Shemaroo Entertainment

Stock Opportunities Untested - but worth a good look
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Why Shemaroo is better than ZEE Ent Ltdd (ZEEL) or other players. ZEEL has content library and OTT both. I just want to understand MOAT with Shemaroo and unique characteristics of Shemaroo to withstand against future digital disruption.

In my opinion Industry growing fast without improving NPM and burning cash, sudden bump of disruption could cause wealth destruction in long run. Hence, i would like to develop confidence before investing in it. I am very caution on investing in companies having risk of disruption risk (especially where big muscle players are presents in the market) !

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There can be a debate of content, which ott, cost of content etc between Shemaroo and others…
There can be no debate if we go a bit backward in the supply cycle… What is the backbone carrying the content of these multiple players to consumers… Optical fiber cables… Is the demand going to increase high or higher in next 5 yrs… And is it as competitive as ott, content, telco etc etc… While we discuss Shemaroo with its competitors, let us not forget all of them depend on just one medium to take their content to consumers…

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Good quarterly results.
consolidated PAT growth of 17% QoQ and 22.7% YoY.
Revenue grew 21% YoY.

disc: invested.

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From Netflix’s Investors section FAQ

Q - Since you’ve been successful with originals and are increasing your investment in this area, will this increase your overall content spend or does it replace spend on other content deals?
A - Replaces other content spend. However since we are growing content spend, there is room to grow both prior-season and original content.

From Netflix Investor con call on 16.10.18

On India - “We had incredible success with Sacred Games followed it up right away with Ghoul and prior to that with a movie called Love Per Square Foot. What it really was able to do was take this product that maybe was less known in India when we launched and make it feel more local, more relevant. And what we saw was all of that was following a nice, steady increase in viewer engagement prior to us launching those big original shows. So what they had was a product that people understood more, talked to their friends more about that was written about more in the press and certainly talked about more by influencers and then delivered with content that isn’t otherwise available in the market, a series being produced at the quality – the production quality of Sacred Games by way of example.”

Netflix is among the pole positions for profiting on the opportunity of Data boom and Shift to OTT Media by users and it is moving more towards Original Content that it produces. Same could be the position of Amazon Prime Video.

The question is How much of a role would Shemaroo play in their long term success, as a content seller?

Existing content bought at pre-boom prices can be monetized at great rates but for how long?

My guess is in the long run, Shemaroo would continue to remain an important partner with its content but would probably not be able to enjoy good IRR on its content trading. It would be completely out of the ‘Originals’ market and other content which are ‘Produced’ by OTT owners.

As a business model I feel Shemaroo is like a Real Estate Company that once managed to buy land at a very cheap price. The long term success of such a Company depends on its continued ability to achieve better than normal IRRs on their investments, which at the moment is still more of a question mark for Shemaroo.

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Investor presentation and conference call information.

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Conference Call highlight for Q2FY19 for Shemaroo:

Traditional Business:
During Q2FY19, the company reported healthy growth in traditional business of around 17%. Increased viewership and higher media spending during the quarter drive growth in traditional media business. As per BARC data, despite explosion of video consumption through broadband/mobile, TV viewership as well as time spent on TV viewing has been consistently growing over last 24 months. The growth in Digital media would eventually affect TV, but it may take very long period as against current expectation. The management also gave example of TV viewership surviving (despite decline) even after almost decade of high speed broadband in US market. If that being the case, given the lower per capita income and scope for TV penetration not being at 100% of household, Indian market TV viewership would likely to show growth in short to medium term.
The company also now moving in US market to monitise the movie library on TV which may also provide for newer growth opportunity with local expert now being in US office.

Digital business
The company digital business can be categoriesd in sub segment of Telecom, Syndication (OTT and other platforms) and YouTube which accounting for around 50%, 30% and 20% respectively of Digital revenue for the company. The growth in digital consumption over last 3 years have also noticed by producer/owner of content and hence resulted in higher acquisition cost of the content. However, Shemaroo is unaffected by same, as it has now more growing platform to use and monitise content. Shemaroo look at business in IRR (pre tax IRR of 18%). So it consider its cashflow from content if same meet 18% hurdle rate, even acquisition at higher cost would not impact Shemaroo business.

Further the company has various arrangement/structures to monitise its content. For established medium like YouTube it does not face issue on variable structure, while with newer player, it may work on Fixed fees or mix structure.

The increase number of players like Netflix and Amazon also does not result in threat for the company. It deal with second cycle of movie rights, while currently OTT players are very aggressive on exclusive rights of new movies. General agreement are for 5-7 years and hence post 5-7 years, those movies would be back in market when Shemaroo can participate for acquisition.

