we will start seeing an upward trend. If individually we

were growing at ‘x’, we should be growing at something higher than that.

Atul Das: The entire effort to create this joint venture is from medium-term

perspective, not really from a one quarter or two quarter perspective. In the

medium to long-term, there are several benefits which will accrue because

of increasing transparency that this joint venture would bring, which takes

care of ZEE channels, Star channels and Turner channels all put together and

other third-party channels as well. So it is a bouquet of almost 68 channels

and it provides us a good strength as a platform to negotiate and correct the

anomalies that exist in the current distribution system in India.

Deepan Sankara: On domestic subscription revenues perspective, how do you see the growth

in medium to long term, with DTH and also digitization happening?

Punit Goenka: Currently, DTH as a subscriber base in the country is growing at the rate of

almost 12 million per annum. So that is the first base that we will continue

to grow on our DTH revenues. Additionally, we talked about how this joint

venture may help us grow even the cable revenues. So as a combination of

these two efforts, we think there is ample scope for growth of subscription

revenue. We have not even touched upon the fact that at some point of

time, the pricing will also improve for the business.

Deepan Sankara: Thank you.

Moderator: Thank you. The next question is from the line of Ruchika Gupta from Equity

Master. Please go ahead.

Ruchika Gupta: I wanted to get a sense of your attrition rate because media industry is

facing the problem of attrition, people moving from one organization to the

other. So I just wanted to know what is the attrition rate is and how is it that

ZEE is able to retain these employees?

Punit Goenka: The attrition rate on an annualized basis would be about 10% to 12% for us

and the way we have been managing that is that we have consistently been

replenishing our organization with a set of management trainees that join us


every year. Thus, we go out and hire replacements and hire people for

newer jobs that we create internally. It is an open market that we operate

in. If we lose people to some, whether it is our own industry or outside our

industry, we go and get people from within and outside the industry.

Ruchika Gupta: On an average what would be the attrition rate for the industry?

Punit Goenka: It will be about 20%.

Ruchika Gupta: So ZEE is doing well on that front. Thank you so much.

Moderator: Thank you. The next question is from the line of Miten Lathia from HDFC

Mutual Fund. Please go ahead.

Miten Lathia: On the domestic cable front, you mentioned in your opening remarks that

there are some deals that are yet to be signed by MediaPro. Would it be

right to assume that some of the revenues which would have rightfully come

in Quarter 1 will actually come in the subsequent quarters of the year, or

that is not the case?

Punit Goenka: That always happens, Miten. Cable, whether it is MediaPro or we do the

deals individually, the agreements do get signed over a period of 6 to 9

months. Therefore, there is always this lag. If you look at even the historical

data, sequentially our Q1 number is relatively lower than the Q4 number of

domestic subscription. So we do expect that with MediaPro now being

there, the impact will be higher.

Miten Lathia: Quarter 1 obviously has been tough for the industry because of cricket

hangover. But are you already getting some sense about the festive season

or it’s too early talk about it?

Punit Goenka: People are talking about this and the festive season is arriving early this

year. So people are thinking optimistically at least, but it is still early. By

probably end-August, will we have true color on what it is going to look like.

Miten Lathia: I know that you do not share this data, but in terms of pre-booking or

something of that sort, is the tracking similar to last year or it is slowing?

Punit Goenka: As I mentioned at the beginning of the year, almost 40% plus of our deals

would have been signed already for the year. But it does not mean that that

business happens because people have to still release that business to us. A

deal may be signed, but consumption is on a month-to-month basis and

quarter-to-quarter basis.

Miten Lathia: Given that now we will also add cricket to our bouquet of channels for the

international platforms that we are present on, on a full-year basis, should


we start expecting that international subscription revenues will at least grow

marginally or that is being challenged?

Punit Goenka: Miten, market to market, it is a different environment. In US, we have been

marginally growing in the past. It is Europe and UK, which has been pulling

down the performance so far. That is one market. Second market is the

Middle East. With this entire piracy issue that is going on in the Middle East,

that is pulling down the subscription performance of international in a big

way. So the dynamics differ from market to market and with Ten Cricket

launch in US, the US market will only strengthen. It may grow even faster.

