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March 25, 2017:
UFO Moviez, which made its initial public offer in 2015, is well-placed to make the most of the increasing spends on leisure activities in India. While the name might make one smirk, the business isn’t that outlandish. The company was the front-runner in distribution of digitised Indian cinema content and is the key driver for the same-day release of movies across the country. It’s the largest player in this segment and has tie-ups with screens across India, West Asia, Israel, Mexico and the US.
Its platform for in-cinema advertising is expected to contribute a large chunk to its future growth. With its capital investments almost complete, the company is now trying to leverage its existing infrastructure to drive growth.
The stock is attractively valued, trading at 19 times its trailing twelve months’ earnings–near the lower end of its PE band of 17 and 21, since listing.
The company charges film producers for distribution, as well as movie exhibitors. In the first three quarters of FY17, it earned 26 per cent of its revenue from exhibitors, 44 per cent from distribution and 30 per cent from advertising. Growth in distribution and exhibition is expected to moderate in the coming years at lower single digit, especially with its agreements with major Hollywood studios expiring in June 2018.
It’s advertising revenue is expected to grow over 20 per cent in the near future. The company is trying to expand by opening theatres through the franchisee model in tier II and tier III cities. The first theatre under this model was recently operationalised in Punjab.
Other businesses such as Caravan Talkies, which takes movies to rural areas to screen after sun-down and open air movies are yet to take off but can bring some advertising revenue later.
UFO Moviez’ revenue grew at 29 per cent compounded annual rate between FY12 and FY16. The December quarter of FY17 was hit by demonetisation as well as one-time salary pay-outs.
But in the nine months to December 2016, revenue grew 4.3 per cent y-o-y, to ₹440 crore. Despite the difficult third quarter, EBIDTA margin was 30.5 per cent and net profit margin 9.8 per cent, in the first nine months of FY17.
(This article was published on March 25, 2017)
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