YouTube:
While the monthly view on YouTube for Shemaroo has gone up from 750 mn in June 2018 to 900 mn September 2018, the advertisement spending on digital area has not kept pace. Viewership post Jio Launch has increased multifold from 4 mn per day to 30 mn per day (almost 6-7 times) while digital ad spent on YouTube has gone up by 30-40%. As a result, CPM has declined and hence, revenue growth YouTube is not commensurate with viewership. Over a period of time, media planner would increase allocation to new medium, but for short to medium term, CPM are unlikely to increase significantly in my opinion.

New Initiative
The company is planning to develop in OTT platform which would be B:B:C distribution chain. Shemaroo would keep OTT platform ready for business partner who has reach to customer. So this platform is unlikely to compete with existing relationship of the company. Most of agreement with OTT players by the company are non-exclusive which give higher avenues to monitise the content.
The company is also looking at expanding new regional channel (launched Punjabi and thriller channel on TV). So various segments from Devotional/Comedy/Thrillers to various languages Punjabi/Marathi the company is attempting to maximise its content monetisation. It has also appointed various team members who have relevant experience in respective area. The increase in employee cost during quarter was also due to higher cost of this team.

Cashflow and profitability
The company evaluate its performance in IRR terms. So if deal give upfront cash in short period as against assumption of 10 years cashflow, the company would accept the short term deal till it meet IRR requirement. That may have adverse impact on EBITDA in short term but management focus is more to achieved IRR then EBITDA.

Further, after almost decade long efforts to build library, the company has reached to stage were requirement for new content can be met from internal cash generation. During six months, the company increased net inventory by Rs 36 Cr and repaid debt of around Rs 19 Cr from internal cashflows.

The company expects its subsidiaries to turn around in near future. It has also selectively acquired new movies in Marathi/Gujarati in first cycle. However, the acquisition were only after release of movie which provided critical box office information which became important consideration in bidding. The management would not buy rights in first cycle pre-release as it increase the risk.

On Devotional App, it tied-up with Lalbagh Cha Raja’s live Darshan during Ganesh Utsav and also tied-up with famous Durga Puja Pandal during Navratri. It intend to launch its Devotional app on ITunes during Q4FY19.

It also acquired Pre 2000 music rights from NH Studio during the quarter.

Disclosure: I have investment in the company and my view may be biased. The investor shall do his/her own due diligence before taking any decision. I may have misinterpreted certain communications/discussion and reader shall take note of same.

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Wow! Most of my questions are neatly answered in this thread. Took almost a week to read and grasp all of it.

However, I have a few concerns related to the consolidated financial statements. Please note that I’m new to the investing world.

  1. The cashflow statement for the same year 2017 doesn’t match in Annual Report FY17 and Annual Report FY18. Does that make sense?

    42%20PM
    42%20PM2118×746 158 KB
    14%20PM
    14%20PM2248×384 118 KB

  2. Also in the cashflow statement of FY18, I see we have increase of share capital upto 2344.02 lakhs. Did the company issue new shares to raise capital?

  3. Moreover, sum of individual parts in the Cashflow From Financing Activities don’t add up to -14220.33 lakhs. They have ignored the “Increase in capital” part. However they seemed to have added it back while calculating “Net Increase/(Decrease) in Cash and Cash Equivalents”. Again, is it correct to do so?

  4. Why did the company divide its EPS by 10 in the Consolidated Annual Report? There were no stock splits recently, correct?

Disclosure: Considering to invest but stumbled upon these questions. This is not a buy/sell recommendation.

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Spoke with the investor relation team, they state that the mismatch in figures is attributable to printing error (for EPS) & classification mismatch for certain items (for cashflow statement).
For clarifications, connect with the IR - Valorem Advisors (http://www.valoremadvisors.com/shemaroo/)

Disc: invested

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“ShemarooMe, a streaming service slated for launch in the first quarter of 2019, with the vague promise of delivering “premium, engaging content to its consumers through user-friendly, exclusive, multi-genre platforms that suits the needs of every Indian”

let’s see how this service works out.

Disc: Invested.

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Any idea that how the new Trai guideline on broadcasting will impact Shemaroo revenue…

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Interestingly this report states that the OTT platform is expected to have recent (2018) movies like Padmaavat, Pad Man and 102 not out. Looks like the management is moving towards acquiring some very recent content for the OTT roll-out.

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Shemaroo Entertainment Limited in association with VKAAO (a JV of BookMyShow & PVR Pictures) brings to you ‘’Picture Ki Cheer Phaad’’, a unique take on Bollywood movies. This new series will see standup comedian, Gaurav Kapoor roast Bollywood movies in his unique style during the first phase of the initiative.

