Tips Films Ltd Management Discussions

THE INDIAN MEDIA AND ENTERTAINMENT INDUSTRY

The growth rate in the Media and Entertainment (M&E) sectors outperformed that of Indias GDP growth rate. What makes this interesting is that the consumer spending in this sector is discretionary. With the per capita outlook for the Indian economy looking to increase several notches in the coming years, the consequent overall consumer spend outlook in the sector remains positive. In addition, favorable FDI policy in telecom and digital channels would impact investments trends positively across all segments.

FICCI-EY Media & Entertainment (M&E) Report 2024, the Indian M&E sector will grow by INR 763 billion over 3 years to reach INR 3.1 trillion in 2026 registering a growth rate of 10% p.a. All Segments are expected to grow as long as GDP registers a growth of over 5%. Digital Media and Gaming are expected to contribute to 61% of this growth followed by VFX (9%) and Television (9%). As per the EYs M&E sector report of March 2024, #Reinvent, the film segment will continue to grow, driven by theatrical revenues as Hindi movies go mass market in their storytelling, incorporate more VFX to enhance the movie-going experience and expand more aggressively into tier-II and III cities. The report expects high-end cinemas to evolve into "experience zones" to cater to top-end multiplex audiences who watch movies for their spectacular experience and to enjoy an evening out with friends and family - a market they estimate at around over 100 million customers / 50 million households today.

Additionally, the report expects a set of lower-priced "cinema products" will emerge for the next 100 to 150 million audiences across the top 50 to 75 cities of India, which will also require a change to the type of content being produced for these audiences, and which could even see regional OTT products releasing in a windowed manner.

India has less than 10,000 screens, and the highest deficit is in Hindi speaking markets and less than 100 million Indians visited a cinema hall in 2023. This points to the size of the opportunity that lies ahead of us.

1,796 films were released in theatres during 2023, 11% higher than in 2022. 339 Indian films released across 38 countries, up from 33 countries in the previous year. They generated a gross box office collection of INR19 billion, 19% more than 2022. The highest number of films were released in Telugu (317), Tamil (271), Kannada (241), Malayalam and Hindi (218 each).

During 2023, the film segment recorded an all time high revenue of INR 197 billion. Gross box office revenues increased 14% to INR 120 billion in 2023, an all-time high, led by higher ticket prices. The growth was driven by Hindi cinemas revival at the box office. Out of the top ten movies that crossed the INR 1 billion mark, six were in Hindi and the remaining four were in South Indian languages.

Footfalls decreased to 900 million in 2023 but were still significantly lower than the 1,460 million footfalls recorded in 2019 as per Comscore. Growing footfalls back to the 2019 is the key focus for the industry.

Overseas revenues continued to recover in 2023

	2019	2020	2021	2022	2023
Countries in which Indian Films were released	26	24	28	33	38
Number of films released abroad	350	74	151	335	339
Gross box office collections including China	US$332 million	US$39 million	US$77 million	US$249 million	US$337 million

 

Particulars	2019	2020	2021	2022	2023	2026E
Domestic	115	25	39	105	120	146
Theatricals
Overseas	27	3	6	16	19	23
Theatricals
Broadcast Rights	22	7	7	14	15	16
Digital/ OTT Rights	19	35	40	33	35	42
In-Cinema	8	2	1	5	8	10
Advertising
Total	191	72	93	173	197	238

As per the FICCI-EY Report, the Filmed Entertainment segment will grow to INR 238 billion by 2026 driven by higher per capita income, which will expand the cinema audience base to 120 to 150 million, and by offering segmented offerings - classy and massey - for distinct audience sets across markets and price points.

OPPORTUNITIES AND THREATS

Opportunities:

• Untapped OTT led monetization avenues.

• Growth rate in M&E sectors has outperformed that of Indias GDP growth rate.

• Favorable FDI policy in telecom and digital channels would impact investments trends positively across all segments.

• New internet led opportunities for content such as metaverse and NFTs.

• Technological innovations like animations, multiplexes, etc and new distribution channels like mobiles and Internet have opened up the doors of new opportunities in the sector.

Threats:

• Budget Overruns

• Technical Issues

• Filming on locations can be unpredictable, and weather and environment conditions can pose a significant risk to film production. Rain, wind, extreme temperature cause delay in filming.

• Intense competition at time of film releases

• Piracy, violation of intellectual property rights poses a major threat to the Media and Entertainment companies.

SEGMENT WISE OR PRODUCT WISE PERFORMANCE

Your Company is engaged in the business of film production, distribution and entertainment activities and there is no separate reportable segment.

