Eros International Media Ltd Management Discussions.

Macroeconomic Environment across the World and in India

While virtually no large economy has escaped unscathed from the COVID-19 pandemic that started in Q4 FY20, India has been one of the badly affected countries, both economically and from the healthcare perspective.

At the start of the pandemic, with images and news of healthcare systems even in G-10 economies like Italy and United States getting overwhelmed, everyone understood that the pandemic presented an unprecedented challenge to Indias public health systems. And lockdowns were thought to be an effective way to control the spread of the virus, thus preventing the healthcare systems from collapsing under the immense pressure of a large volume of infections.

However, the lockdowns and other lockdown-like restrictions have sharply impacted both the formal and the informal economy, presenting a new set of challenges to Indias food system and its industrial backbone. The Indian economy underwent a GDP contraction of 7.3% in FY21. And while the digital economy has been able to cushion some of the impacts, the impact on the "offline" economy has been even sharper. The resulting socio-economic disruption has pushed millions into poverty in the country.

The lockdowns and differing state-wise regulations also disrupted the various supply chains, in turn, worsening the impact on businesses and industries all across the country, especially in the first half of the financial year.

The challenge was unlike any previous economic shocks and with social distancing and work safety ruling the roost, reinventing the work process and responding to the risk with pliable solutions became imperative. Moreover, helping to create a secure environment for all became the focus across the world.

The derailment of the economy across the world became evident and the immediate and long-term effect of the disruption brought about by the pandemic proved to be damaging. In its recent projection of the world economy, IMF has put the expected growth at 6% in 2021, moderating to 4.4% in 2022. This is a huge turnaround from an estimated contraction of 3.3% in the world GDP in 2020, where it declared 2020 as a "gap year" for the world economy.

It is now more than a year into the pandemic and the global prospects still remain uncertain. Though the expanding vaccine coverage across the world is lifting sentiments, the new virus variants and mutations are a major cause for concern. Moreover, the pandemic has exposed the fragility of the healthcare systems across many countries on the planet. The pandemic has also created disruptions in various industries, and some are just taking shape, and reverberating across the world economy in the process. Besides, they are also diverging economic recoveries across sectors and economies.

Now, the hope lies not only in the successful rollout of vaccination programmes across the world to end the rampage of the virus and its various variants but also on the application of economic policies that would cushion some of the devastating impacts of the COVID-19 pandemic not just on people but also on businesses.

Impact on Indian Economy

Indias GDP grew 1.6% in the fourth quarter (January-March) of FY21 prior to the second wave of the COVID-19 pandemic. This comes on top of 0.5% growth in the previous October-December quarter (Q3

FY21). The economy had grown 3% in the January-March quarter of FY20.

Reportedly, the GDP contracted 7.3% in FY21. However, the marginal improvement from the earlier estimate of 8% contraction in the second advance estimates released in February has been majorly due to a sharp rise in government expenditure. The uptick in the fourth quarter was mainly driven by the manufacturing sector despite services remaining relatively sluggish, as stated in the provisional estimates of annual national income and quarterly estimates released by the National Statistical Office ("NSO").

However, the subsequent unlock at the end of 2020 stimulated the business activities. According to the data, the gross value added in Q4 FY21 was 3.7%, much higher than 1% in Q3. Though, the provisional estimate of FY21 GDP numbers is slightly better than predicted, but may not change the larger picture.

The growth may remain subdued in the first quarter of FY22 as the severe and unprecedented second wave of COVID-19 hit India, and this is expected to significantly impact expected growth during the rest of FY22 as well. The recovery may be directly proportional to the opening of the localised lockdowns, the success of vaccine rollout and the role it will play in combatting the third wave. However, the economic outlook remains highly uncertain. At present, post the second wave, the World Bank expects Indias GDP to grow by 7.5% in FY22. However, an expected third wave and the above factors may impact even this projection.

Industry Review

According to a report jointly released by FICCI and EY in March 21 ("Playing by new rules, Indias Media & Entertainment sector reboots in 2020"), the Indian Media and Entertainment ("M&E") sector fell 24% in the calendar year 2020 to 1.38 trillion (US$ 18.9 billion). The report estimated, basis the improvement seen in the last quarter of 2020, that the sector would grow 25% in the calendar year 2021, to 1.73 trillion (US$ 23.7 billion), and would continue on the growth trajectory to the calendar year 2023, growing 17% CAGR (from 2020) to 2.23 trillion. However, given that these expectations were prior to Indias second COVID-19 wave in April-May 2021, these expectations may be severely impacted.