Kick starting the series is cheer phaad of the horror thriller – “Papi Gudia”, which is slated to release on February 1, 2019. It will first be released exclusively across almost 40 PVR theatres through VKAAO in close to 20 cities, including Mumbai, Bangalore, Pune, Delhi NCR, Ahmedabad, Kolkata, Chandigarh etc.

Hiren Gada, CEO, Shemaroo Entertainment Limited, said, “Shemaroo has been a close part of Bollywood’s cinematic evolution. With this new series, we aim to showcase the change through a humorous take on Bollywood movies. The quality of content has been in vast contrast with today’s Indian cinema, and ‘Picture Ki Cheer Phaad’ will reflect the same with an added sense of humor. Our main aim is to entertain the audience, showcasing yesteryear movies in a comic way without hurting anyone’s sentiments. The industry has matured over the years and we hope this is enjoyed alike by the moviemakers and the audience of today who are always in search of innovative content.”

P.S: Market seems to be seeing this initiative with suspicion as the stock is down by ~12% today. But we got the hint last year that they were “looking forward to working directly with the consumers rather than dealing with them through platforms.”

Disc: Not invested. Tracking.

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Dont think so there would be much Investment made by Shemaroo into this venture and the news does not appear to be of such significance to cause a 13% fall in the Share price.

My guess is there is Heavy selling due to fear of lower monetisation rates in TV media in light of new regulations. As TV plans become more customized (a la carte), traditional model of all channels at one price would be replaced by on demand viewership - like Netflix. Worst hit would be Movie channels since now movies would likely be viewed on demand as against current model of pre scheduled runs.

As the management as stated, Shemaroo has long term contracts with escalation clauses and there should not be any immediate impact on revenues. In the long run, all this would take many years to actually materialize and for a Content Trader like Shemaroo, ultimately as long as the audience watches their content in some form or the other, there would be decent revenue generating opportunities. Traditional media revenues would at some point be replaced by Digital revenues through Youtube or Syndication with OTT players.

Just that there would be brief or even long periods of uncertainty in which managements capability and investors patience would be tested.

Disc: Invested - 8% of PF at cost.

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Putting up some articles…



Shemaroo’s top customers are Star, Viacom, Zee, Disney, Google as per Credit Rating Report Aug 2018.

Overall I think this rule will increase the spending of middle to high-income families and can decrease the spending for low-income households. Low income households will be more picky in what channels they choose to save few bucks and middle to high income families wouldn’t mind much subscribing to bouquets offered by groups like Star, Zee and the likes.
In the super long run, as low income families move into middle income families, we can expect their spending to increase too.

I’d be very surprised if a typical household doesn’t have any of Star, Zee, Sony, Disney (household with kids) channels in their shortlist. Note that 95+% of households with a TV have only a single TV. So they need to maintain a good distribution to co-operate with the choices of various family members. Also it is a good thing to hear that the ala carte offering is at channel level and not program level. So the TV channels users subscribe to still have to fill up their hours using old movies.

As rightly mentioned by @princevegeta, Shemaroo has long term contracts and hence there shouldn’t be any immediate impact and our moat of owning rights for classic old movies with little / no competition still stays tact.

Disclosure: Invested upto 8% portfolio. Biased. Not a buy / sell recommendation. Noob investor. Planning to add more once the volatility settles.

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Q3 Results

Earnings Presentation

Results are okay, slightly below my expectations. Overall thesis is playing out but PAT growth is lower due to high increase in Personnel costs. I hope this strategy of recruiting experienced managers at mid-level positions pays off in the future.

Digital media growth rate is moderating

2016-17 2016-17 2016-17 2016-17 2017-18 2017-18 2017-18 2017-18 2018-19 2018-19 2018-19
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Digital Media 201 240 235 247 285 342 331 347 389 456 426
% of Total 21% 21% 21% 25% 28% 25% 25% 29% 32% 28% 29%
Traditional Media 749 896 900 739 751 1002 995 836 845 1177 1063
% of Total 79% 79% 79% 75% 72% 75% 75% 71% 68% 72% 71%
Total Revenue 950 1136 1135 986 1036 1344 1326 1183 1234 1633 1489
Growth YoY
Digital Media 41.8% 42.5% 40.9% 40.5% 36.5% 33.3% 28.7%
Traditional Media 0.3% 11.8% 10.6% 13.1% 12.5% 17.5% 6.8%
Total Revenue 9.1% 18.3% 16.8% 20.0% 19.1% 21.5% 12.3%
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I wonder why the stock is at 12 off PE multiples after a decent show for the last few quarters . I think it is under priced at this moment. Also could not find any justification for the recent 12% fall in the stock price.

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I strongly doubt how long these kind of DTH model is gonna work !