But that growth is still miniscule compared to the degrowth we are seeing in

the other two markets.

Miten Lathia: Thanks very much.

Moderator: Thank you. The next question is from the line of Neerav Dalal from

Sharekhan. Please go ahead.

Neerav Dalal: I wanted some guidance on the costs excluding the sports business. If you

could give us any guidance on that, how would they move in the year?

Atul Das: Cost excluding sports business would be a little higher this time than normal.

There are two reasons for that. One is, when we started planning our fiscal

2012 budgets, advertising environment was very buoyant. So accordingly to

monetize them effectively, we did create more opportunities for content

creation. That has impacted our margins and therefore it will take time for

some of those costs to wind down. And the second, which Punit also

mentioned, is that we are looking at regional markets. For example, from a

medium to long-term perspective, appropriate investments in some of those

markets are required. So as a normal result, we are investing a little more on

content this year, which has been our stated objective for the last several

months and that we will continue.

Neerav Dalal: So an EBITDA of about 32-33% excluding sports business?

Atul Das: I would not like to explicitly comment on that.

Neerav Dalal: Thanks.

Moderator: Thank you. The next question is from the line of Pratish Krishnan from Bank

of America Merrill Lynch. Please go ahead.

Pratish Krishnan: This is from the DTH side. I just want to understand from your pricing point

of view, did you have any price increases during the quarter?


Atul Das: Effectively Pratish, we have not taken any price increase. So whatever

effective yield improvement is there is a result of the combination of

packages that consumers are taking from various DTH operators. This thing

we do not control as of now. At the point when DTH operators start taking

their prices up significantly, the yields will improve from thereon. But as of

now, it is more to do with how the packages are being consumed on the

subscriber level.

Pratish Krishnan: Is there any annual hike which can probably kick-in in some of the contracts?

Atul Das: Some of them are anyways variable contracts. So based on how consumers

are increasing for each of the operators, the increase keeps coming. And

some of them are fixed contracts, where a stable hike would figure in

depending on when the contracts come in for renewal. So not all are

coinciding with our financial year, some of them could be in the middle of

the financial year also.

Pratish Krishnan: Second is on the cost side. Given that the ad environment has changed now,

are you suggesting that you would be looking at putting the programming

cost on hold or you would still be in an investment mode?

Punit Goenka: On the programming side, I think we will maintain our investments still for

some more time before you think the environment is gone even worse

because we do believe that programming investments are not just for one

fiscal they have more mid-term to long-term impacts. So from that

perspective, battle will be maintained. Any other unnecessary expense that

may feature in this thing would be taken care of.

Pratish Krishnan: Lastly, in terms of the overall ad spends, when you had the call in the month

of April, you had suggested 12-13% growth. I am just keen to understand the

pull back in ad spends. Was it more towards the end of the quarter or it

started right from April end?

Punit Goenka: No, it was actually witnessed more in May. April was still quite buoyant. May

and then suddenly June was even worse than that.

Pratish Krishnan: The environment today would still be the same, or you think it is probably

slightly improving or deteriorating?

Punit Goenka: No, pretty much the same.

Pratish Krishnan: Thanks a lot.

Moderator: Thank you. The next question is from the line of Rohit Dokania from B&K

Securities. Please go ahead.


Rohit Dokania: Just two questions, one is, did the India West Indies series helped us in

recording higher DTH revenues? Basically, was there a one-off kind of an

increase in this particular quarter because of that?

Punit Goenka: No, there is no one-off increase because of that. The series definitely helped

us sign out a lot of the contracts with not just DTH operators, but also with

analog operators.

Atul Das: The impact as we have been always saying is positive and once the impact

comes through, it remains in the subscription revenue.

Rohit Dokania: I was just looking at your growth in terms of excluding sports. So the top-line

would have grown by about 3% and subscription revenues grew by about 16

to 17% year-on-your. Does that essentially mean that our ad revenues have

actually declined year-on-year excluding sports portfolio and if that is the

case, could you tell us as to where the industry is headed? Are we in sync

with the industry or is that we are losing market share in terms of ad

revenues?