In 2020 whilst television proved to be resilient and continued to be the largest segment, Digital Media overtook the print segment as the second-largest segment, the only segment that saw growth during this period. However, most of this growth came from record growth in subscription revenue, while revenue from advertising for digital media continued to be stable over 2019. The online gaming segment was another segment that grew over the year, with the Digital Media and Online Gaming segments cumulatively adding 25 billion of revenues to the M&E space during the year. All the other segments, including Television, Print, Radio and Filmed Entertainment, saw a de-growth, cumulatively reducing the M&E segments revenues by 465 billion. While the M&E sector has usually outperformed Indias GDP growth, in 2020 the sector experienced degrowth of ~3x the de-growth experienced by the Indian economy. This was primarily due to the discretionary nature of the spending and the activity, which caused people to spend less in a time of incomes getting impacted, and lack of clarity on how long the pandemic conditions would last. In addition, within the M&E space, events / experiences that required being in close quarters with others were even more sharply impacted, with even people having the capability and willingness to spend on discretionary items, not willing to venture out for such experiences/events, given the overhang of the pandemic.

Digital Media

The year 2020 saw digital media grow by 6.5% to reach 235 billion and is projected to grow at 22% CAGR to reach 425 billion by 2023. In 2020, owing to the pandemic due to the subsequent lockdowns, the revenues from digital subscriptions grew 49% to reach 43.5 billion. The lockdowns significantly impacted the creation of fresh content on television, especially in the first three quarters of 2020. Since television depends on a steady supply of fresh content and online sports content went behind a paywall, a large number of people bought new digital subscriptions and paid video subscriptions on digital platforms. It crossed 50 million for the first time in the history of the Indian M&E industry. This caused a lot of advertisers to increase their allocation of advertisement spends towards digital sales channels, and digital advertising stayed stable. SME advertising also remained a bright area where SME advertisers spent more on digital advertising and also tried more online e-commerce platforms.

By 2025, it has been projected that digital advertising may outstrip advertisement spending in all other channels. This may result in the challenge of measurement of metrics to measure digital ad engagement, along with leading to change in metrics being currently tracked as well. For example, Daily Active Users (DAU) may become the metric to look at instead of Monthly Active Users (MAU), audience engagement instead of solely audience numbers, and some metrics to measure customer loyalty, retention as well as time spent watching content. Even the demand for fresh and original content may double by 2023 from 2019 levels to over 3,000 hours per year. The share of regional language consumption on OTT platforms may also cross 50% of total time spent by 2025.

Newspaper digital products may also increasingly go behind paywalls and the subscription revenue generation is expected to be 4 billion by 2023.

Company Review

With the COVID-19 pandemic proving to be a "Black Swan" event unlike ever before, and also lasting much longer than anyone expected, various businesses within the M&E segment have been hit harder and their cashflows severely impacted.

Similar to various other players in the industry, as Eros International Media Ltd. (EIML) depends significantly on theatrical revenues, the continued closure of cinema halls and malls to restrict social gatherings, has frozen major cash inflows, and had a major detrimental effect on the Companys business.

While EIML did release its film "Haathi Mere Saathi" theatrically in Tamil and Telugu in March 21 as well as a few titles like "Haseen Dilruba" and "7 Kadam" on OTT platforms opportunistically in 2021, the Company was forced to defer the release of a large number of films indefinitely due to COVID-19. Though several states and countries did allow limited opening up of theatres with restricted occupancies (in most cases below 50% capacity), such relief would have impacted the returns from the theatrical window of any film which choose to release during this period, thus affecting the economic viability of the film. In fact, this is why not just EIML, but most other production houses have chosen to indefinitely defer the release of their films until the situation improves, and no major theatrical release has happened in the Hindi film industry, since March 2020. For the release of new films, Company would wait until the situation improves in order to optimise the revenues from the theatrical window of the said films. We believe that this will help in optimising cash inflows to your Company and would better serve all stakeholders.

