Next Mediaworks Ltd Management Discussions

Indian Economy

The National Statistical Office (NSO) of India projects a GDP growth of 7.2% for the (fiscal year) FY 2022-23, predominantly fuelled by private consumption and investment. This momentum is further reinforced by strategic government policies, enhanced labour market conditions, and rising consumer confidence.

However, the inflation rate has remained tenaciously high, projected at around 6.5%-6.7% for FY 2022-23, largely due to global macroeconomic influences. Despite these challenges, Indias growth rate of 7.2% for FY 2022-23 exceeds the projections from both the Reserve Bank of India (RBI) and the World Bank, solidifying Indias position as one of the fastest- growing economies.

Looking to the future, optimistic outlooks are projected for the manufacturing, services, and agricultural sectors, which are set to boost domestic consumption further. The enhancement of business and consumer confidence, coupled with accelerated credit expansion, are poised to play crucial roles in supporting economic growth. Government initiatives, such as financial inclusion policies, rural demand stimulus, the Make in India campaign, and support for start- ups are expected to generate significant job opportunities. This, in turn, is likely to increase disposable income, thereby stimulating consumer demand.

In terms of corporate debt, India stands in contrast to many countries with a lower debt-to-GDP ratio, underscoring the

resilience of its corporate sector. This robust debt profile has played an instrumental role in preserving Indias overall macroeconomic stability.

Source: MOSPI, RBI, World Bank, IMF

Outlook

Indias economic recovery following the pandemic is progressing led by vigorous domestic demand and enhanced capital investments. The Economic Survey projects a baseline GDP growth of 6.5% for FY 2023-24. This positive projection is rooted in supportive credit provisions, favourable investment cycles and the widespread adoption of public digital platforms. Government initiatives such as industry-focused and production-linked programs are expected to stimulate manufacturing output. Simultaneously, the increasing digitization of industries is set to propel the services sector, and continuous innovation to invigorate the agricultural sector. With energy costs under control and international supply chains reopening, inflation is projected to decline, providing an additional boost for growth.

The improving financial health of businesses and the banking sector sets the stage for accelerated growth in FY 2023-24, facilitated by robust loan distribution and capital investments. The decreasing urban unemployment rate, alongside the rise in Employee Provident Fund registrations, too suggests that private consumption and capital formation will serve as key contributors to Indias economic advancement in FY 2023-24.

Source: MOSPI, RBI, World Bank, IMF

Indian Media and Entertainment Industry

In the calendar year (CY) 2022, the Indian media and entertainment (M&E) industry demonstrated a remarkable recovery from the impact of the pandemic experienced in previous years, returning to its growth trajectory from before the pandemic. The sector saw significant expansion, increasing by INR 348 billion—a growth of 19.9%—to reach a total of INR 2.1 trillion. This figure exceeds its pre-pandemic levels from CY 2019 by 10%.

Despite the evolving landscape, television continues to dominate as the most significant component of the media and entertainment industry. Meanwhile, digital media has further consolidated its strong second position. Print media, experiencing a resurgence, has claimed the third spot. The filmed entertainment sector has also bounced back due to an increase in theatrical releases, surpassing online gaming to reclaim its fourth position. Traditional media—which includes television, print, filmed entertainment, out-of-home (OOH) advertising, music, and radio—accounted for 58% of the M&E sectors revenues in CY 2022. This statistic implies a shifting trend towards digital media and other emerging segments.

Source: EY FICCI M&E Report, 2023

Indian M&E Industry Size (INR billion)

Simultaneously, the changing consumer demand for personalization is altering the landscape of the media and entertainment industry. Users are increasingly seeking immersive and enriching experiences when interacting with media and entertainment content. In light of these trends, the Indian M&E sector is primed for considerable growth in the coming years. Adaptation to shifting consumer preferences and the adoption of innovative technologies will be central to determining the industrys future trajectory. Overall, the Indian M&E sector offers a promising future filled with substantial growth prospects.

Source: EY FICCI M&E Report, 2023

Indian Radio Sector

In CY 2022, the Indian radio sector experienced a growth of 29%, amounting to INR 21 billion. Advertising volumes witnessed a significant increase of 25% compared to the previous year. The radio landscape in India currently comprises 1,233 operational radio stations, encompassing both community and All India Radio stations.

Within the industry, radio companies are focusing on integrated solutions, including content production, event

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IPs, social media, commissioned podcasts, audio stories, influencer marketing, etc., to their retail advertisers as a one-stop shop and thus in-turn also prioritizing non-Free Commercial Time (non-FCT) revenues. Hyperlocal and direct-to-consumer (D2C) revenue streams are expected to contribute 8-10% to private FM radio revenues by CY 2025.

