4q (january- march 2009) fy 2009 teleconference april 22,...

4Q (January- March 2009) FY 2009 Teleconference April 22, 2009

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Zee Entertainment Enterprises Limited

Quarter Four Financial Year 2009- Earnings Conference Call April 22, 2009; 1600 hrs IST

Moderator: Ladies and gentlemen, good evening. This is Melissa, the Chorus Call conference operator. Welcome to the Zee Entertainment Enterprises Limited Q4FY 2009 Results Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today’s presentation. Should you need assistance during the conference, please signal an operator by pressing “*” and then “0” on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Harsh Deep Chhabra of Zee Entertainment Enterprises Limited. Thank you and over to you, Mr. Chhabra.

Harsh Deep Chhabra: Thank you, ladies and gentlemen. Thank you for joining us today to discuss the financial results of the fourth quarter of fiscal year 2009 ended 31st March 2009 for Zee Entertainment Enterprises Limited. We do hope that you had a chance to go through copies of the earnings release and the results, both of which are uploaded on our website www.zeetelevision.com . This is the fourth earnings call we are conducting for the fiscal year 2009 and to discuss results and performance, joining me today is Mr. Subhash Chandra, Chairman, Zee Entertainment Enterprises Limited, and members of senior management team of the company including Mr. Punit Goenka, the Whole Time Director and CEO, Mr. Hitesh Vakil, the CFO, Mr. Atul Das, Executive Vice President, Corporate Strategy and Business Development and Mr. Nitin Vaidya, the COO. We will start with a brief statement from Mr. Goenka on the fourth quarter performance and we will then open the discussion for questions and answers. I would like to remind everybody that anything we say during this call that refers to our outlook for the future is a forward looking statement that

http://www.zeetelevision.com/


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must be taken in the context of the risk that we face. With this, I now request Mr. Goenka to address the audience.

Punit Goenka: Thank you, Harsh. I would like to welcome everybody to this call and appreciate you joining us for discussion on the results of the fourth quarter of fiscal year 2009. It has been a very unique year for us and for the industry. On the one hand, we witnessed a considerable slowdown in the advertising revenue growth trajectory particularly during the second half of the fiscal while on the other we continue to record robust growth in subscription revenues. While the economic situation in India is not quite as dismal as compared to other countries, market sentiments continue to be circumspect. The emerging need is one of a change in mindset for the near-term with high emphasis on cost consciousness. I am confident that the company, with strong assets and broad-based revenue streams, will emerge victorious through these trying times. While leading brands in its portfolio and a strong leadership team, Zee Entertainment is well prepared to tackle the current environment. We at Zee are focused now more than ever before to improve efficiency in every aspect of our business.

I would now like to discuss in detail some of the key financials of the fourth quarter of fiscal 2009 versus fiscal year 2008 which would give a clearer picture of our performance. Advertisement revenues were Rs. 2.28 billion for the quarter, a decrease of 7% compared to the corresponding period of last fiscal. Advertising revenues in the fourth quarter were impacted largely due to the slowdown in the macro economy. Overall the company’s advertising revenue registered a 14% growth for the fiscal 2009 over fiscal 2008. The subscription revenues were Rs. 2.35 billion for the quarter, an increase of 13% as compared to the corresponding quarter of last fiscal. During the current quarter, domestic subscriptions stood at Rs. 1.23 billion while international subscription revenues were Rs. 1.12 billion. Revenues from domestic DTH operators already included earlier in domestic subscription revenue were Rs. 381 million indicating a sequential increase of 35% over third quarter of fiscal 2009 and an annualized increase of 93%. Our other sales and services registered revenues


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of Rs. 508 million. The company had recorded revenues of Rs. 723 million under this head during the corresponding period of last fiscal primarily due to ETC having become a subsidiary of Zee Entertainment in that quarter and booking revenues of education business for three quarters together. Consolidated revenues stood at Rs. 5.14 billion for the quarter representing a 2% decrease over the corresponding period in previous fiscal. For full year financial year 2009, the company registered total revenues of Rs. 21.73 billion, an increase of 18% over fiscal year 2008. Profit before tax this quarter stood at Rs. 1.23 billion while profit after tax was Rs. 968 million. This represents a decrease of 18% and 7% respectively over the corresponding quarter last fiscal. Overall costs were down 1% for the quarter over the fourth quarter of last fiscal. Specifically, programming and operating costs were Rs. 2.24 billion as compared to Rs. 2.19 billion in the corresponding period last year, an increase of 2%.

