Shemaroo Entertainment reported a good first quarter numbers with 18.6 percent rise in net profit to Rs 14 crore while the total income grew 23.6 percent to Rs 95.9 crore. EBITDA margin came at 31.1 percent in Q1. Growth in the first quarter was aided by the digital business, says Hiren Gada, Wholetime Director & CFO of Shemaroo. The digital business has been contributing 21-22 percent to revenues and will continue at the same levels in FY17, he adds. Gada expects margins to move northwards with a shift to new media business from the traditional media business. Below is the verbatim transcript of Hiren Gada's interview to Reema Tendulkar & Nigel D'Souza.
Reema: As always the new media or the digital business is growing at a much faster clip. In this quarter it is up 50 percent versus your traditional business revenue growth of just about 16-17 percent. Is that going to continue, could you give us a sense of what the digital business growth is going to be and do you enjoy higher margins in your digital business?
A: We have had a fairly good quarter in terms of numbers. It has been a steady growth for us and driven of course largely by the growth in the digital media business, which now is crossed Rs 20 crore in this quarter as a topline.
In fact, the way we are looking at this business is that there is definitely certain operating leverage available in this business because the delivery of content is seamless, there is no additional operating expense for delivery of content, but of course there are organisation and other expenses, content itself is an expense.
Therefore, the growth has definitely helped on the margin front even in the past and we are looking forward that this should continue and our effort is definitely in the similar direction.
Nigel: We wanted to know what the profitability is. Your digital business is far more profitable, but could you give us some numbers. How much better is it and currently, I believe, your revenue mix is at around 80:20. Going ahead are we looking to maintain that because the digital business in fact is growing at a far better clip?
A: In fact, the revenue mix in FY14 which is about three years back was around 8-9 percent digital business. This quarter we are already at around 21-22 percent, hopefully, if the similar trend remains, we should do the year at around 21-22 percent, which is now fairly healthy mix.
In terms of the margins, we have not given breakup of margins but the way we are looking at it is that the earnings before interest, tax, depreciation and amortization (EBITDA) level margin for the new media business has actually crossed the company average last year, so its slightly higher than the company average in terms of EBITDA margin.
Reema: That’s clearly reflecting because I remember couple of quarters ago your margins were at close to about 25 percent and now it is over 30 percent. As the shift towards digital takes place in terms of revenue contribution, should Shemaroo’s normalised margins be higher than the current 31 percent, can it move towards 35 percent band?
A: So far as the business mix is traditional and new media and as the shift is happening, yes we expect that the margin movements should be upward. 35 percent is definitely a tall target; our endeavour will be to go towards there. Right now I am not able to comment on an exact number.
Nigel: Then at least could give us some guidance on the topline, last year you did a growth of around 18 percent, on the first quarter you already did more than 20 percent. So topline growth can we see more than 20 percent for the remainder of the year, can we do 25 percent because digital is growing and also I want to probe you on this, you always say that there are lot of subscribers on YouTube etc, do you get any kind of revenues from there. What is the revenue as of now?
A: First is on overall growth of topline; the traditional media business has been growing at around 12-15 percent and if we take an annual projection of the industry, it’s in a similar range of around 12 odd percent and we have been kind of growing at or slightly higher than industry level.
New media business, the industry growth rates are at around 35 percent. In fact, last year we grew much faster, but on a high base also this quarter we have maintained 50 percent. I think if we can grow at 50 percent I will be very happy for this year.
On the other question in terms of subscribers, YouTube subscription is free, but it gives us a ready user base of a common interest group, so for example our retro music channel on YouTube called Filmi Gaane where which we crossed a million subscribers during this quarter. Now these million subscribers or customers, you can say are fans of retro songs, so it’s probably the largest congregation of retro Bollywood music fans. So whenever we put out something new, a new compilation, a new video or a new jukebox kind of a thing, there is an information flow directly to that to a large customer base which is like a common interest or a common user group kind of thing. So that is really the advantage that what we have now got is created a community of fans of that particular genre or that particular category. So that is really the advantage.
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