shemaroo entertainment ltd Management discussions

Global Economy:

In late 2022 and early 2023, the world economy experienced a mixed picture as it continued to recover from the disruptions caused by the COVID-19 pandemic. Many countries witnessed a resurgence in economic activity, driven by the widespread vaccination campaigns and the gradual easing of restrictions. However, challenges persisted, including supply chain disruptions, inflationary pressures, and geopolitical tensions. Although inflation declined, as central banks raised interest rates, underlying price pressures are proving sticky, with labour markets tight in a number of economies. Overall, the global economy in 2023 is expected to demonstrate resilience and cautious optimism, fuelled by the collective efforts to navigate the ongoing challenges and foster sustainable growth. The baseline forecast for global output growth is to stand at 2.8 percent in 2023, before rising to 3.0 percent in 2024. For advanced economies, growth is projected to decline by half in 2023 to 1.3 percent, before rising to 1.4 percent in 2024. For emerging markets and developing economies, economic prospects are on average stronger than for advanced economies, but these prospects vary more widely across regions. On average, growth is expected to be 3.9 percent in 2023 and to rise to 4.2 percent in 2024.

Indian Economy:

Celebrating its 75th year of independence this year, India emerged as the 5th largest economy in the world. The Indian economy demonstrated great resilience in the face of macroeconomic challenges and recovered faster than most other countries. This economic rebound can be attributed towards favourable policy measures, and government and private capital spending, even as private consumption remained sluggish. India was able to maintain its position as the fastest-growing economy amongst emerging markets and developing economies and developed economies. India will likely grow at a moderate pace of 6.0%–6.5% in FY 2023–24, as the global economy continues to struggle. Growth in the next year will likely pick up as investments kickstart the virtuous circle of job creation, income, productivity, demand, and exports supported by favourable demographics in the medium term.

Media & Entertainment Industry:

With less than 1% in Indias GDP share, Indias media and entertainment (M&E) industry is currently at INR 2.1 trillion, growing at 19.9% in 2022. The growth was largely contributed by digital, filmed entertainment, live events and online gaming. Television, despite degrowth, continued to remain the largest segment. The share of traditional media dropped from 63% in 2021 to 58% in 2022, while that of digital media increased from 25% to 27% during the same period. Advertising at INR 1,049 billion continued its growth trajectory, crossing the INR 1 trillion mark for the first time in 2022; digital continued its dominance accounting for 48% of the advertising pie in 2022. Compared to advertising, subscription grew slower at 13% primarily due to degrowth in the television segment. The growth was primarily led by filmed entertainment, albeit from a low base.

in INR Bn	2019	2020	2021	2022	2023E	2025E	CAGR (2022- 2025E)
Television	787	685	720	709	727	796	3.9%
Digital Media	308	326	439	571	671	862	14.7%
Print	296	190	227	250	262	279	3.7%
Filmed Entertainment	191	72	93	172	194	228	9.8%
Online Gaming	65	79	101	135	167	231	19.5%
Animation and VFX	95	53	83	107	133	190	21.1%
Live Events	83	27	32	73	95	134	22.2%
Out of Home Media	39	16	20	37	41	53	12.8%
Music	15	15	19	22	25	53	14.7%
Radio	31	14	16	21	22	26	7.5%
Total	1,910	1,476	1,750	2,098	2,339	2,832	10.5%

The M&E sector is expected to growth at 11% in 2023 to reach INR 2.3 trillion and further at a CAGR of 10% to reach INR 2.8 trillion by 2025. In terms of incremental segmental contribution between 2022 and 2025, digital will be the largest at INR 291 billion, followed by online gaming at INR 96 billion, television at INR 87 billion and animation and VFX at INR 83 billion. The share of traditional media will drop to 50% in 2025 from 58% in 2022, while that of digital media will increase from 27% to 30% during the same period. The advertising industry will grow at a CAGR of 11% to reach INR 1,423 billion in 2025 from INR 1,049 billion in 2022; more than 70% of the incremental revenue will be contributed by the digital segment.

Television Segment:

The television segment witnessed a de-growth in 2022, primarily due to the drop in subscription revenue which has fallen three years in a row. The subscription revenue witnessed a fall of 3.8% in 2022 due to reduction of five million pay TV homes. Even the ad market remained subdued, with a moderate growth of 2%, which was driven by volume growth, while the rates remained constant.