I would now like to cover the business performance. The overall channel share of all the channels of Zee Network in the Hindi speaking market has improved by 50 basis points sequentially to 19.5% at the end of quarter four. The flagship channel, Zee TV, delivered 208 weekly GRPs on an average during this quarter and retained the channel share of 19%. The channel has average 235 GRPs until now in the month of April. In the top 100 programme chart, Zee TV currently has 32 programmes. Our new launches are finding favour with audiences and recent operas such as Chotti Bahu, Dance India Dance and Agle Janam Mohe Bitiya Hi Kijo have already broken into the top 50 programme charts and have this week climbed into the top 10 category as well. The channel would launch this season of its premier property “Saregamapa L’il Champs 2009.” The Hindi movie channel Zee Cinema has maintains its leads in the Hindi movies genre with an average of 158 GRPs and having a channel share of 35% in the Hindi speaking market. It has also ranked number 4 channel across all channels in the Hindi speaking markets. In English, Zee Café has adopted a strategy of showing current and recent shows of the US market. This channel garnered a 20% channel share. Zee Studio, the English movie channel showcased fantastic properties such as High School Musical Festival and initiated unique on ground viewer promotions


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such as Get Shorty, etc. Zee Sports and Ten Sports attained a channel share of 29% in this quarter. Ten Sports acquired the rights of the Pakistan Cricket Board during the quarter. It now holds the telecast rights to Pakistan, South Africa, West Indies, Sri Lanka and Zimbabwe Cricket Boards. The operating margin for the quarter in the sports business stood at 18%. There were negligible losses incurred this quarter on account of Zee Next, the other Hindi GEC that we were running and in the coming quarters we do not expect any losses on account of this channel. Zee Entertainment Studios, the film production distribution business of the company, released three feature films in this quarter. The business registered revenues of Rs. 81 million, incurred cost of Rs. 164 million. For the fiscal, the division registered revenue of Rs. 336 million and incurred cost of Rs. 443 million. In the wake of current macro economic environment, the company has decided to review its plans for the division and curtail investments in the foray as stated during last quarter’s results conference. During the year, there have been some positive developments where the company has made some investments and consolidated its holdings in strategic businesses, and these have been elaborated upon in our earnings release. I would like to summarize by stating that given the current market situation visibility remains low on the advertising revenue though we are reasonably confident that things will be much better during the second half of fiscal 2010. Our efforts at Zee will be to improve efficiency across functions and across products and we are confident of retaining our leadership position. With this, I thank you again for joining us and would now like to open the floor for questions and answers.

Moderator: Thank you, sir. Ladies and gentlemen, we will now begin with the question and answer session. At this time, if you would like to ask a question, please press “*” and then “1” on your touchtone phone. If your questions have been answered before your turn, you may withdraw from the queue. Please use only handsets while asking a question. Participants who have a question may press “*” and “1” at this time. The first question is from the line of Abneesh Roy of Edelweiss. Please go ahead.


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Abneesh Roy: Sir, my first question is on DTH revenues which have grown by 35% quarter-on-quarter which is a very healthy growth over the Q3 sequential growth of 4%. So, wanted to understand whether Reliance and Bharti numbers are there in this? If there are any one-time item in the sense that is it sustainable in the FY10?

Atul Das: As far as DTH revenues are concerned, you can take at 35 crores for the quarter. 3 crores are what we have got as arrear payments for the last quarter. You can take the run rate on it and allocate the subscriber numbers. The total industry as they integrate is around 12 million closing subscribers at the end of March 2009 and we have got paid for 5.5 million subs. Now the maths runs it like this if you have 12 million closing subs for the quarter and we have 10 million opening subs, so the average subscribers rose to 11 million. These 11 million are gross subscribers. If you look at the net subscriber, we actually do not know what could be the net subscribers for the industry because that is not reported but if we assume a 15% churn, then we talk about a 9.5 million net subscriber base of the industry. If you look at our paid subscriber base as the percentage of the net subscriber base, we are around 60% plus and for the balance that we are not getting paid for, as we would have explained earlier, is the fact that there are many packages which have been launched by new service providers where these are lower end packages and may not have necessarily the Zee bouquet on the lower end packages. But as you can see, the growth has been substantial and we pretty much hope to continue the growth rate into the next year.

Abneesh Roy: So are we confident of getting better numbers from the new DTH providers like Reliance and Bharti because I totally agree that all low end packages but at some point we need to target some revenues from them also.

Atul Das: These revenues are coming from all service providers. Of course the new service providers will have smaller numbers and as they grow obviously, you will get benefit of those also.

Abneesh Roy: Okay. My second question is on IPL. This time rating YoY down by 25%, so, how does it impact the overall GECs because elections are


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there; rains have washed many matches, difficult pitches. So, how does it really change the overall GEC scheme of things?

Punit Goenka: Ratings are after all for one day and yes, you are right the rains have impacted the matches, which is definitely beneficial for GECs. To address your last point on election side, we are still yet to see huge impacts on GEC side. I think only on the final poll dates or counting dates would be viewership of new channels really get skewed.

Abneesh Roy: On the advertising revenue front, we are down by 7% YoY and you have launched one advertiser-funded programme called Wheel Ghar Ghar Mein. So, wanted to understand whether these are special strategies for the current slowdown wherein you get a sponsor and you give him better value and get more money in this

Punit Goenka: It is not a special strategy, Abneesh. We have been doing so in the past as well. Before this, we have had shows with Tata Indicom and Nerolac. So it is not a specifically long-term strategy but we keep looking for innovative ways of fulfilling our advertisers’ needs. So this is one of them.

Nitin Vaidya: This is not an AFP (Advertiser Funded Programme). Other advertisers are also there. We have just given a branding of that show and it is open for other advertisers as well. So, it is not actually a full AFP as you may perceive it to be.

Abneesh Roy: Thanks, sir.