Atul Das: Rohit, we do not split our ad revenues product wise unfortunately and

therefore we will not be able to answer your question specifically.

Rohit Dokania: To put it differently, can you give me where the industry was as far as this

particular quarter is concerned?

Atul Das: We believe that the industry has been weak. We were answering a question

earlier, where we said it is very difficult to exactly measure the impact till we

get the data. But our understanding is that since we have done well as far as

operating metrics are concerned in terms of our relative market share vis-à-

vis others, there is no reason for us to believe that the industry would have

done much better. So I would assume that the industry has seen across the

board weakness. I am talking about television industry.

Rohit Dokania: Thanks a lot and wish you all the best.

Moderator: Thank you. The next question is from the line of Mohan Lal from Elara

Capital. Please go ahead.

Mohan Lal: If I look at the programming and operating cost for the quarter and I am

mindful of the fact that we spent money on the India-West Indies tour, so if I

take that out on a like-to-like basis, there is a low single-digit growth, if at

all, from Q1 FY11. So could this be a trend that content and programming

costs will trend along with the ad revenue growth going forward as well?

Punit Goenka: Not necessarily Mohan, because as I said earlier, the investments in

programming are more mid-term to long-term. We do not see its quarter on


quarter advertising impact. We will continue to invest for at least the next

couple of quarters in our content, unless something drastic happens and we

see no signs of recovery. That is when we will pull back and hold it.

Mohan Lal: We spent 140 crores this quarter on sports. I would say that 70% of that

would have gone into programming and content cost, which will not be

coming in Q2 and Q3. So should we expect a little reduction on a Q-O-Q

basis on the 342 crores number that we see in Q1 to grow on a Q-O-Q basis

from here on?

Punit Goenka: Mohan, I think that is quite specific. I will not have the cost number break-

up quarter-on-quarter for future.

Mohan Lal: Thanks a lot.

Moderator: Thank you. The next question is from the line of Nikhil Vora from IDFC.

Please go ahead.

Nikhil Vora: A couple of questions. Firstly, on the international revenues, specifically

distribution, is there anything specifically to technology which is leading to

subscriber growth remaining fairly muted or are the yields coming under

pressure in international distribution? And this I am talking more of

structurally from the last couple of years that you have seen to what you

would see in the next couple of years?

Punit Goenka: There are definitely technological enhancements that are taking place in

various markets that can help us drive subscription revenues. I think the

declining largest market which is Europe has been suffering not just because

of technology issues, but also because of the entire slowdown of the

economic situation that the country is facing. If you look at BSkyB which is

the largest DTH operator there, they have consistently grown despite the

fact that the South Asian pie has been shrinking. From a technology point of

view, yes, there are developments that one can explore, but will that have

any drastic impact in the immediate future, no, I do not think so. I think that

has to be still studied and seen how that can impact the business.

Nikhil Vora: Is it fair to presume that as of now given that competitive environment even

in international distribution would also have peaked out, yields will remain

under pressure and thereby, if we do not get incremental subscriber base,

international distribution revenue will broadly plateau out as of now?

Punit Goenka: As I said for the South Asian markets on an all international basis, yes, you

are right. But the dynamics differ market-to-market. Therefore, it is not

possible to generalize it in that manner. You will have to look at each market

and the dynamics there. Thereafter, one can come to some kind of an


understanding. For example, US is still in the growth mode. It has not

saturated yet. UK, Europe is saturated. But Middle East is suffering due to

piracy. It is not a saturated market, it is still growing, but it is suffering

because of piracy matter. So it is an industry wide issue. It is not something

related only to us.

Nikhil Vora: Second was on the advertising yield per se. Is the advertising yield right now

on par with the number two player or is there a variance in the yield that we

are getting to the number one, number two players right now?

Punit Goenka: No, our yield will be very comparable to number one and number two

players.

Nikhil Vora: So potentially in a competitive market, do we have the risk of the yields

actually coming under pressure as we move forward if we remain the

number three player?