The number of Free TV households increased to 45 million while connected TV sets increased to 15 million during the year. Television households are expected to continue to grow at 5% till 2025, with growth expected to be contributed by connected TVs which could cross 40 million and Free TV which is likely to cross 50 million by 2025. DD Free Dish, which currently hosts 179 channels, will have a significant role to play in the growth of television in the country for the next decade.

Television Industry Revenue (in INR Bn)

Television is still expected to remain one of the largest revenue segments of the Media and entertainment industry in India in the near future. Television revenue is expected to grow at a CAGR of 3.9% to reach INR 796 billion by 2025 driven primarily by increased TV household penetration especially in the Free TV space and continued importance and effectiveness of TV advertising. TV advertising is expected to grow by 5.3% p.a. to reach INR 371 billion in 2025 on the back of fresh sports content, regional channels, and continued growth of free television. Television subscription revenue is expected to grow by 2.7% p.a. till 2025 to reach INR 425 billion.

Digital Segment:

Digital media grew by 30.1 percent in 2022 on the back of increased internet penetration (866 million), growth in smartphone base to 538 million and increasing time spent by Indians i.e., 4.9 hours a day, on their phones. The year 2022 witnessed more than 525 million digital video viewers, which is expected to cross 625 million by 2025. Digital advertising increased by 30.3 percent to reach INR 499 billion in 2022. The digital advertising segment had overtaken television advertising in 2020 and currently accounts for 48% of the overall advertising pie. Digital subscription grew 28.6% to reach INR 72 billion in 2022. The paid video segment generated revenue of INR 68 billion in 2022 through 99 million paid subscriptions across 45 million households.

The digital media segment is projected to grow at a CAGR of 14.7% till 2025 to reach INR 862 billion on the back of improved digital infrastructure, changing consumer habits and availability of content. Digital advertising revenue is expected to outpace all other media formats to account for 53.7% of the advertising market by 2025. Subscription revenues are expected to grow at 10.6% CAGR till 2025 as paid video subscriptions will reach 114 million across 52 million subscribing households by 2025. Demand for original content will increase from 3,000 hours in 2021 to 4,000 hours by 2025.

Key Financial Ratios:

Ratios		Standalone			Consolidated
	FY22-23	FY21-22	FY20-21	FY22-23	FY21-22	FY20-21
Debtors Turnover Ratio	4.36	6.67	5.83	4.42	6.77	5.70
Inventory Turnover Ratio	0.74	0.51	0.43	0.77	0.53	0.43
Interest Coverage Ratio	1.42	1.26	0.29	1.48	1.20	0.22
Current Ratio	2.30	2.99	3.07	2.29	2.88	2.97
Debt Equity Ratio	0.54	0.42	0.45	0.55	0.44	0.47
Operating Profit Margin (%)	7.8%	8.5%	2.5%	8.1%	8.1%	2.0%
Net Profit Margin (%)	1.4%	1.7%	-6.3%	1.7%	1.3%	-7.0%
Return on Net Worth	7.1%	5.3%	1.3%	7.7%	5.4%	1.1%

The decrease in Debtors Turnover ratio is attributable to higher credit period. The Inventory Turnover Ratio is increased due to increase in sales and better market conditions. Interest Coverage Ratio is increased due to increase in earnings in current year. The decrease in Current Ratio is primarily on account of increase in trade payables and current borrowings. The increase in Debt Equity Ratio is primarily on account of increase in borrowings. The decrease in Operating Profit Margin is primarily because the percentage of increase in turnover is lower than percentage of increase in operating expenses. The decrease in Net Profit Margin is primarily because the percentage of increase in turnover is lower than percentage of increase in total expenses. Return on Net Worth is increased due to higher net profit of the Company.

To avoid duplication and repetition, certain heads of information required to be disclosed in the Management Discussion and Analysis Report have been included in the Boards Report/ other parts of this Report.

Cautionary statement

This report comprises the facts and figures along with assumptions, strategy, goal, and intentions of the Company which may be "forward-looking". The Companys actual results and performance may differ considerably from those presented herein. The Companys performance is dependent upon global and national economic conditions, the price of commodities, business risk, changes in the Governments rules and regulations and so on.