Moderator: Thank you, Mr. Roy. The next question is from the line of Shishir Manuj of Mangal Keshav Securities. Please go ahead.

Shishir Manuj: Hi. I just want to get some sense on the programming cost that has come down sequentially while you had three weeks of programming loss almost or no new programmes in the last quarter. Could you give some sense as to where has this decline come from and how is the outlook going forward in the next fiscal?

Atul Das: Sequentially it is very difficult to compare programming cost because if you see our revenue patterns, obviously the third


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quarter is the best quarter. So, even on the advertising revenue as well as on the programming cost, sequentially it will be very difficult to compare. While I understand your question; we want to understand why the sequential decline is there. We can see advertising revenues have been impacted due to the overall situation in the economy. We have also tried to bring cost under control. We are limiting as an immediate term strategy to limit the number of hour of original programming. That is not something that will be permanent. So we will review it as we go along depending on how the situation presents ourselves and what is the opportunity available.

Hitesh Vakil: And in the third quarter, there was cricket programming on Ten Sports and Zee Sports.

Shishir Manuj: If you could share also the outlook for FY10 given uncertainty regarding increase on revenues?

Subhash Chandra: Well, we are monitoring closely every single programme and whichever becomes non-profitable, we try to take to that off and replace it with a profitable one.

Shishir Manuj: Would it be fair to count a fewer numbers of fresh programming for at least the first two quarters?

Punit Goenka: No, I do not think that we can commit that we would doing less number of hours for the first few quarters. A lot of our programming is undergoing revival by launching new shows. So I think our endeavor is to have a full-fledged channel competing with our competitors. We will be launching newer and newer shows as we go along.

Shishir Manuj: And finally, just quickly on Zee Next, you said no further losses or no meaningful losses in Zee Next for next year. I mean what is the plan with that?

Punit Goenka: The basic stand is that the channel is in the suspension mode as we see. So there are no losses that will be incurred on the channel for this year.


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Shishir Manuj: Okay. Thanks.

Moderator: Thank you, Mr. Manuj. The next question is from the line of Mr. Shubham Majumder of Macquarie Capital. Please go ahead.

Shubham Majumder: Hello gentlemen. Thanks for having me on the call. I just had two questions. One is, you have seen advertising revenues possibly being lower on a year-on-year basis. It is much lower than our expectations in terms of the trajectory in this quarter in particular. Would you be able to give us some form of guidance or visibility going into the first half of fiscal 2010 and if possible on the entire fiscal 2010? What is the sort of trajectory that you are seeing? I did see that you mentioned some up-down in the April viewership of your show, I just wanted a throw on that. And second is, selling and distribution costs have gone up significantly. Is it to do with carriage cost or is it something else? And finally just wanted to understand why the valuations of Zee Studio should be about $56 million. You know, I just thought that works out to around being multiple of around 20 times. So, could you just throw the light on that as well? Thank you.

Atul Das: Shubham, answering your first question on the advertising revenues, currently it will be difficult to give precise indication how the advertising will turn out as we have mentioned in our opening speech also and that, as you can understand, given the current environment, it is very difficult to have visibility on, most specifically the first quarter numbers. At least, we are hoping that as we go along during the second half should be much better and I think we will definitely come back to you if we have a better sense but as of now it will be very difficult to give a number. Yes, we are tracking environment very closely and the first quarter having the IPL and the election could be very a unique quarter and that is why it is much more difficult to give a particular number on that.

Shubham Majumder: I just want to understand that from what I gathered from your answer, your first quarter that is June quarter year-on-year advertising growth trend, this could be a decline on a year-on-year


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basis, especially given IPL and elections which were not there in the last year same quarter.

Atul Das: We would not be able to comment on that. And that is why we are saying. If we had visibility, we would have told you a particular number. But you will see as we go now. And this is a unique year. I mean, as you know that from the past year, we have always given some kind of guidance and we have always exceeded the value. But this year being a unique year, we do not want to make any specific number.

Subhash Chandra: But I will tell you that because of the cost control, etc., and if the economic environment continues to remain the way it is throughout the full year, we still hope that we will give 10% to 15% growth on the bottom line through our cost control measures itself. Now, coming to your last question about this Zee English bouquet thing buying 40% at 56 million. Number one, the deal was done in the month of April-May 2008 and from these owners, the professionals of MGM where the joint venture was originally signed off. And at that time, it was particularly favorable to Zee because the multiples which we gave at that time were much lower than the existing multiple of Zeel as a company.

Shubham Majumdar: Okay. Alongside this, there is also an associated restructuring which was, pardon me for not understanding very well what is this transaction between ATL and BSA. If you could just make us understand simplistically if possible?

Hitesh Vakil: Well, in 2003, ATL had transferred to BSA, assets pertaining to discontinued channels Zee TV and Zee Cinema, in lieu of equity in BSA. On realization of these assets, BSA has paid this amount to ATL, by way of buyback of its shares held by ATL. So it was a simple transaction of realizing the asset with no profit and no loss.

Shubham Majumdar: Yes, Mr. Vakil, on the 19.5 crore exceptional income that we generated from the sale of that, is there a tax adjustment there like is it a post tax number or is it there is no incidence of tax? So, it is pre and post taxes the same.