The growth of the industry will be driven by SME advertisers, retail advertising, and non-FCT revenues. However, challenges still persist, particularly in rate recovery, which necessitates innovation and effective sales strategies to overcome.

Outlook

Looking forward to CY 2023, forecasts suggest that the Media

Source: EY FICCI M&E Report, 2023

Indian Radio Sector Revenue (INR billion)

& Entertainment (M&E) sector will grow by 11.5% to reach a value of INR 2.34 trillion. Moreover, the sector is expected to maintain a compound annual growth rate (CAGR) of 10.5%, rising to INR 2.83 trillion by CY 2025. This growth is likely to be largely fueled by digital media, online gaming, and television, which are collectively projected to account for 65% of the growth. Other significant contributors will include animation and VFX (11%), live events (8%), and films (8%). By 2025, the number of daily active users of smart connected TVs is anticipated to exceed 40 million. Despite changes in the media landscape, print media remains a crucial component for effective brand building and reaching educated and

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affluent audiences.

Source: EY FICCI M&E Report, 2023

Advertisement Volumes

In CY 2022, a noticeable shift towards a more equitable distribution of advertising volumes was observed, reflecting a departure from the previous years heavily influenced by the pandemic. Throughout the year, radio platforms witnessed the active participation of over 10,000 advertisers spanning across more than 415 different categories. This resulted in an extensive representation of over 13,000 brands advertising on the radio.

Ad volumes increased by 25% in 2022 as compared to the previous year. A noteworthy development was the increase of 10% in the share of ad volumes contributed by retail and local advertisers, accounting for a significant 49% of the total ad volumes. This shift can be attributed, in part, to radio companies evolving into comprehensive marketing destinations, attracting larger retail clients. Furthermore, the radio industry experienced a relatively subdued national ad market, which further contributed to the prominence of retail and local advertisers.

Source: EY FICCI M&E Report, 2023

Outlook

The radio industry is currently encountering challenges due to the emergence of new content consumption methods. However, these challenges can be transformed into opportunities by introducing fresh concepts that maintain relevance and deliver value to consumers. To adapt and expand their reach, radio businesses are actively innovating and reinventing themselves.

Radio companies are placing a strong focus on providing integrated solutions to their retail advertisers, serving as a comprehensive one-stop shop. This includes offering content production, event IPs, social media engagement, commissioned podcasts, audio stories, and influencer marketing. They are also exploring new avenues of growth in areas such as social media, digital platforms, and collaborations with other industries.

It is projected that radio revenues will continue to recover and reach INR 26 billion by CY 2025. The growth will be primarily driven by the SME advertiser segment, retail advertising, and non-FCT revenues. Leveraging their innate ability to create relevant regional content, radio companies are poised to expand their business in content production, encompassing both short- form and episodic content, as well as influencer marketing, which has the potential to contribute up to 10% of revenues.

Furthermore, given the hyperlocal nature of radio, companies are well-positioned to build communities and foster direct- to-consumer (D2C) relationships, which can be leveraged by brands seeking to connect with their target audiences.

Source: EY FICCI M&E Report, 2023

Company Overview

Established in 1981, Next Mediaworks Limited (NMW, Company) embarked on a significant milestone when it launched its initial public offering (IPO) in 2001. In a notable development in 2019, the HT Media Group acquired a majority stake in the Company. As a subsidiary of the Company, Next Radio Limited (NRL) has been one of Indias pioneering commercial FM broadcasting companies. Operating under the esteemed brand name Radio One, the Company takes pride in its position as the foremost primary international format radio broadcaster in India.

Radio One

The Company, under its Radio One brand, operates radio stations across seven prominent metropolitan cities in India, Delhi, Mumbai, Bengaluru, Kolkata, Chennai, Pune, and Ahmedabad. This expansive radio network offers a diverse range of programming tailored to different markets of international music, contemporary hits and retro.

With its exceptional programming and compelling content, Radio One has established itself as Indias preferred premium radio destination. It has garnered widespread popularity for its engaging shows, coverage of key music entertainment events and audio selections, catering to the diverse tastes of listeners across the nation.