OUTLOOK

M&E Industry sector to reach INR 238 billion by 2026. Film segment to continue to grow, driven by theatrical revenues as Hindi movies go mass market in their storytelling, incorporate more VFX to enhance the movie-going experience and expand more aggressively into tier-II and III cities. Growth in overseas revenues will depend on opening-up of culturally similar markets like China and the middle east.

Particulars	2023	2024E	2026E
Domestic Theatricals	120	126	146
Overseas Theatricals	19	20	23
Broadcast Rights	15	15	16
Digital/ OTT Rights	35	37	42
In-Cinema Advertising	7.5	8.5	10
Total	197	207	238

The FY25 Union Budget has shown commitment towards fiscal consolidation while retaining its emphasis on growth supporting capital expenditures. These measures would enable laying down a strong foundation for robust medium-term growth.

RISKS AND CONCERNS

The risks are measured, estimated and controlled with the objective to mitigate its adverse impact on the business of the Company. The Company has inherent risk associated with its business apart from credit risk, liquidity risk and market risk. The Company has an effective risk management framework to monitor the risk controls in key business processes. The Company has identified the followings risks that can impact its business performance and plans:

• Failure or delay to obtain approvals, permits and licenses

We require certain statutory and regulatory permits and approvals for our business. Additionally, we may need to apply for more approvals in the future including renewal of approvals that may expire from time to time. There can be no assurance that the relevant authorities will issue such permits or approvals in the timeframe anticipated by us or at all. Failure by us to renew, maintain or obtain the required permits or approvals within the requisite time may result in the interruption of our operations and may have a material adverse effect on our business, financial condition and results of operations.

• Changing consumer tastes

We create filmed content, demand for which depends substantially on consumer tastes or preferences that often change in unpredictable ways. There is no formula that will predict whether a given film will be successful. The success of our business depends on our ability to consistently create and distribute filmed entertainment that meets the changing preferences of the broad consumer market both within India and internationally.

• Dependence on the Indian box office success of our films from which a significant portion of our revenues are derived.

In India, a relatively high percentage of a films overall revenues tends to be derived from theatre box office sales and, in particular, from such sales in the first week of a films release. Indian domestic box office receipts may also be an indicator of a films expected success in other distribution channels. As such, poor box office receipts from our films could have a significant adverse impact on our results of operations in both the year of release of the relevant films and in the future for revenues expected to be earned through other distribution channels.

• Piracy of our content may adversely impact our revenues and business.

Our business is highly dependent on maintenance of intellectual property rights in the entertainment products and services we create. Piracy of media products, including digital and internet piracy and the sale of counterfeit consumer products, may decrease revenue received from the exploitation of our products. Consumer awareness of illegally accessed content and the consequences of piracy is lower in India than in Western countries and the move to digital formats has facilitated high-quality piracy in particular through the internet and cable television.

STRENGTH

Our vision is to emerge as a leading entertainment and media house by establishing a sustainable connection with audiences and successfully exploiting our content library through diversified platforms on a worldwide basis. We are working to bring predictability, scalability and sustainability, to our business model ultimately resulting in profitability.

• Valuable and expanding content library

TIPS believes that we have a diverse content library which is constantly updated through the addition of new releases. The TIPS library includes Hindi film titles such as Soldier, Ajab Prem ki Ghazab Kahani, Kya Kehna, Raaz, Raja Hindustani, Jab Pyaar Kisi Se Hota Hai, Ishq Vishq, Dil Apna Punjabi, Jihne Mera Dil Luteya, Race, Tere Naal Love Ho Gaya, Race-2, Ramaiya Vastavaiya, Phata Poster Nikla Hero, Entertainment, Love Shhuda, Ambarsariya, Kaptaan, Bhoot Police, Race 3 and Merry Christmas and in Marathi Regional Language include Sridevi Prasanna.

• Value of the TIPS name

We believe that TIPS enjoys a strong reputation in the Indian film industry as a film production company and is widely respected. We use the TIPS banner for our Hindi and other regional language film production and distribution businesses as it is widely known and well established. We believe many Indian film actors, directors, studios, exhibitors and other distributors as well as Indian audiences associate the TIPS name with quality content and a strong distribution network. Through our continued efforts, both with participants and audiences, we seek to continue to benefit from the positive values associated with the TIPS brand name.

• Established relationship with audiences and Film Fraternity

As an established entity, in various aspects of the media and entertainment industry in India, we believe that we have managed to create, maintain and build our goodwill within the film fraternity including artists, actors, directors, music composers, singers, recording studios, editors and other technicians. Over the years, audiences have come to rely on us for providing quality entertainment.