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Hitesh Vakil: It is same as there are no tax incidence. Actually, it was an infrastructure company in the Middle East. But because of the downturn in Middle East market, ATL did not find it prudent to work in this market for non-core activity and has divested this business to a third party. This company had share capital of $2 and business losses of about $2 million, for which we have been paid about $2 million and hence there is gain of $4 million total. It is represented in other income.

Shubham Majumdar: Okay. And any commentary on the sales and distribution cost being high at this quarter?

Punit Goenka: That is obvious because of the placement fees.

Shubham Majumdar: Okay. And is there any sort of, you know, trend or direction that you would offer that it could moderate going forward?

Subhash Chandra: Well, we have curtailed whatever we have spent this year on the carriage fees. The budget is lower than the current year what we have spent.

Shubham Majumder: Okay. Thank you very much. I will come back.

Moderator: Thank you, Mr. Majumder. The next question is from the line of Nainesh Rajani of Tata Mutual Fund. Please go ahead.

Nainesh Rajani: Good evening, sir. I have a couple of questions. First of all, I just wanted to understand taking into consideration that we have built the pressure as far as our advertisement revenue is concerned and also the fact that we would want to catch up or, increase our GRPs in this particular financial year for which we would probably have to spend more, our cost of programming would go up more. So, just wanted to understand as to how would we balance in terms of lower ad revenues also that the fact that we would want to increase our GRPs, and for that we might have to increase our programming cost. So, how would we balance that, sir?

Subhash Chandra: This is a specialization of Zee.


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Nainesh Rajani: Sir, but we have been missing out on GRPs over the last few quarters and in spite of it, you know, we would be launching a few programmes. So, if you could just throw some light on it, sir?

Punit Goenka: I can tell you for sure that our content cost will not be going up just in our hunger for getting GRPs. We at Zee believe that ratings are not just bought just because of spending money in programmes. We are going to be focusing, as the Chairman said, despite this economic situation does not change; we still deliver about 10% to 15% better profits. That will all come from cost management which will include programming cost as well.

Nitin: Another thing, in the last quarter, we shut three programmes as they were not delivering and they were not profitable. And after shutting those programmes, our GRPs actually went up. You know, the levels of 190 became towards around 235 GRP. So, it is not as Punit rightly said, it is not just a question of spending money. Our competition is very well doing that. We will not.

Nainesh Rajani: Sir, just my second question would be on the differential in ad rates that will be charged by you, Star, and obviously Colors. Colors is obviously very new. So, you know, to reach to the position of a leadership or charge in higher ad revenues would take some time, but what is the differential at this point of time in terms of ad rates between the top three players if you could just broadly highlight that, sir?

Subhash Chandra: Well, I can tell you that Star would be higher to us about 25% to 30%, but Colors will be equal if not lower to Zee.

Nainesh Rajani: Thank you very much sir and all the very best.

Moderator: Thank you, Mr. Rajani. The next question is from the line of Arjun Khanna of Principal Mutual Fund. Please go ahead.

Arjun Khanna: Thank you, sir, for this opportunity. My first question would be what would be the current cash in our books and what would be our debt levels?


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Hitesh: Well, we have cash on hand; cash plus bank balance is Rs. 194 crores. Gross debt position is 576 crores.

Arjun Khanna: Sir, have you received any money due to us from Dish or from WWIL?

Subhash Chandra: Yes, somewhat we have received as we have said previously. It was about 600 crores. Now, the total outstanding from both companies is about 486 crores.

Arjun Khanna: Another question I had, more broad-based. You have seen a competitor in terms of increasing GRPs actually going without advertising for a day or even showing movies without advertising? We have not really gone down that route. So….

Punit Goenka: We do not believe in GRPs which do not deliver money.

Arjun Khanna: So, we would be continuing our move towards profitable growth rather than just GRP for the sake of it?

Punit Goenka: Yes. I do not think we are hungry for just number one position without being able to monetize this.

Arjun Khanna: And lastly, in terms of the Indo-Pak series which was called off, we had announced a $140 million deal wherein we actually got the rights for a period of time, what was the fallout of the series not actually happening?

Subhash Chandra: We are talking to Pakistan Cricket Board and they have agreed to refund our advances which had been deposited with them. And we will pay money as and when the series would happen.

Arjun Khanna: Sir, would it be possible to quantify the amount of advances we have currently forwarded to them?

Subhash Chandra: Yes. Well, I think it is 12 million, but we will reconfirm, check and revert back to you.

Arjun Khanna: Thank you, sir.


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Moderator: Thank you, Mr. Khanna. The next question is from the line of Mr. Anupam Tiwari of Reliance Mutual Fund. Please go ahead.

Anupam Tiwari: Good evening, everybody. If everything remains the same and I am assuming that we incurred a loss about 40 crores on Zee Next and we have some extraordinary loss of 40 crores on account of our forex position. And they will not come next year. So, at PBT level at least, there would be a benefit of 80 crores. Am I right in my calculation?

Punit Goenka: Theoretically yes.

Anupam Tiwari: If everything remains same, then we will have some benefit out of this. Sir, obviously, you said that it would be very difficult to tell about ad environment going forward. And as you said you will have some kind of benefit in terms of PAT level, but going by your experience broadly, if not considering Zee TV alone, how do you see the overall environment and if you can give us some insight into that?

