Zee Telefilms Ltd. has lined up major investments in expanding infrastructure for direct-to-home (DTH) service and has plans to launch a sports channel if it wins the India cricket telecast rights from the BCCI. The company has also reduced its gross debt and raised $100 million through foreign currency convertible bonds (FCCBs) to bring down its cost of funds.

In an interview with Sibabrata Das, Essel Group chief executive officer of corporate strategy and finance Rajiv Garg talks about ZTL's financial restructuring and expansion plans. Excerpts.

How is Zee Telefilms restructuring its news operations to meet the regulatory requirement for uplinking from India?
We have floated a company called Zee News Ltd (earlier Zee Sports) which is presently 100 per cent owned by private resident interests of the family. The stake holding structure may change, depending upon the regulatory requirement. The business channel is being launched under this company as we had to apply for new uplinking permission. The uplinking and news gathering will move to this company which will be paid on a cost- plus-commission basis. The commercial revenues will still reflect on Zee Telefilms.

What is the paid up equity of the company?
We haven't yet firmed up the capital structure. This will depend on what assets we need to create in this company.

Zee Telefilms had major movie production and distribution plans this year. With both not taking off, will the topline growth in revenues be affected this year?
Our original target was to earn Rs 100 crore (Rs 1 billion) from the movie production and distribution businesses this year. That will not happen this year and we have slowed down on the distribution and production front. In film distribution, in fact, we have incurred losses. The entire model has failed the test. We are evaluating various distribution models and will take it up more cautiously.

Zee Telefilms had raised $100 million through foreign currency convertible bonds (FCCBs) early this year. How have the funds been deployed?
We are investing Rs 2.5 billion in our wholly owned subsidiary Siticable. This will mainly be to expand our direct-to-home (DTH) distribution network. A small part of it will be to upgrade the cable network in Siticable. Most of the funding requirements will be met through the amount we raised through the FCCBs. Besides, the proceeds of the issue will be utilised for working capital expenditure requirements and other areas of expansion. And if we are launching a sports channel, that will suck up some investments.

Several companies have gone in for debt restructuring to take advantage of falling interest rates. Has Zee also brought down its cost of funds?
We have renegotiated and brought the interest rates down. The final round was done some time in September. So we will feel the full impact of this in the second half of the financial year.

Have you also brought down the gross debt?
We have been gradually reducing our gross debt and have brought it down from Rs 6 billion a few years back to Rs 1 billion. Our aim is to use our internal accruals to wipe that out. We just want to have FCCBs as our debt component. It is, after all, a low cost debt.

How have you restructured the debt in the subsidiary companies?

ZTL's wholly owned subsidiary companies are debt-free now. All the debt has been brought into the parent company. We capitalised Siticable, which wasn't doing well, so that it became debt-free. The immediate financial requirement was met and we repaid Siticable's debt of around Rs 1.2 billion. We cleared the debt of $13 million in our UK operations. In the US operations, we also do not have any debt. We brought down the Rs 1.15 billion loan from ICICI to about Rs 450 million and refinanced it. We have brought down our working capital borrowings to around Rs 250 million.

Is the growth of direct-to-home (DTH) subscribers slow? What is the monthly average revenue per user (ARPU)?

Dish TV has 1.60 lakh (160,000) subscribers and the ARPU is Rs 175 a month. We aren't getting big revenues yet. We will break even only when we have 1 million subscribers. We hope to increase our offerings to 144 channels by 2005-end.

How do you plan to revive Siticable?

Our access business has seen losses. There is a problem with the revenue profile of Siticable. The cable TV distribution business is affected by low declaration of subscribers from last mile operators. The health of Siticable will bounce back once conditional access system (CAS) comes into play in some form.

Are you reducing the head-ends in Siticable to centralise operations?

The direct-to-operator (DTO) business is to be serviced by the existing head-ends. In Delhi, though, we are having a single head-end concept in a bid to centralise operations.

Zee has already launched a Telugu channel under the Alpha brand. When are the other southern language channels coming up?

We are planning to launch channels in Tamil and Kannada, the two big markets in the southern region. This will most likely be in the next financial year. We will subsequently look at a Malayalam channel.

Is the launch of Khalsa channel set for delay?

We are planning to launch it this Fiscal. The infrastructure is being set up. Besides, we haven't yet got the uplinking permission.

What about the southern music channel?

We have put it on hold. We have got the board approval for the channel. But we haven't decided on the time of launch. We will see how the other channels respond. The plan is to have a multi-lingual music channel with majority of the content in Telugu and Kannada. We will also have some amount of Tamil and Malayalam content in the channel.

Zee TV and Zee Cinema have shifted broadcasting operations from Asia Today Ltd. (ATL) to India. How are you adding value to ATL?

ATL is handling the English channels which are uplinked from abroad. The US and UK operations are also with ATL. It will be our hub for international operations.

ATL had a taken a syndicated loan. What is the status of that loan?

ATL is a debt-free company now. We had $15 million to clear in the final stages. We paid it off last year.

Where do you see Zee's future growth coming from? Will movie business be a significant contributor?

We will continue to grow revenues from the traditional sources. Pay revenues are growing faster. We are seeing a relatively slower growth in advertising revenues, but once Zee TV bounces back, this segment will also see stronger growth.

Will you be using a portion of the FCCB proceeds for acquisitions?

We are looking at inorganic growth through acquisitions, overseas or in India. But there is no mature development yet. We are sitting on cash and if the opportunity arises, we will look at it seriously.