Punit Goenka: Well, the moment there is a slow down, yields do come under pressure

immediately. So it is a question of what we do as a strategy - whether we let

our yields come down or we compromise on volumes.

Atul Das: And just to add to that Nikhil. When we talk about number one, number

two, number three positions, one also has to keep in mind that generally

speaking, people take the total overall GRPs when they compare across

channels. So what happens is we have a very different position when it

comes to Weekday Prime Time, which is a large monetizable bank. There

our position, in many weeks, is ahead of number two and number three

players. The other players are number one, number two on total GRP basis.

So, from a revenue maximization perspective, we internally look at very

different parameters and therefore it may be different compared to what

you may realize when you compare overall GRPs.

Moderator: Thank you. The next question is from the line of Hiren Dasani of Goldman

Sachs. Please go ahead.

Hiren Dasani: A very simple question. On the DTH side, is there any overflow from the

earlier quarters?

Atul Das: No, nothing. It is normal.

Hiren Dasani: There seems to be some yield improvement in that case this quarter?

Atul Das: As I was answering a little while back that yields really are not something

that we actively control at this stage because we are not increasing our

pricing. But it does get impacted based on the viewer choices and subscriber

pick-up from the packages that they are offered by the DTH operators. So


from that perspective, yields keep going slightly up or down depending on

how subscriber behavior is.

Hiren Dasani: The other thing is these 21 crores of rebranding related expenses. Would it

be entirely non-sports in terms of classification?

Atul Das: It is largely the rebranding exercise of the ZEE brand, which is not specific to

sports at all.

Hiren Dasani: So in terms of sports versus non-sports classification, it should be adjusted

in the non-sports side?

Atul Das: Yes.

Punit Goenka: Thanks.

Moderator: Thank you. The next question is from the line of Nihar Shah from Enam

Holdings. Please go ahead.

Nihar Shah: I had two questions. My first question was on the advertising side. Just

wanted a little bit more color in terms of this quarter what have you seen?

Have you seen your realizations sort of under pressure or is it that you have

tried to maintain your realizations and seen volumes being affected. My

second question again on the advertising side is, I wanted to understand in

terms of verticals, there are maybe one or two or three key verticals where

you are seeing weakness in terms of advertising spend. The reason why I am

asking this is that I just wanted to understand whether it was mainly related

just to the sports heavy last quarter or is it also because of general economic

slowdown within the country right now? That’s all from my side, thank you.

Punit Goenka: Nihar, your second question is that definitely I think it is not just sports

related. It has also to do with the general sentiments or economic conditions

of the country as of now. We have seen slowdown. FMCG sector has seen a

slowdown and as you know FMCG accounts for a large volume of our

business from TV perspective. We have seen slowdown in the financial

services as well as in the telecom market. And as you know, the moment the

interest rates harden, auto and all these things also get hit immediately. So

these are the 3-4 sectors that are impacted in a large way. On your first

question on volume versus value, I think it is a combination of both. It is a

give and take we do based on how we have to balance our business to the

maximum monetization that we can achieve.

Nihar Shah: Just a couple of clarifications. Can you give me a ballpark sort of utilization

rate in terms of your total volumes, say, this quarter versus the last quarter?

Is there a big delta or is it not that big?


Punit Goenka: It is a big delta from our perspective because all our inventories are not

comparable to each other.

Nihar Shah: Thank you. That’s all from my side.

Moderator: Thank you. The next question is from the line of Anuj Bansal from Hill House

Capital. Please go ahead.

Anuj Bansal: I wanted to know a bit about the staff cost because this is one line item

which seems to be running consistently ahead of the sales growth. Attrition

rates of 10-12% per annum did not seem to be so high. So what is the need

or even in such a depressing environment, why a 25% kind of yoy growth or

is there something exceptional in this quarter?

Punit Goenka: It is nothing exceptional in this quarter. I think it is the trend line going

forward. There are several new businesses we have added to the company.