• Build diversified content portfolio and maintaining a wide release strategy

The TIPS India Library has over 35 Hindi films and 8 Regional films, our strategy is to gradually achieve 4-5 new films releases annually. We intend to produce films in multiple languages including Hindi and other regional language films to achieve a mix of high, medium and low budget films, which will allow us to create multiple options for new releases across various distribution platforms.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

Your Company maintains an adequate and effective internal control system commensurate with its size and complexity. We believe that these internal control systems provide, among other things, a reasonable assurance that transactions are executed with management authorization and that they are recorded in all material respects to permit preparation of financial statements in conformity with established accounting policies and that the assets of your company are adequately safe guarded against significant misuse or loss. An independent internal audit function is an important element of your Companys internal control system.

During the year under review, no material or serious observations have been received from the Internal Auditors of the Company with respect to inefficiency or inadequacy of the controls.

FINANCIAL PERFORMANCE

During the year under review, the Companys total revenue, including other income stood of INR 7,923.63/- lakhs as compared to the previous year of INR 7,154.28/- lakhs. The Net Profit after Tax for the year stood at INR 108.83 lakhs, as compared to INR 2,433.44 lakhs in the previous year.

The Company is engaged in the business of Production and Distribution of films, web-series and related content. The film library consists of super hits such as Raja Hindustani, Raaz, Race, Ajab Prem ki Ghazab Kahani, Tere Naal Love Ho Gaya, Amber Sariya among others. Our film, Legend of Bhagat Singh has won the National Award for Best Feature Film in Hindi. The Company owns the copyrights to all these films and will monetize it appropriately in different mediums such as Satellite, OTT etc.

During the Financial year 2023-2024, films such as Merry Christmas (Hindi Film) and Sridevi Prasanna (Marathi Film) were released and the IMDB rating as on May 07, 2024 for Merry Christmas it was 7.0/10 and for Sridevi Prasanna it was 8.6/10.

The Company have upcoming movie release i.e Ishq Vishq Rebound in the month of June, 2024 and also Company announced its project with David Dhawan and Varun Dhawan.

Your Company is geared up for 5 to 6 productions per year and also building project pipeline to achieve this target. The state of the film industry remains very healthy and the outlook on content demand is positive. Therefore, we are confident that the Company will scale up profitability.

DISCLOSURE OF ACCOUNTING TREATMENT

In preparation of the financial statements for the year ended March 31, 2024, the applicable Accounting Standards have been followed.

HUMAN RESOURCES

TIPS has always believed that its people are its most valuable assets. The Company ensures that all its employees enjoy a safe and healthy working environment. The Company has a strong emphasis on values based on integrity, excellence, and passion. We have always had a mutually respectful and appreciative relationship with all our employees.

As on March 31, 2024, the number of employees on the payroll of the Company are 17.

KEY FINANCIAL RATIOS

Ratios	2023-24	2022-23	Variance%	Reason
Current Ratio	6.09	2.67	127.86	Current ratio Increased as there is reduction in the current liabilities during the year.
Debt Equity Ratio	0	4.06	-100	Decreased due to repayment of borrowings in the current year.
Debt Service Coverage Ratio	4.94	16.78	-70.57	Decreased due to repayment of borrowings in the current year as compared to net proceeds from borrowings in previous year
Return on Equity%	1.19	30	-96.09	Decreased due to reduction in net profit after taxes
Inventory Turnover Ratio	-	-	-	NA
Trade receivables turnover ratio	5.08	5.85	-13.29	-
Trade payables turnover ratio	-	-	-	-
Net capital turnover ratio	1.43	0.82	74.11	Increased is Due to reduction in working capital and increase in turnover
Net profit ratio %	1.40	39.60	-96.46	The profit for the current year after taxes is less than the previous year
Return on Capital Employed %	1.06	30.72	-96.56	Decreased due to the reduction in earnings before interest and taxes by 30%
Return on Investment%	1.19	30	-96.09	Decreased due to reduction in net profit after taxes
Return on Networth	1.20	26.47	-95.47	Decreased due to reduction in net profit after taxes

CAUTIONARY STATEMENT

Statements in Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be forward-looking within the meaning of applicable Securities Laws and Regulations. Actual results may differ materially from those expressed in the statement. Important factors that could influence the Companys operations include a change in government regulations, tax laws, demand, supply, price actions, economic and political developments within and outside the country and such other factors.