Most service providers (BSNL, Airtel etc.) have already started launching Giga-fibre broadbands at low price points (with high FUP) with the anticipation of Jio Giga-fibre launch. People using these service will eventually start buying Smart TVs or convert normal TVs to smart TVs using streaming devices like Chromecast, Mi Box, Fire TV Sticks etc. Why would these people need a DTH connection? They can view TV channels in Jio TV, Airtel TV, Vodafone play or view movies in free/paid OTT apps like Voot, Prime Video, Hotstar, Sony Liv, Netflix etc.

“Taditional TV viewing services via cable and satellite TV incurs high costs and additional taxes, need for installation and management services, slow updates, and issues with data transmission and latency issues with transmission of data via a large area. In light of these issues, various consumers are moving to the digital platform with a reduction of over 2.4% annual reduction from 2013 to 2017 and a growth of 6.5 million users that switched from cable pay TV.”

In that scenario, content aggregators like Shemaroo will get revenues from each of these OTT or TV apps.

Morever, Jio DTH is also slated to launch. I strongly feel that their offering will be vastly different from the existing players’.

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Share price seems to be in a free fall indicating some good selling in the last week or so.

I have exited around 1/3rd of my position to cut losses. Still bullish on the business, however con cal had too many negatives

1 - YouTube revenue has not been growing, has been flattish since last year despite increase in viewership. YouTube revenues as a % of Digital revenue has fallen YoY

2 - VAS revenue from Telcos expected to decrease and management is trying to replace that with new ventures like Shemaroo Me.

3 - On regulatory changes in new media - Management expects uncertainty in the starting period, but in the long term, TV market is too big and wide so there should be not much impact.

4 - Industry estimates of Digital media growth have fallen to 20-25% from around 30%. Shemaroo would expect to be ~ 500 basis points above industry average.

On the positive side,

1 - Shemaroo Me seems to be a promising venture. My understanding is that management at the very least wants their app to be available on Smart TVs, especially since DTH/ISPs are likely to have a bundled offering to customers - For eg Jio might offer TV channels, Netflix, Shemaroo Me etc for 1000 Rupees a month.
Any direct subscription to Shemaroo Me would be a bonus.

2- It seems Shemaroo is going to air some current content too. For eg: https://www.facebook.com/947132978712513/posts/2123224971103302?sfns=st
Not sure about the economics, whether these shows are produced by Shemaroo ?

Would request experienced investors to give their views. Thank you

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Crisil report:

New TRAI regime unlikely to reduce TV bills for most Popular channels and OTT platforms will gain from new rules.

Says Sachin Gupta, Senior Director, Ratings, “Our analysis of the impact of the regulations indicates a varied impact on monthly TV bills. Based on current pricing, the monthly TV bill can go up by 25% from Rs 230-240 to ~Rs 300 per month for viewers who opt for the top 10 channels, but will come down for those who opt up to top 5 channels.”

I agree with the initial analysis in the report, Most likely this regulation will be exploited by smart broadcasters having premium channels to increase the revenue, and small broadcaster with not popular channels may go out of business.

I think for Shemaroo, it will be natural to little +ive as a digital may get more traction and in Digital Shemaroo has the capability of pushing more customized content with better utilization and leverage, in worst case, this regulation should be at the max a transitiory problem, with no adverse long term impacts.

I don’t think DTH will be replaced easily, I think more likely is : the Addition of OTT on existing DTH for most families, otherwise, why would Jio venture into DTH…?

Some reasons:

  • DTH is a very reliable and efficient transmission mechanism, downtime is much lesser then IPTV’s or any internet enabled streaming, after all, satellite link is much stable than physical fiber cable.

  • A typical Indian Family needs a large variety of content, youngsters might add OTT, but the family will need their regular content.

  • Market size itself is getting bigger, due to higher watch time in the day to day life, in US on an avg 40% of awake time is spent on watching some content, and India is moving in the same direction, on top of that add huge swaths of unemployed population/ Agri workers in rural areas with plenty of time, they are all getting addicted to online content, thanks to cheap data access, This market was not available just a few years back, now they are hooked and most likely they will go for free ‘ad-supported’ content.

  • Cord Cutting trend may not be applicable in India: 1st due to family structure in India, 2nd Cost wise no benefit, 3rd Heterogeneous diverse market with diverse content needs.

Rest the fact that online viewership is steeply increasing, demand is there, Shemaroo just needs to figure out better monetization models, and apparently, ShemarooMe is an effort in the same direction, and Overseas expansions also seems good move, the fact the Indian population is everywhere, they can target concentrated rich markets for OTT tie-ups, but cost-benefit for overseas expansion I have no idea, relying on management here.

Disc: Maybe biased due to my investment.

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376

Thanks for the update.
Any mention in the call if ShemarooMe is going to be an “SVOD” or “AVOD” revenue model?

Thanks