The entire new media initiatives, whether it is our internet strategy or our

new media strategy that’s going to be rolled out, that had a significant

recruitment taking place. It is part of 4th Quarter of last fiscal and this

quarter this year. The Tamil business, which is a new business for us, has

also seen a huge number of people joining. Apart from that, it is the normal

increment that we give as part of the new fiscal along with budgeting for

incentives what has been built into it. Atul, you want to add anything?

Atul Das: Anuj, just to add to that, you have to keep in mind that on a backdrop of

fiscal 2010, we were taking a drastic view of the cost structure on personnel

and we had cut several of the items relating to personnel cost and it was a

year when advertising revenue slowdown had impacted us. But coming back

from that, we have incrementally changed that outlook for FY2011 and

FY2012. We have now several areas of operations where we are investing so

we are adding to staff. It is a combination of actual manpower entry as well

as normal incremental cost.

Anuj Bansal: Any kind of split on this 25% number what would be contributing to how

much?

Atul Das: Again I do not have the numbers right now but 10-11% would be

incremental manpower.

Punit Goenka: If I just tell you roughly our increment from last year to this year has been

roughly about 14% and the balance will be additional manpower.

Hitesh Vakil: Just to add here, if you look at sequential cost, perhaps you will get a better

perspective.


Punit Goenka: I think what Hitesh is meaning is to get the sequential numbers on the

manpower cost. Maybe that gives you a better color.

Anuj Bansal: Second is a very broad question in terms of World Cup and IPL being stated

as one of the reason for the ad revenue slowdown. But shouldn’t it have

been budgeted in FY11 spend for most of the advertisers? FY12 getting

impacted by World Cup least should have been the case. Even IPL is now an

annual thing. So that is something which should be built in to the base as

well. So it looks like the slowdown should be purely macro and not so much

because of World Cup and IPL coming in this year.

Atul Das: Anuj, I will answer this question in perspective. Maybe you are not familiar

with the ad spend environment which prevails in the country. What

happened in 4th Quarter and part of the 1st Quarter was that World Cup and

IPL, two very significantly large events in sports, happened very close to

each other. And as Punit in his statement also mentioned, that almost 1500

crores of ad spends went to these two events. Typically in a normal sports

calendar not more than 1000 crores of ad spends go into sports. So given

that only two events took away 1.5 times that number, it is a pretty large

number.

Now in a normal year it would not have impacted all the calculations. But

what happened is from the 4th Quarter onwards till the 1st Quarter, the

buoyancy was very strong. From 1st Quarter, suddenly the pullback has

happened because of various perceptions and comprehension of how the

economy is going forward, how inflation is impacting the economic growth,

how RBI tightening policy is impacting the pace of growth.

So it is a combination of the fact that people have spent a lot of money

within one quarter and therefore, if things are looking worse or looking

towards a slowdown, people are pulling back. It is a combination. It is not

that nobody had anticipated or nobody had budgeted for it.

Anuj Bansal: Then being in two different fiscal years is not a material thing. It is just that

people are looking at freshness in terms of memory and mindset, etc. So

they are not really caring that they were actually in two different fiscal years

and hence not really following budgeting lines, but more like, mind share

has already been captured for the year, so let us pull back a bit.

Atul Das: As it is, we do not know the answer. This is something that we can only

make a guess as to what has happened. I really cannot read into all

advertisers, every corporate mind as to what really happened. So we are

only trying to make some assessment of the situation and giving what could

have happened.


Anuj Bansal: Thank you.

Moderator: Thank you. The next question is from the line of Bijal Shah from IIFL Capital.

Please go ahead.

Bijal Shah: I just have a housekeeping question. I just wanted to understand how does

accounting of sports rights work? When we buy sports, do we put some

money in the inventory which probably right now is at 5.7 billion or if that is

not the case, then what is the 5.7 billion inventory referred to during the

conference call?

Hitesh Vakil: 5.7 billion is the inventory, which has come up on a specific transaction

relating to Ten Cricket. Otherwise, in general, we value the rights on each

match basis and accordingly we expense it out. If it involves any advance

payment required to be made to the concerned boards or organization, then

it will remain as ‘advances’.