Atul Das: Anupam, overall environment is definitely weaker. I mean as we observed how things have moved from the end of next series lets say August-September, things have definitely weakened as far as advertising outlook is concerned and we have seen the impact. Plus the fact remains that as the Hindi television segment has probably borne a little more impact than the regional segments over that purely because of competition and the fragmentation has increased as the reach that the regional segment is providing and continues to be more defined and stable. So, if you also look at, scan the environment and look at the print media outside also, they have been impacted as well because of the real estate and the financial services. Our industry is actually contracting their expense quite significantly. So, that is the reason why we are saying that being a very unique year, it will not be possible for us. It is not that we are looking at the Zee growth and therefore we are saying this. It is just that… if we overall look at visibility I cannot be confident and say that it will be a 5% growth or a 10% growth. So, instead of quantifying it and, you know, revising it five times, we’d rather go along as it comes and we will obviously


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update your things and if we have visibility which we think we have in probably a quarter or four to five months from now, we will separately come back and give you specific numbers.

Anupam Tiwari: But do you think that on an overall basis as an ad spent on total country-wise, you would be able to maintain …?

Subhash Chandra: If you go by our track record of last 24 months, we have grown more than the overall industry growth in advertising revenue terms. So, we hope we can maintain that and beat that. I mean, that is all we can say because even for the television advertising growth from the industry experts, there are three estimates which are varying from 0% growth to 6% growth to 12% growth for this year of 2009-10. So, we really do not know which one to pick up and what to say. Now, on your other query where you said that on account of Zee Next and forex losses about 80-90 crores whereas that is the factual position. But some residual loss we will have on account Zee Entertainment Studio in this year, which was not there last year. Because there are still two or three films yet to be released and we have to see the results of those.

Anupam Tiwari: Thank you sir. Best of luck.

Moderator: Thank you, Mr. Tiwari. The next question is from the line of Vikash Mantri of ICICI Securities. Please go ahead.

Vikash Mantri: Good afternoon, sir. How much of the revenues from DTH are we getting from Dish TV and what is their share in terms of our paid net subscribers?

Subhash Chandra: I cannot share the exact numbers but we are paid far better by Dish TV than they pay to our competition.

Vikash Mantri: Sir, what will be the average ARPU from DTH?

Punit Goenka: 21, 22.

Vikash Mantri: So, that means that if you are paid better, we are not getting paid more than 45% or more than from the others. If I were saying that 50 or close to 45% are subscribers on Dish TV alone, 5 million out


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of the 12 million are Dish TV alone and if this 5 million are paying in plenty, it means the others hardly paying 35% to 40%. Is that true?

Atul Das: See, naturally Dish TV is having almost 48% of market share in the country. They will have that higher market share, but as far as total… you know, if you have been on the call earlier, we explained to you how maths was for the DTH. At the end of the quarter, 12 million subscribers overall in the industry as reported by the industry and the average for the quarter given the opening and closing is around 11 million. If you take the net subscribers because we do not have the gross and net of the industry though Dish reports it separately. We would arrive at something like 9 million paying subscribers which is a net subscriber. And of that, in the last one or two three quarters, people have launched these low-end Rs.100, Rs. 95, Rs. 75 packages. There are not many paid channels at present but obviously lots of the channels of the bouquet like Star, we or Sony Group representing only one or two channels. That's all. So, obviously that does not get activated.

Vikash Mantri: Sir, my question is from Dish TV, are we there on all packages and what is the ARPU from Dish TV? Because that will give me an idea of what the others are paying or not paying or whether if Dish TV is paying at all.

Punit Goenka: No. We cannot discuss that fixed operator like that.

Subhash Chandra: But they are not having all of the channels in all packages.

Vikash Mantri: Okay. Sir, I am asking you net ARPU. So, that will explain everything.

Subhash Chandra: Net ARPU is from Dish alone, you are asking?

Vikash Mantri: You have given me a number of 21,22. So, that is your ARPU. Now, if I take that ARPU and I say …

Subhash Chandra: At the moment, we do not have. We will work out and we will try to share with you some more information.


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Vikash Mantri: Okay. Sir, on the other income, now we have seen other income moved significantly even after I adjust for the one-off from around 30 crores to this 45 crores range just on a cash on books of 200 crores. So, is there more one-off in this other income that we report?

Subhash Chandra: I do not think so.

Hitesh Vakil: Other income includes this income from sale of one entity of 19.4 crores bill and as a result it is showing…

Vikash Mantri: No, sir. In the Q2 we had close to 28 crores of other income. Even if I remove the 198 million, I get 45 crores odd of other income in this quarter which is significantly high over what we had half a year ago. Just on cash on books of close to 200 crores. So, this is a bit... and given we are significantly high debt, we do no have other finance cost is so high.

Hitesh Vakil: We also found out from various treasury operations that we performed plus there are certain rental incomes and dividends and there are other incomes.

Subhash Chandra: There is no one-off income in this, regular income.

Vikash Mantri: Okay. And why do you say, sir, there will be no losses in …are we setting off the channel completely, no transponder cost also?

