Saregama India Ltd Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Pallavi Deshpande - Sameeksha Capital - Analyst : Yes. Thank you for taking my questions. Just wanted to understand in terms of the pipeline, I guess, for Bhansali, I guess, it's 10 movies or so. Over what period do we see those releasing?

Question: Pallavi Deshpande - Sameeksha Capital - Analyst : Right, right. And this in terms of just -- would we have done the same analysis that we do for other movies when we acquire song rights for these 10 in the pipeline because we've seen some big names like -- I just take one name here, Rajinikanth in the South, seen a series of flops from that end. So just wanted to understand the thought process a bit better. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Pallavi Deshpande - Sameeksha Capital - Analyst : Yes, sir. Thank you so much, sir.

Question: Shlok Mehta - Nuvama Institutional Equities - Analyst : Hi. Thanks for the opportunity. I have two questions. First, why particularly have we chosen Bhansali Productions as I believe there are many production houses out there. And my second question is, we talk about EPS accretion by FY27. So what kind of EPS accretion are we looking at?

Question: Shlok Mehta - Nuvama Institutional Equities - Analyst : Okay. The second question on EPS operation.

Question: Shlok Mehta - Nuvama Institutional Equities - Analyst : Okay. Just two follow-up questions on that. One, do we see any regional music content acquisition going down because we won't be doing any regional movies now? And second --

Question: Shlok Mehta - Nuvama Institutional Equities - Analyst : Understood. And second question was on Bhansali production revenue. So I see FY23 and '24 number is just around INR10 crores. And then FY25 figures suddenly going up to INR304 crores. Any particular reason why we see such a huge variation in revenues?

Question: Shlok Mehta - Nuvama Institutional Equities - Analyst : Understood. And- just lastly, on this 18%, like you had earlier guided that 18% of the capital deployed will be towards non-music businesses, if I'm not wrong. So do we revise that or that still remains? Unidentified Company Representative So that guidance remains. Just like Vikram mentioned that over the next four quarters, our existing monies in the video vertical will start winding down. So once that amount is wind down and you include the amount that we have invested, we'll come back to our original threshold. This may be a temporary blip that you will see in a particular reporting period because we have invested this money, and it will show in our balance sheet. Otherwise, our long-term guidance remains the same.

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Yes sir, thanks for the opportunity. Sir, just one clarification in terms of the valuation you have given. So like you said, if everything goes as per your expectation, the amount currently paid of about INR 300-odd crores would be for a bare minimum of 28% stake. Am I right on that?

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Okay. So the INR325 crores-odd is not even for the 28% if everything goes well. So we'll have to pay an additional amount to get that.

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Okay. Sir, for clarity purpose, if you could give us some sense on, say, for that bare minimum 28% stake, what is the number which you have in mind? And secondly, also wanted to know that, yes, I agree that the last two years' numbers were on a lower side. In the last -- since you would have analyzed the numbers, in the last 10 years, what is the kind of peak revenues has Bhansali Productions achieved?

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Okay. Okay. Yes.

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Okay. And sir, my another question is on now whenever you are -- or say, Bhansali Productions is coming out with the music content. So how does the deal work in that place? Does Saregama -- I understand that there would be no bidding, but does Saregama pay sort of a fixed cost for that content or we get the share only to the percentage we hold?

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Okay. So the content cost sale will be decided at the time when it is available, if I'm not wrong.n it is available, if I'm not wrong.

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Okay. And sir, what you will be paying would be the cost of the content or will be a relative market price?ying would be the cost of the content or will be a relative market price?

Question: Kunal Bhatia - Dalal & Broacha Stock Broking Pvt - Analyst : Okay. Got it, sir. Thank you.

Question: Harshit Toshniwal - Premji Invest - Analyst : Congratulations on the deal, sir. I think the question was more, so for example, after this transaction, Bhansali films, if I'm assuming INR 320 crores being the primary capital, their balance sheet would have INR300 crores, INR350 crores of capital. And if I just do some math around, say, for example, if INR 100 crores is the cost of the film, INR100 crores, INR150 crores and a 12-month timeline, would it imply around two films per year is the budget which we have in mind. So one probably can be SLB himself and the other one can be co-partnership. But should we -- do you as an investor look at it in that format that how much working capital they have and think that how much films and songs we can get a year around 10, 15 from there?

Question: Harshit Toshniwal - Premji Invest - Analyst : Exactly. So right. Around three to four per two years, basically two, three -- two films a year kind of (inaudible)

Question: Harshit Toshniwal - Premji Invest - Analyst : Understood, sir. Got it. And sir, then would it be right to assume that we will be having the IP for all the five films, not just SLB sir's film. So our deal on the songs will be applicable to the films, all the five films. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Harshit Toshniwal - Premji Invest - Analyst : Fair point. So right -- no sir, I think it makes a good sense because (inaudible) pipeline of 10, 15 songs a year.

Question: Harshit Toshniwal - Premji Invest - Analyst : Right. No, no, sir. I think I completely take your point that at least -- so I just wanted to understand that my numbers of, say, 10 to 12 songs a year pipeline we are getting in a way through this deal is it matches with your assumption at this point of time in terms of (inaudible)

Question: Harshit Toshniwal - Premji Invest - Analyst : Yes. No, I was saying 10 songs per year, like five songs into two films a year kind of a run rate.

Question: Harshit Toshniwal - Premji Invest - Analyst : Sure. If I have the liberty, if I can just have one more question, sir. Sir, this is on the INR140 crores, INR150 crores of lease of capital which you mentioned. Firstly, that number was actually a large one. I didn't know that the video business is consuming that amount of working capital on our balance sheet. So can help us that what would have been the corresponding some kind of a revenue on to it? Or basically, is this sitting entirely in the inventory piece right now, INR140 crores, INR150 crores?

