Hungama Digital FY17 consolidated net loss narrows to Rs 30.58 cr

MUMBAI: Neeraj Roy-helmed Hungama Digital Entertainment has narrowed its consolidated net loss to Rs 30.58 crore for the fiscal ended March 2017 compared to a net loss of Rs 38.29 crore in the year-ago period, as per data accessed from Care Ratings report.

The company’s total operating income dipped to Rs 299.64 crore as against Rs 347.84 crore in the year-ago period. In FY15, the company had reported a net loss of Rs 99.67 crore on an income of Rs 326.67 crore.

Hungama Digital Services is also in the process of merging its subsidiary Care has assigned BBB+ ratings to the company for long-term bank facilities of Rs 65 crore.

The rating agency noted that the ratings assigned to the bank facilities of Hungama Digital Media Entertainment have been placed on credit watch with developing implications following the pending audit report and audited financials on account of the ongoing merger.

It further stated that it would take a review of the rating after receipt of audited financials.

The ratings continue to derive the strength from the established track record of the management in the mobile entertainment and value-added services (MVAS) and digital media services industry, comfortable capital structure along with continued support from the promoters and investors.

The rating also derives strength from the established relationship with telecom operators & entertainment content owners in the Indian and international markets and growth potential of MVAS in India.

Furthermore, the company has negotiated the content acquisition cost with some of its content owners and suppliers bringing down the overall cost which is expected to improve operating performance going forward together with the consolidation of businesses of Hungama and its subsidiary.

The above rating strengths are however tempered by the limited bargaining power of the company due to lack of good content suppliers, high advertisement expense as well as the indirect regulations on the MVAS industry imposed by TRAI (Telecom Regulatory Authority of India).

Further working-capital intensive nature of operations with the dependence of revenue from the regulated telecom industry is the other rating concern.

The ability of the company to improve its operating performance as a result of the consolidation of business with its subsidiary, amidst highly regulated telecom industry and manage the working-capital cycle efficiently remains the key rating sensitivities.

Hungama Digital Entertainment MD Neeraj Roy has 19 years of experience in the mobile and digital entertainment industry. Hungama’s board is chaired by its key investor Rakesh Jhunjhunwala (non-executive Chairman).

The promoters and investors have continued to support the operations of the company through the infusion of funds by way of unsecured loans and equity.

In FY16, the promoters have infused Rs.2 8.74 crore in Hungama by subscribing to its preference share issue. In FY16, Rs.53 crore (Rs.65 crore in FY15) was infused in the form of CCPS by Intel Capital Corporation and Bessemer Venture Partners Trust in along with Rs. 66 crore of investment from Xiaomi.

Xiaomi invests as a strategic partner in Hungama and being an OEM partner will help Hungama grow its sub base and distribute its entertainment services to millions of Xiaomi mobile phone users in India.

Hungama is one of the leading players, as a content aggregator for Indian music in India and South-Asia on digital platforms viz. online entertainment portals, Smart Phones, and Smart TVs.

Hungama has licensed worldwide exclusive digital rights for over 4 million music and video titles which are monetized over various digital media platform like mobile, internet, and IPTV services.

The company has launched and seen a substantial response to its services in Dubai, Singapore, Bangladesh, Malaysia, Maldives, Australia, Egypt, and South Africa.

Hungama has a long-term arrangement with key content suppliers, however, the commercial terms between content owners and Hungama are negotiated annually.

Hungama has a minimum guarantee (MG) plus a revenue-sharing agreement with content owners for acquiring content. This fixed committed MG forms a major part of the total operating cost for the company.

Besides, the revenue is shared with the content owner on achieving revenue over and above the threshold volume during the licensed period.

On the other hand, Hungama has tie-ups with almost all the telecom operators primarily on a revenue-sharing basis with commercial terms renewed annually. The extent of revenue sharing varies with the telecom operators.

Thus, profitability to a significant extent is dependent on achieving higher sales volume, Care noted.

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