Moreover, ‘Radio One International holds a unique distinction as Indias sole international radio network. This distinguished network features renowned international personalities and offers an extensive collection of popular international music. In addition, it covers a wide range of noteworthy international topics, including coverage of prestigious events such as the Grammys and the Oscars. ‘Radio One International has successfully carved out a distinct niche by catering to the interests and preferences of the internationally inclined Indian community, providing a captivating and enriching listening experience.

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Financial Overview (Consolidated)

Revenue from Operations

Revenue from Operations with a 41% rise, stood at INR 36.3 crore in FY 2022-23 from INR 25.7 crore in FY 2021-22 owing to an overall improvement in business environment.

Profitability

EBITDA margin came in at 7.7% in FY 2022-23 from -18.3% in FY 2021-22, mainly on account of higher revenue during the fiscal coupled with cost rationalization resulting in improved profitability. Consequently, PAT margin improved to -59.6% in FY 2022-23 from -101.7% in FY 2021-22. Return on Networth for FY 2022-23 and FY 2021-22 could not be ascertained due to negative net worth of the Company.

Earnings per Share

EPS at INR -2.1 in FY 2022-23 from INR -2.5 in FY 2021-22.

This was led by improvement in overall profitability.

Debtors Turnover Ratio

Debtors Turnover ratio decreased marginally to 2.71 times in FY 2022-23 from 2.73 times in FY 2021-22, led by a comparatively higher growth in accounts receivables as compared to operating revenue for the fiscal year under consideration.

Inventory Turnover Ratio

Inventory Turnover ratio could not be ascertained as the Company does not hold inventory.

Interest Coverage Ratio

Interest Coverage ratio increased to -0.3 times as on March 31, 2023 from -0.9 times on March 31, 2022, led by reduced losses before interest and taxes which offset the increase in finance costs.

Current Ratio

Current ratio increased to 2.3 times in FY 2022-23 from

2.0 times in FY 2021-22, primarily due to reduction in current liabilities through lease liabilities & other financial liabilities.

Debt Equity Ratio

Debt Equity ratio could not be ascertained for both fiscal years FY 2022-23 and FY 2021-22 due to negative shareholders equity.

Debt Service Coverage Ratio

Debt Service Coverage ratio improved to -0.3 times in FY 2022-23 from -1.1 times in FY 2021-22, due to reduced losses before interest & taxes which offset the increase in borrowing costs.

Trade Payables Turnover Ratio

Trade Payables Turnover ratio stood at 2.8 times in FY 2022-23, as compared to 1.9 times in FY 2021-22, due to lower average trade payables in the fiscal FY 2022-23.

Marketing Initiatives

Radio One maintains its position as a prominent brand in the Indian radio industry, renowned for its strong brand recognition and extensive presence. The companys marketing strategies have played a pivotal role in bolstering both brand awareness and growth.

The Company has effectively establishing ‘Radio One International as a four-market station operating across Tier 1 cities in India. This presence enables Radio One to cater to an audience that is increasingly exposed to international content and is a niche cohort of the new age consumer. The Company is placing a heightened emphasis on digital growth, aiming to enhance its visibility and expand its reach.

Throughout the fiscal year under review, the Company undertook several noteworthy initiatives, including collaboration with some of the biggest International music festivals as their media partners; creating noteworthy audio properties like ‘Get Some Sun Season 7, ‘The Laughology Project, and collaborations with ‘Spoken Fest and ‘Lolapolooza. The Company has also received accolades for its productions such as ‘Minding My Business: A CEO Story and ‘The Ok Not Ok Show with Neerja Birla.

Human Resource

The Human Resource function includes HR business partners and HR operations professionals who oversee various aspects such as hiring, performance management, learning and development, employee engagement initiatives, and employee communication. To emphasise performance and recognise excellence, the Company implements a performance management system that assesses employees performance, provides feedback, and rewards outstanding achievements.

To foster collaboration and engagement, the Company has initiated activities like Confab and Coffee Sessions, bringing together individuals from different teams to connect with leadership members through which people have had one- on-one interactions. These initiatives promote transparency, communication, and a sense of belonging within the organisation.

The Company conducted mandatory trainings on Code of Conduct (COC), Prevention of Sexual Harassment (PoSH), Whistleblowing, and digital trainings on content creation for social media platforms were provided to employees via our digital platform. The Company abides by the Sexual Harassment of Women at Workplace (Prevention Prohibition and Redressal) Act, 2013 and provides a safe working environment to women employees across locations. The Company also has a grievance redressal committee for sexual harassment at the workplace. The Company has reported no such cases in FY 2022-23.