In addition to theatrical release, there are also restrictions on production activities, which are not conducive to the creation of new content, and even limit the ability to shoot certain scenes. Hence, even some films under production have stopped or have scaled-down production activities and are awaiting normalcy without any COVID-19 restrictions in order to restart.

Your company is hopeful about sailing through the current situation successfully and coming out on the other end. In order to do this, it is working on looking for innovative ways of earning revenue and strengthening its value proposition, thus re-inventing itself, and further fortifying its position.

The impressive library and its monetization through various channels, including Satellite TV, Overseas, In-flight and other channels, provide EIML with multiple sources of revenue. Moreover, EIML also produces and acquires content for Eros Now, which is EIMLs parent Eros STX Global Corporations OTT streaming service.

The Company has also started formulating innovative ways of updating its existing content libraries. Given a rise in demand for content and increasing viewership on OTT platforms, coupled with the limited production of new content, existing library content is likely to become more valuable. Moreover, once normalcy resumes, owing to pent-up demand, the M&E sector may be one of the first sectors of the economy to see a revival, and Eros International is well-prepared with its large existing content library, to take advantage of any digital opportunities that exist, in the meantime.

Furthermore, when the theatres open and production & shooting schedules resume and achieve normalcy, the company will release and complete its upcoming film projects/web series.

Financial Review

In FY 21, the Companys total consolidated income stood at 38,852 lakhs as against 93,386 lakhs in FY 20. The Company registered an EBITDA loss of 17,325 lakhs during the year as compared to a loss of 161,546 lakhs in the previous year. The consolidated loss for the year stood at 18,110 lakhs as compared to 140,121 lakhs in FY 20.

Risk Management

The Risk Management framework includes Risk Management Policy and identification of risks at Company Level, Strategic Level and Operational level. The risk mitigation procedures associated with the business and prioritization of risks include scanning the business environment and having periodic risk review.

The risks associated with the Companys businesses are broadly classified in following categories:

• Environmental Risk: Due to the adverse impact of COVID-19, the Company may suffer losses.

• Economic Risk: Due to adverse political situations or downturn which may negatively impact the Companys organizational objectives.

• Regulatory Risk: Due to government regulations or any other statutory violations and amendments, which may lead to litigations and loss of reputation.

• Operational Risk: Ability to attract and retain clients.

Internal Control Systems

The Company has adequate internal controls required in the nature of its business and operations. The company can safeguard its assets and financial transactions with adequate checks and balances, while adhering to accounting policies. Systems are reviewed and improved regularly. With the Companys budgetary control system, it monitors revenue and expenditure with actual vs. approved budget. The Company has its own corporate internal audit function which monitors and assesses the adequacy and effectiveness of the Internal Controls and Systems. Deviations from standard operating procedures are periodically reviewed and compliance is ensured.

Human Resource

The Company believes that it has an excellent talent pool. This talent pool is the key to excellence. The Company has a diverse employee base with technical knowledge and functional expertise. This helps to deliver the stipulated target. Performance is valued as an essential tool to accomplish vision, mission and objectives. The Companys Human Capital headcount stands at 191 as on 31 March 2021.


The disruption brought in by COVID-19 has forced people to stay indoors and has led to restrictions on social gatherings and greatly reduced people to people contact. The new normal has led to the increase in demand for content as people are spending most of their time indoors. Even the pattern of content consumption and consumer behaviour has changed. As the cinema halls and malls remain shut, the audience has converged on the OTT platforms (digital platforms) and these platforms continue to gain popularity at the expense of other sources of entertainment, including television channels.

The pandemic has made the Company re-strategize operational and legal aspects of the business, such as project timelines, production costs and schedules. The Company has a large content library, of its own as well as on its group OTT platform Eros Now, and with the rise in new content consumption patterns, its existing content is becoming more valuable.

We expect the resumption of normalcy to be marked by the recovery of the sector and provide all the players in the M&E space, across mediums and segments, a much-needed boost and the Company is well prepared with its existing huge content library to exploit any and all digital opportunities that come its way in the meantime.

Cautionary Statements

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be forward-looking statements within the meaning of applicable securities, laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Companys operations include economic developments in India or globally, demand and supply conditions in the industry, changes in Government regulations, tax laws, litigations, employee relations and others.