Subhash Chandra: Yeah. We have put it on suspension mode.

Vikash Mantri: Okay, and sir, we have recently heard more on people leaving Zee more in terms of Neil Chakrabarty and also some people in Zee Movies. So, why is this again another movement?

Subhash Chandra: We are right sizing the organization. We have reduced number of manpower. We have reduced about 350 to 400 people across the network in the last two months. These are part of that. And the Zee Entertainment Studio, as we said this thing we discussed during the last quarter results also, that a studio model in India for movie production is not worth it because if you put studio model, then you would end up having a fixed cost base of about 15 crores


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a year, and if you are able to produce six movies in a year in movie genre which is a big effort. That means your cost per movie also itself goes up by Rs. 2-2.5 crores. So, it is better for us to go back to the earlier model of commissioning the films without any huge infrastructure of our own which will be rather profitable than this model.

Vikash Mantri: Okay. Fair enough, sir. Thank you. Wishing you good luck for the year ahead.

Moderator: Thank you, Mr. Mantri. The next question is from the line of Fatima Pacha of ICICI Prudential. Please go ahead.

Fatima Pacha: Firstly, regarding the advertising revenues of 228 crores, it has shown a year-on-year decline from 7%, you know, if I roughly take, that about 50% of the revenue is coming from Zee. Would you agree that your main Zee channel would have seen degrowth of 20% in this quarter? This is more of a volume led fall or there has been some pricing because it is going down and that is likely going to be forward also.

Atul Das: As you know, it is a policy. We do not discuss specific channel-wise numbers. There is an overall impact on the advertising weakness. So, it is probably across the board. Some channels may get affected more. Some channels may get affected less. As far as inventory versus pricing impact is concerned, I think one-year reflection over this quarter reads an impact on both. There is some of the weakness on the rate as well as inventory getting impacted. It's a function of the overall scenario, 7% de-growth there. Obviously, it's a combination of both.

Fatima Pacha: Whatever negotiation happened, happened twice in a year, I guess. Right? One happens in January and one will happen sometime in October. So this is pretty much what will remain for the rest of the year?

Punit Goenka: No, there are three buying cycles that we go through in a year. The first one is March, followed by July, and then in October.


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Fatima Pacha: So, how has been the March cycle? Is it looking up from the quarter or downwards?

Atul Das: Things remain weak as of today.

Fatima Pacha: Okay. Sir, secondly, on the international subscription revenues, do you think Ten Sports properties and the PCB thing getting withdrawn, whatever the lesser number of properties and maybe because of US general economic weakness, do you think the international revenues are going to head down?

Subhash Chandra: As for the international revenues, it's very minimal, very, very miniscule.

Fatima Pacha: Its family of main Zee Hindi bouquet?

Subhash Chandra: Yes.

Fatima Pacha: Are you seeing any paying out there in terms of subscription revenues?

Atul Das: Well, international businesses are seeing some impact and therefore we are not looking at a very high growth rate.

Fatima Pacha: We are not looking at the de-growth kind of scenario.

Subhash Chandra: Not as yet.

Fatima Pacha: Okay, sir thanks a lot.

Moderator: Thank you, Ms. Pacha. The next question is from the line of Mr. Hiren Dasani of Goldman Sachs Asset Management. Please go ahead.

Hiren Dasani: Hi, I just want to understand this 486 crore of total outstanding. Is that all to the group company, will there be more loans and advances to related parties in other group company?

Hitesh Vakil: 486 crores is to the related party, that is the total. Total loans and advances are much higher than that. 486 crores is for Dish and


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WWIL, then there is some treasury and then there is a group company advances and there are certain trade advances.

Hiren Dasani: I am saying that if you were to look at the overall capital which is kind of deployed in these two entities in the other group related entity, what would be that?

Hitesh Vakil: I will just give you exact breaker. This 486 crores is loans to Dish TV and Wire and Wireless Limited. There is 296 crores within the group. 121 crores is to the treasury operation with outsiders. And rest is all trade advances, total 465 crores is the trade advances and the total loans and advances number is Rs. 1370 crores.

Hiren Dasani: Okay. And this 286 crores to group as well as 121 crores treasury to outsiders, both will be interest bearing advances?

Hitesh Vakil: Yes, even the amount to Dish TV is interest bearing.

Hiren Dasani: As and when Dish receives the funding in right issue, this money should come back, is that correctly assumed?

Subhash Chandra: Yes, you can assume that.

Hiren Dasani: Okay. And any sense in how the pay revenues from the cable operations is likely to move going forward?

Subhash Chandra: Cable revenues have been flat in this last three four quarters. But we are pushing the cable and this year we do feel that there would be some growth coming back in the cable business.

Hiren Dasani: Okay. And lastly, you were saying that industry there you are trying to bring some rationalization on paying the carriage fees and other distribution related expenses. So, any comments on that?

Subhash Chandra: In the last 18 months we saw the industry really spending disproportionately to the possibility of revenues. One could attribute it to easy access to private equity money or you may say any other thing, I do not know. But there was excess spending being done and with the result people were paying obnoxiously


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high carriage fees as well. I mean they were paying very high programming cost, carriage fees, human resource cost and everything. But now things seem to be happening in a more rational manner.