Bijal Shah: What was the specific transaction which is leading to this inventorization of

rights and 5.7 billion coming to the balance sheet?

Hitesh Vakil: Because of the amalgamation of the company which owned these rights.

That is how the right has come into ZEE India as an inventory.

Bijal Shah: So if I understand correctly, we will be still making some payment to the

boards and 5.7 billion was the value of rights over and above that and both

the things will be coming to P&L going forward?

Hitesh Vakil: Going forward yes. Over the next two or three years, this 5.6 billion will also

get written-off, plus if we buy any new rights, that would be extra.

Bijal Shah: Along with the incremental money which we would be paying?

Hitesh Vakil: The money payable to the boards that will also come for new rights, if at all.

Bijal Shah: If you could be more specific about the time frame because somebody said

that it is 7 quarters, but if I look at your rights profiles, they are getting

expired in 2013 calendar. So should I take it till 2013 calendar or should I

take it just till FY13 end because FY13 end would be 7 quarters and 2013

calendar would be 10 quarters.

Hitesh Vakil: Quite many rights are expiring at the end of 2013 and there are very few

rights which are going beyond 2013.

Bijal Shah: So it will be till CY13, not FY13, right?

Hitesh Vakil: Yes.


Bijal Shah: One more question on your two key cricket rights come up for renewal.

What is the thought process and if you can just give us some idea on that

monetization of that in absence of digital platform remains a challenge. So

would we be as aggressive as we have been last time or there is some

different strategy which we are likely to follow?

Punit Goenka: No, I think, the success we have seen on the distribution part of the sports

business in the 1st Quarter of the year itself gives us a lot more confidence

that we should be bidding for these rights and acquiring them again. Of

course, needless to say, that we will not go completely haywire when we

rebid for these contracts. We will as usual be sensible and make sure we do

bids where it makes sense. As we have promised to you, fiscal 2013 is when

we hope to breakeven in sports business and we got to maintain that.

Bijal Shah: That is very encouraging because that is one of the largest concerns which

investors have today. So happy to hear that you are still focused on

becoming profitable or at least achieving breakeven in FY13.

Punit Goenka: We are very conscious of that decision and thank you for reminding us

again.

Bijal Shah: Thanks.

Moderator: Thank you. The last question is from the line of Deborah Yeo from HSBC.

Please go ahead.

Deborah: Could you just help us understand what the reason was for the lower tax

rate this quarter?

Hitesh Vakil: As we explained earlier this year, there are losses on account of sports

business. Mainly it is on Ten Cricket channel, which is now booked under

India. Hence, there is reduced tax rate on our Indian profit vis-à-vis profits of

the other subsidiaries.

Deborah: I appreciate that, but if you look at some of the previous quarters,

specifically the December ending quarter where you had a much higher

sports loss, I noticed that the tax rates were still quite high at 34.4%. So

perhaps if you could just let us understand how exactly this flows through?

And also there has been a certain level of volatility in the taxes if you look at

the last three quarters?

Hitesh Vakil: Tax rates are largely attributed in India and if you analyze profitability from

ZEE standalone to ZEE consolidated, perhaps you will be able to judge the

tax provision and the tax rates. This quarter specifically is seeing a lesser tax

rate, but on a yearly level we expect it to be around 30-31%.


Deborah: Thank you.

Moderator: Thank you. Ladies and gentlemen, that was the last question. I would now

like to hand the floor over to Mr. Kanwaljeet Singh for closing comments.

Kanwaljeet Singh: Ladies and gentlemen, thank you again for joining us. We hope to have the

transcript of the call on our website www.zeetelevision.com soon. We look

forward to speak to you again at the end of 2nd Quarter of fiscal 2012 or

even earlier on a one-to-one basis. Thank you and have a great day.

Moderator: Thank you. On behalf of Zee Entertainment Enterprises Ltd, that concludes

this conference call. Thank you for joining us and you may now disconnect

your lines. Thank you.

Note: This document has been suitably edited for ease of reading.

http://www.zeetelevision.com/

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