Aiming for above-market ad revenue growth of 15-16%: Zee Ent

FMCG continues to be the mainstay for ad revenues, which is healthy, which will be further aided by telecom and auto companies.

On the domestic subscription side, a mid-teens growth is achievable for broadcasters and on the international subscription side in dollar terms it would be in single-digit for the company, said Modi.

For the international market they will continue to invest in growth through existing channels, plus sports but still maintain profitability with an aim to maintain margins around the 25.8 percent or more levels for the full-year. “Will continue to invest in content and digital business growth,” he said.Below is the verbatim transcript of Mihir Modi's interview with Reema Tendulkar and Nigel D’Souza on CNBC-TV18. Nigel: Let me start by asking you the breakup of the ad growth in regional as well as national channels as well as what was the growth ex of &TV? A: Our ad growth has been 29 percent this quarter versus the same quarter last year. Our full year ad growth has also been in the similar range at 28.9 percent versus the previous year. Of course, in the quarter &TV had had small impact because it was already in the base when we launched it in the fourth quarter of last year, but if I talk about the full year numbers if we remove the &TV effect it will clearly be a little lesser than the 29 percent, but let me focus on the quarter first, so looking at the quarter of 29 percent growth, I am very, very glad to say that while excluding the &TV number was not significantly lower than that, even in that number my regional and national channels have contributed pretty much at par in terms of the growth, they have all grown at a similar pace to each other, so there is no skew that we see of one category of channels. This is on the back of my regional portfolio doing phenomenally well in terms of market share gains and the Hindi movie cluster as well as the Hindi GECs gaining significant market share over the last 12 months and quarter versus the same quarter previous year. Reema: Let me just stick with the ad revenue growth because at 29 percent, it’s a very big number it’s significantly better than the industry and is also coming on a huge base what’s the outlook on the ad revenue growth for the next year? A: Sure, so of course as I mentioned the full year growth of 29 percent advertising revenue includes the &TV effect and that effect we will lose in FY17, because the &TV numbers will be in the base. Having said that our all channels including &TV have been gaining market share, so if I kind of split it into two parts, one is the market growth itself which we expect to be around 15-16 percent in FY17 and that market growth is on the back of the fast-moving consumer goods (FMCG) maintaining a healthy growth particularly with the likes of Patanjali coming in and even the other FMCG players not really slowing down a lot, so FMCG which is the mainstay continues to have a healthy growth and then to kind of add a little bit of fuel to the industry growth rate will be the auto and the telecom companies with 4G coming in etc., so we expect the market to be healthy on the back of these industries maintaining the momentum and the second part is that we are continuing to focus and invest in increasing our viewership share and which should all going well enable us to grow beyond the market growth rates. Nigel: That’s an interesting point you are making but then how much more than the market can you grow? A: Well, that’s clearly a function of how well we are able to grow our viewership shares, but we have over the last few couple of years at least may be 3-4 years we have consistently grown viewership share and therefore that should be a good indicator of of what we will attempt to do and hopefully achieve. Reema: Let’s talk a bit about the subscription revenue that was about a 16 percent growth. What’s your outlook for FY17 and what’s the update on digitisation? A: I think the digitisation has been going on okay. The other variable in that business which is the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) order that recently came about which moved the pricing to a RIO pricing from 1 May onwards and then the Telecom Regulatory Authority of India (TRAI) pricing regulation or guidelines which are being worked upon right now, which may be released in a couple of months from now are other variables which are uncertain in this equation, but having said that we believe that depending on how it pans out a mid teens kind of a subscription growth rate for broadcasters should be achievable. Reema: So could you break that up in terms of domestic as well as international subscription? A: So domestic is what I was talking about, international subscription we expect for us in dollar terms to grow in mid single digits and then there could be potentially a currency impact on top of that, so domestic mid teens and given that the international contribution at least in our numbers is not as high as the domestic it will not dilute that mid teens numbers significantly. Nigel: Margins at 27 percent was really a big beat in comparison to any estimates. Could you tell us if this kind of margins, are sustainable? A: We delivered a full year margin of 25.8 percent and of course for the quarter at 27 percent, we believe in profitable growth, so while we will continue to invest in growth in our international markets like we have been talking about, we will be investing in the digital business, we will be investing in &TV and our existing channels, sports is an another property which will have some investment next year given the India series that are happening in West Indies and Zimbabwe. What we like to do is continue to make those investments for growth, but still maintain profitability and therefore we attempt to not dilute the margin, we would attempt to keep it at this level or even grow a little bit. Reema: Could you give us some guidance on the content cost especially as a percentage of revenue going forward? A: So what we believe right now is that the content cost percentage should remain more or less stable, given that the pace at which we are growing revenues will be higher than the inflationary cost and then on top of that we will have a little bit of increase in number of hours, so let me put it this way my programming/content cost on a per hour basis will grow pretty much inflationary, but we may add more hours to our programming across some channels and therefore we may have to grow a little faster than inflation at a total absolute programming/content cost level, but we would want to let it grow in line with revenues and therefore the percentage of revenue proportion should not move significantly. Nigel: The profit after tax (PAT) really came in below estimates as effective tax rates were higher. Any particular reason for that is that likely to continue? A: No, I would not look at the quarter’s rates which indeed have been higher, but if you look at the full year tax rates they have been pretty much 33-34 percent that depends on the mix of the legal entities and the profitability which comes from different parts of our business. I don’t expect that to remain at Q4 levels, they should be at full year levels or may be lower than full year level as we go ahead in next year. Reema: Is the company planning any new channels and if yes what would be the attendant expenses? A: There are no major channel launches planned of course we have some smaller channels like we may go ahead and launch HD channels for our regional general entertainment channels. We may have few add-ons like putting up may be one movie channel in a regional language, but no major new channel launches planned that would have significant impact on the P&L or the profitability as such. It will be low costs investments on in new channels that we may launch next year. Nigel: On the expansion side, there are murmurs on the street, wha tis  your case of being interested in a radio business? A: While, we wouldn’t want to comment on the murmurs and the speculation that you are talking about. I think from a very, very broad perspective radio has been something that that the group has evaluated at multiple points in time and that’s what it would be at this point in time. We have been hearing stuff for periodically every couple of months something or the other comes up and I don’t think we should be reacting to each of those that keep popping up once in a while. Reema: Do you see any synergies on that business I mean radio is a local medium versus TV which is a national medium? A: There are two ways to look at it and I am purely saying theoretically as a conceptual conversation and not anything to do with our action or our thinking that is being talked about, so theoretically radio is an another form of entertainment and therefore it does fit into our offering as such or any entertainment company or any entertainment content company’s offering that’s one part of it. I think from a local versus national we have a large regional presence, so in that sense also it’s not very disconnected. So yes, theoretically I think it’s not very far apart, but like I said this is a theoretical conversation about what is the synergy that’s possible in any such two businesses.