Hiren Dasani: Would these selling expenses worth about 69 crores. Is that likely to remain flat? I mean would that be the fair conclusion to make?

Subhash Chandra: It is likely to come down in June.

Hiren Dasani: Okay, thanks a lot.

Moderator: Thank you. The next question is from the line of Amit Purohit of Motilal Oswal Securities. Please go ahead.

Amit Purohit: Good evening, sir. Thanks for the opportunity. Congratulations for a good set of numbers. Just two things. One is on the cable subscription revenue, which is seen as a sequential and YoY decline. So, just your comments on that and how do you plan to ramp up? And second is, I think probably I missed out on… in case I am repeating this question, with regard to Asia business broadcasting acquisition of 40% additional stake, basically we are valuing at 140 million for a 14 million revenue company. So, what's your comments on these two points?

Subhash Chandra: So, this has remained… there has been no growth in the last three or four quarters. That is correct on the overall cable business. Overall subscription revenues, we have grown domestically.

Amit Purohit: Yes, that is right, but I just wanted to check because this trend was going up actually. I mean Rs. 80 crores can moved up a bit 5%, last quarter was 84.

Punit Goenka: Sorry to interrupt you but third quarter to fourth quarter, cable subscription has more or less remained the same.

Amit Purohit: Yes, yes, right. I mean for fourth quarter, I was getting this number of Rs. 734 million.

Atul Das: Fourth quarter is Rs. 849 million.


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Amit Purohit: Okay, okay.

Punit Goenka: It is higher than the third quarter. As Mr. Chandra just explained a few minutes back, stable revenues have been segments for this year and we are working on it and hopefully with the rapid changes which is also happening on the digital cable side, we should experience better revenues from the cable side also.

Subhash Chandra: On the other second question as I said earlier, probably you were not on the call. These shareholders of 40%, as you know that they are there for the last five to six years. They were willing to buy at the same price this business from us. And the transaction was done in April 2008. Today it may look expensive but when the deal was done a year ago, the markets were at a different level.

Amit Purohit: Okay. And what is the business activity?

Subhash Chandra: Business activity, this was the English movie channel.

Amit Purohit: Okay, thank you, sir.

Moderator: Thank you, Mr. Purohit. The next question is from the line of Ritesh Doshi of First Global Securities. Please go ahead.

Ritesh Doshi: Good afternoon, sir. I just wanted to know whether we have a need for the capex plans for FY10-11.

Atul Das: Well, capex plan, as you know, our business is not really a capital intensive business. We do have regular recurring capex of anywhere between Rs. 60 to 70 crores per month.

Subhash Chandra: That is a maintenance capex.

Ritesh Doshi: Okay. Any other additional capex?

Punit Goenka: No.

Ritesh Doshi: So, what will be the debtors on the books?

Hitesh Vakil: Yes, it is roughly around 107 days.


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Ritesh Doshi: Regarding Zee Entertainment Studios, sir, they would be more for the investments except for the 2-3 films which are in the process. No new films have been made.

Subhash Chandra: No, no. We will make film but not in the studio model. We will commission the film… like the commission of the television programming which is much more viable and risk-free model than running a studio, having a fixed cost of 15-20 crores a year.

Ritesh Doshi: Right. So, film production will go on.

Subhash Chandra: Film production as a concept, we will continue to do.

Ritesh Doshi: Okay. And so regarding forex purchase, last year we have some $10 million which have been spread across the four quarters. So, is there any kind of further work for FY10-11?

Punit Goenka: As only one month which is pending, in the month of April there will be some…

Subhash Chandra: 29 April, everything is getting wound up.

Ritesh Doshi: So, going forward the finance cost will come down.


Ritesh Doshi: Okay, fine. Thank you, sir.

Moderator: Thank you, Mr. Doshi. The next question is from the line of Ritesh Poladia of Dolat Capital. Please go ahead.

Ritesh Poladia: Good evening, sir. If I see the operating profit, last year it was about Rs. 520 crores for the full year, which is down to Rs. 502 crores. And in that… I guess, sports business last year was a negative contribution of Rs. 25 crores. And this year it is Rs. 31 crores. So that means non-entertainment business has actually performed in a negative way. Am I correct in this analysis?


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Atul Das: Yes, we had Zee Next as a new channel which was launched. As you are aware, we lost around Rs. 45 crores on that business. That's the reason why…

Ritesh Poladia: Okay. So, main is Zee Next 45 crores losses would be there for the non-sports business.

Atul Das: This year it was there. It will not be there recurring in the next year, coming year.

Ritesh Poladia: Okay, okay. Fair enough. And sir, we have put a lot of stress on the cost rationalization. Can we have a two or three strategies as to how we are planning to do the same?

Atul Das: On the cost rationalization?

Ritesh Poladia: Yes.

Punit Goenka: See, across the board on our cost structure whether it is programming cost or on distribution cost and even on the manpower costs, we have been looking at rationalization wherever possible. So, cost rationalization network actually takes time to plan out and obviously will not happen over one quarter. It is the effort which will show results as we go on. As you know, the industry scenario which was stabilized, let's say one year back around this time, it was very difficult and therefore all the broadcasters would be under pressure to bring down their costs which has an industry level tag.