Question: Harshit Toshniwal - Premji Invest - Analyst : Will this also help in reducing our OpEx? If I look at my overall OpEx, roughly around INR 200 crores odd per year. So will a large part of the OpEx, obviously, that includes everything from songs to IP, everything, but is this also reduced?

Question: Harshit Toshniwal - Premji Invest - Analyst : It is not as if some -- video is not a large contributor for OpEx.

Question: Harshit Toshniwal - Premji Invest - Analyst : Fair point. And sir, one last thing on the -- beyond FY '30, the clause that we can have a higher stake. Is that also -- if you can -- it's too far away, but the probability, the pricing, et cetera, will be a later fact itself. But do you think that we'll do it only in case if this does well? Or we plan to do it irrespectively?

Question: Harshit Toshniwal - Premji Invest - Analyst : Got it. Great, sir. Congratulations and all the best. Thank you.

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Yeah. Hi. A couple of questions. First, has the Board decided any maximum cash outflow that you're willing to employ in this deal? Because there are -- I mean, the stake is unknown depending on performance, et cetera. Have you fixed the ceiling on how much cash you're willing to put behind this?

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Yes. So based on these numbers, if you pay INR325 crores and the valuation turns out to be INR1,590 crores and you decide to exercise the option to increase the 28%, you will have to put in an additional INR120 crores in 2028. That's correct?

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Yes. And we are done after that?

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Yes. No, my question is we are done as and when that 51% doesn't arise.

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Okay. Just to summarize, the best case for you is you pay INR445 crores for a 28% stake at the best case valuation and nothing more than that.

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Okay. Secondly, all these music rights that you've secured, is the structure of rights similar to what you have normally have in other commercial transactions in terms of --

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : And the value you said is a percentage of the film's cost. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Okay. What happens to the IP of the past library, not the music, I'm talking about the video. The films that Mr. Bhansali has done, do they all reside in this?

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Okay. And last question, I'm taking this opportunity to ask you. There have been significant changes in pricing by some of the OTTs in the last one month. Any thoughts on that?

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : No, no, no. I'm talking about the OTT.

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Okay. Actually, my question was specific to a particular OTT making major changes to prices. I'm not taking names. I'm asking what does it do to the industry. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : As a result of the price change? Sorry, I was asking -- as a result of the price change, your subscription revenue going up is what you're saying.

Question: Govindarajan Chellappa - C & S Investment Managers Pvt Ltd - Analyst : Okay. Okay. Thank you.

Question: Pallavi Deshpande - Sameeksha Capital - Analyst : Yes. So thank you for taking my question again. I wanted to understand in terms of Mr. Sanjay Leela's age is 62 years. So is there any -- if something were to happen God forbid to him tomorrow, is there any insurance -- is there any -- how does it work?

Question: Pallavi Deshpande - Sameeksha Capital - Analyst : Yes, sir. Thank you.

Question: Sanjay Vora - SR Investments - Analyst : Someone has already asked the question which I wanted to ask. Thank you and congratulations once again. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Jaideep Merchant - Janak Merchant Securities Pvt Ltd - Analyst : Vikram, just wanted to understand if the video rights of these songs, which will be released, will they also be part of this deal?

Question: Jaideep Merchant - Janak Merchant Securities Pvt Ltd - Analyst : Second question, we have tried -- we attempted one more deal earlier in the year as per the Dharma and that didn't happen. Was there a pressure to do a transaction with the next largest or the third largest and to secure -- to put capital on the table to secure the pipeline.

Question: Jaideep Merchant - Janak Merchant Securities Pvt Ltd - Analyst : All right. And lastly, related to this question, does this have an exclusivity on our side also? Because since Mr. Bhansali can't do anything, does this restrict us from doing another transaction with another production house? If something comes along, say, after one year?

Question: Jaideep Merchant - Janak Merchant Securities Pvt Ltd - Analyst : Thank you, sir. All the best . Thank you.

Question: Raghav Mittal - Dhamma Capital - Analyst : Congratulations. Just a couple of questions from my side. So how do we think about Bhansali Productions Private Limited's sustainable revenue and margin trajectory? Like FY25 was INR 300 crores-odd with, say, INR 60 crores-odd PAT. But when I just look at '23, '24 or '22, the numbers are quite different. So maybe if you're missing something, what is the profitability of the business on a sustainable basis?

Question: Raghav Mittal - Dhamma Capital - Analyst : Makes sense. So to clarify, the net revenue numbers of the entity, which is INR 5 crores, INR 10 crores over the last three years each and then INR 20-odd crores in '19, '20 and '21. You are saying that captures the full essence of the business. There's nothing being done outside the entity's financials. So we're not missing something. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Raghav Mittal - Dhamma Capital - Analyst : Got it. Makes sense. And the second question, it's amazing that we will get exclusive sort of rights to all the music that Bhansali's production produces. I was just curious to understand how do you value -- say, if we were going to pay INR100 and then the bidding war happens, it goes to INR105, INR107, as you said earlier in the call. So how do you value this money that we save from the absence of bidding? And to your mind, how do you value this strategic and have you sort of included that value in the deal that we have done with Bhansali?

Question: Raghav Mittal - Dhamma Capital - Analyst : Right. Makes sense. And this x percentage of production cost, is it fair to say that this x percentage would have been going up over the years as everybody is more optimistic about subscription revenues picking up? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Raghav Mittal - Dhamma Capital - Analyst : But does the valuation multiple benchmark us against the present and the past? Or is it subject to evolving if, again, the paying economy takes off and there's more -- the cost of content goes up in the future, then is the valuation multiple that we are agreeing on today also subject to being upgraded?