UFO Moviez — IPO: YES. Riding the digital wave

As a play on the entertainment sector and specifically the film business, UFO Moviez appears to be an attractive opportunity.

Investors with a two-three year horizon can consider buying the shares in the initial public offering of the company. The entire IPO is an offer for sale, as the proceeds go to the existing selling shareholders.

UFO Moviez is a digital cinema distribution network and in-cinema advertising platform provider to producers, distributors and exhibitors (multiplexes, multi-screen theatres). It operates in a kind of niche space.

The company provides digital prints to ensure secured delivery of movies, resulting in quick and large-scale release across geographies simultaneously. It also leases out digital equipment to movie exhibitors. In addition, it has developed a platform where companies can place advertisements to reach a wide audience.

All three revenue streams are robust for the company with advertising being especially strong. Given the increased focus of producers and distributors to avoid piracy and ensure wide reach of movies immediately after their release, digitisation players such as UFO Moviez should benefit.

According to a study by Crisil, the company distributes content to 4,911 screens spread over 1,800 locations in India and has a market share of 54 per cent in the industry. Its network also spans 1,715 screens across Nepal, West Asia, Israel, Mexico and the US.

At the upper end of the price band (₹615-625), the IPO asks for a valuation multiple of 31 times its annualised earnings in the nine months so far of 2014-15. This is not cheap in relation to the markets. UFO Moviez does not have any listed peers. But given its unique business model and dominant presence in high-potential businesses, there should be scope for capital appreciation over the long term.

Between 2009-10 and 2013-14, the company’s revenue grew at an annual average of 54.7 per cent to ₹ 421 crore. From being a loss-making entity, UFO Moviez became profitable in 2011-12; its 2013-14 net profit was ₹50 crore. In the nine months of 2014-15, revenue was ₹357.2 crore and net profit ₹40.6 crore.

UFO Moviez gets about 24 per cent of its revenue from exhibitors. This is generally done on a fixed rental basis and ensures steady inflows.

From distributors and content owners, the company derives about 52 per cent of its revenue. The company charges distributors on per movie per screen basis and also on per movie per week per property mode.

So the digital prints reach many locations across states; this is desirable for big-budget movies as collections tend to be heavy over the first couple of weeks. Revenue from the segment has grown at a robust 75 per cent annualised between 2009-10 and 2013-14.

The balance 24 per cent of the company’s revenue comes from providing advertising platform to exhibitors.

This segment too has been growing at a scorching pace of 79 per cent annualised between 2010 and 2014.

UFO Moviez sells ad inventory to companies and has as many as 1,669 advertisers in its network. Because of its wide reach, UFO Moviez is able to help companies carry out targeted advertising and reach a large audience. It has a revenue share arrangement with the exhibitors for ads.

Given that several single screens across the country plan to digitise to enhance viewer experience, the digitisation market is set to grow.

Multiplexes across the country have seen average ticket prices rise and increased advertising revenue over the past year.

Footfalls too have risen. UFO Moviez which reaches out to many multiplexes and screens, is well placed to benefit from this.

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