Ritesh Poladia: Okay, that is all from my side. Thank you, sir.

Moderator: Thank you, Mr. Poladia. The next question is from the line of Arvind Venugopal of Screen Digest. Please go ahead.

Arvind Venugopal: Hi, good afternoon. I just have one question. You mentioned that your cable revenues are pretty much stagnant and that over the next year you will be planning on trying to increase that via digital revenue. Could you give us some indications as to how you are planning on increasing your analog revenues as well? Is there any


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way you are going to increase the declared base, the base declared by cable operators in India?

Atul Das: Actually, Arvind, if you understand the cable revenues amendments, the negotiations happened on a lump sum basis as we not all MSOs and cable operators give you on a first start basis and that is the reason why a digital subscriber base is far more preferred by any broadcaster. We are happy to see digitization planning out in India. And therefore, on the cable revenue front, it is always the negotiated rate, which will keep going on in trying to extract more money and more revenues out of the system, it is never linked to a per sub basis.

Arvind Venugopal: Right. So, is there any plan or any fee negotiations in place to kind of increase that pay base?

Punit Goenka: Yes, it is an annual country ongoing process based on the number of increased subscribers as estimated by the industry we will keep negotiating the fees.

Arvind Venugopal: I see, okay. Thanks.

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

Rohit Dokania: Yes, hi. I just have one small question, one bookkeeping question. Just wanted to know this sports revenue that we declare every quarter. Is it only the ad revenue that we get from the two sports channels?

Punit Goenka: No, we get ad, subscription and syndication.

Rohit Dokania: So, that sports revenue is actually a combination of these. Okay, Thank you so much.

Moderator: Thank you, Mr. Dokania. The next question is from the line of Ritwik Rai of MF Global. Please go ahead.

Ritwik Rai: Yes. Good evening, sir. Just coming back to the programming expenses that have declined sequentially, did I get it right, sir,


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that the expenses are down because of reduction in the programming hours? Is that what you are saying, sir?

Atul Das: That is partly true. I mean, it is a combination of the negotiated rates which are better. Some programs have been replaced. So, earlier we were probably paying a higher rate per hour and we have replaced them with lower cost programmes, yet the viewership on those new programmes are better. That is the part of entire strength.

Ritwik Rai: Sir, what is your average regional programming hours in this quarter versus the previous one, sir?

Atul Das: It would have come down by two to three hours.

Ritwik Rai: Sir, on the employee expenses, the increase sequentially, does it have any part of severance packages or whatever for one of the employees you have laid off?

Punit Goenka: Last quarter being the third quarter, there was a write-back of the provision. That is why you sequentially when you look at it…

Ritwik Rai: All right. Thanks very much.

Moderator: Thank you, Mr. Rai. Last question is from the line of Hiren Dasani of Goldman Sachs. Please go ahead.

Hiren Dasani: Yes. Thanks. I know you guys don't give any kind of channel-wise breakup. Would it be possible to give some sense on what the key genres are having a share in terms of advertising revenues? Let's say Zee Hindi news, Hindi movies, etc.

Subhash Chandra: Are you asking about genre industry-wise?

Hiren Dasani: Yes, industry-wise genre, let's say how much Zee is part of total advertising TV spend, I mean TV ad spend?

Subhash Chandra: Well, if you look at all India basis, the Hindi GEC jonour would be constituting anywhere between 24% to 27%, something like that.


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And then would come to your movie segment which will be about 6%-7% in Hindi.

Hiren Dasani: You are doing in terms of revenue, right?

Subhash Chandra: Advertising revenues.

Hiren Dasani: Hindi movie 6%-7%?


Hiren Dasani: Okay, and some of your other categories?

Subhash Chandra: And the news would be again about similar 5 to 6%.

Hiren Dasani: Both Hindi and English put together or Hindi segment only?

Punit Goenka: Yes, Hindi, English put together. So in that sense, if you look at total Hindi genre would constitute about 55% of the total Ad pie and 45% would be all other languages.

Hiren Dasani: Is it 27% GEC, 7%, let's say about movies and 6% is news.

Punit Goenka: Yeah, but there are other things also. There are sports. There are other nationals. We include English also in a national language. If they all put together, it would be about 55%, of the total Ad pie.

Hiren Dasani: And 45% would be regional?

Punit Goenka: Yes.

Hiren Dasani: Thanks a lot.

Moderator: Thank you, Mr. Hiren Dasani. I would now like to hand the floor back to Mr. Chhabra for closing comments. Please go ahead, sir.

Harsh Deep Chhabra: Ladies and gentlemen, thank you for joining us. We hope to soon have a transcript of the call on our website www.zeetelevision.com . We look forward to speaking to you at

http://www.zeetelevision.com/


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the end of the first quarter of fiscal 2010 or even earlier on a one-on-one basis. Thank you and have a great day.

Moderator: Thank you, gentlemen of the management. Ladies and gentlemen, on behalf of Zee Entertainment Enterprises Limited, that concludes this conference call. Thank you for joining us on the Chorus Call conferencing facility and you may now disconnect your lines.

This document has been suitably edited for ease of reading.

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