To bring focus on performance and reward employees for their excellence, relevant performance appraisals as well as routine feedbacks and attributive rewards were provided. The Company, along with its subsidiaries, has an employee strength of 43 as on March 31, 2023.

Risk Management

The Company has implemented a well-established risk management framework to identify, assess, and mitigate risks arising from both external and internal factors. Periodic risk identification exercises are conducted to identify various types of risks, including financial, operational, sectoral, sustainability, information, and cyber security risks. These risks are evaluated based on their likelihood of occurrence and potential impact on the business.

The Company recognises that certain risks and uncertainties can affect its operations, such as economic recovery uncertainties, talent attraction and retention challenges, intense competition in the business environment, and the increasing preference of listeners and customers for digital and OTT platforms.

To proactively address these risks and ensure a competitive edge, the Company undertakes various initiatives. These include reconfiguring the business to achieve cost synergies, enhancing digital presence, diversifying revenue streams, prioritising corporate clients to drive revenue growth, introducing innovative programming content with a balanced mix of music and non- music components, and leveraging in-house and other digital platforms for enhanced listener and client engagement. Additionally, the Company continuously explores organic and new-age digital offerings to adapt to changing market dynamics.

The Company places a strong emphasis on employee welfare and engagement. It conducts regular Leadership Townhalls, has introduced a new AI-powered Learning Management System (LMS) to facilitate employee skill development, and implements customised recognition and reward programs to acknowledge exceptional performance.

Maintaining a focus on refining product propositions, concentrating on the local retail market with lower correlation to macroeconomic factors, and employing an automated compliance tool to monitor statutory compliances across all locations and functions, are additional measures adopted by the Company to minimise exposure to risks.

Through its robust risk management practices and strategic initiatives, the Company strives to mitigate potential risks and optimise its operational performance, thereby safeguarding its interests and maintaining a strong market position.

Internal Control

The Company has implemented an effective internal control system that is tailored to its size, business nature, and operational complexity. This system comprises a well-defined organisational structure with clear authority and responsibility delineation. It also encompasses comprehensive policies, guidelines, and procedures governing the operations of various functions. These controls are designed to safeguard the Companys assets, protect the interests of stakeholders, and ensure compliance with the Companys policies, procedures, and applicable regulations.

To reinforce ethical conduct, the Company has established a Code of Conduct (CoC) framework and a whistle-blower mechanism, which have received approval from the Board of Directors in accordance with regulatory requirements. A dedicated CoC Committee, featuring cross-functional representation, oversees and reviews whistle-blower complaints. This committee ensures proper and transparent management and reporting of complaints, including reporting to the Audit Committee as necessary.

Emphasising technological advancements, the Company maintains a strong focus on implementing appropriate automated controls to strengthen the existing control framework. It utilises a robust Enterprise Resource Planning (ERP) system for accounting purposes across various functions. Additionally, the Company has established a Shared Service Centre (SSC), which is being expanded to centralise processes and activities. These technological systems enhance the reliability of financial and operational information by enabling system-driven control activities, reducing manual intervention, ensuring segregation of duties, and enforcing stricter controls.

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To evaluate adherence to established processes and controls, the Company conducts a comprehensive program of operational and IT audits on a regular basis. This internal audit function, supported by professional external audit firms, conducts risk-focused audits and assesses the effectiveness of the internal control structure across functions. A centralised Revenue Assurance function has been established at the group level to streamline and strengthen controls related to revenue recognition across different revenue streams.

In addition to internal audit activities, the Company has developed an internal financial control framework to periodically review the effectiveness of controls established for critical processes. The Company has undergone extensive operating effectiveness testing of its Internal Financial Control (IFC) framework, which included rationalising existing controls in alignment with evolving business practices. Furthermore, the Company utilises a workflow-based online compliance management tool and has implemented a concurrent audit mechanism to ensure effective oversight of compliance activities.

The Company maintains an Audit Committee that convenes quarterly to review internal control systems, accounting processes, financial information, internal audit findings, and other related areas, ensuring their adequacy and effectiveness.

Way Ahead

The radio industry continues to show signs of a steady recovery from the profound impact of the pandemic from the earlier years. In the near term, the industry as a whole is likely to see upward pricing correction along with improved volume which shall act as revenue growth drivers. The Company remains committed to developing compelling audio content, further bolster its engaging on-ground activities and events, while ensuring widespread distribution and promotion across various social media platforms. The Company shall continue to work towards enhancing brand awareness, audience engagement, and ultimately improve key business metrics and at the same time remain committed to offering innovative solutions to its valued business clients.