UFO Moviez India Limited (UFO.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the UFO Movies Limited Q2 and H1 FY '26 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. Before we begin, I would like to point out that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements do not guarantee the future performance of the company, and it may involve risks and uncertainties that are difficult to predict. I would now like to hand the conference over to Tushar from Ventura Securities. Thank you, and over to you, Tushar.

Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to UFO Movies India Limited's Q2 and H1 FY '26 Earnings Conference Call. The company is represented by Mr. Rajesh Mishra, Executive Director and Group CEO; Mr. Ashish Malushte, Chief Financial Officer; and Mr. Siddharth Bhardwaj, CEO, Digital Cinema Network Business of the company. I would now like to hand over the call to Mr. Mishra for his opening remarks, post which we can start the question-and-answer session. Thank you, and over to you, sir.

Thank you, Tushar. Greetings, everyone, and thank you all for joining our Q2 and H1 FY '26 earnings call. Q2 FY '26 delivered a steady theatrical performance supported by a diverse slate across languages and genres. July opened on a strong note marked by the release of the dramatic drama, Saiyaara and the devotional animated epic, Mahavatar Narasimha. Meanwhile, films like Malik starring Rajkummar Rao and Kingdom starring Vijay Deverakonda along with our other mid-budget titles posted moderate results, reflecting selective audience traction in that segment. August strengthened the momentum with strong footfalls driven by Coolie: The Powerhouse starring Rajinikanth and WAR 2 starring Hrithik Roshan and Jr. NTR, supported by consistent contributions from regional and mid-scale films. While a few titles underperformed, overall occupancies and consumer sentiment remained positive. September sustained the trend with Jolly LLB 3 starring Akshay Kumar, Mirai starring Teja Sajja and They Call Him OG, led by Pawan Kalyan performing well, even as certain titles like Baaghi 4, starring Tiger Shroff and The Bengal Files saw mixed outcomes. Overall, Q2 FY '26 delivered stable footfalls, a balanced slate of content and strong audience engagement. Robust growth in advertisement and theatrical revenue supported by solid product sales further strengthened performance and positioned the business well for the second half of FY '26. In total, 462 movies were released, including versions and languages during the quarter compared to 470 in Q2 FY '25 and 456 in Q1 FY '26. On the screen network front, our advertising footprint now stands at 3,795 screens. This includes 2,279 multiplex screens and 1,516 single screens. Turning to the key figures for the quarter and half year ended September 2025. The consolidated revenue for Q2 FY '26 stood at INR 1,113 million compared to INR 968 million in Q2 FY '25 and INR 1,090 million compared in Q1 FY '26. EBITDA stood at INR 218 million in Q2 FY '26 compared to INR 102 million in Q2 FY '25 and INR 193 million compared to Q1 FY '26. The company reported a net profit of INR 75 million in Q1 FY '26 compared to a net loss of INR 9 million in Q2 FY '25 and a net profit of INR 65 million in Q1 FY '26. Regarding half year performance, consolidated revenues amounted to INR 2,203 million compared to INR 1,913 million in H1 FY '25. EBITDA for H1 FY '26 was INR 411 million compared to INR 168 million in H1 FY '26. On the PAT front, the company reported a net profit at INR 140 million -- on the PAT front, the company reported a net profit of INR 141 million in H1 FY '26 against a net loss of INR 50 million in H1 FY '25. The consolidated cash as of 30th September was INR 1,348 million and the net cash was INR 606 million after considering outstanding debt. Now looking ahead, the Q3 began on a positive note with the release of films such as Kantara: Chapter 1, Sunny Sanskari Ki Tulsi Kumari, Thamma, Ek Deewane Ki Deewaniyat Movie, et cetera. The outlook for the upcoming quarter remains positive with several high-profile releases, including De De Pyaar De, Masti 4, Dhurandhar, Tere Ishk Mein, Alpha, Avatar: Fire and Ash and Punha Shivajiraje Bhosle. With this robust lineup, we remain confident about continuing with the momentum. I would like to take this opportunity to thank all our stakeholders for their continued trust in the company. With this, I open the floor to take your questions. My colleague, Mr. Ashish Malushte, Chief Financial Officer; and Mr. Siddharth Bhardwaj, CEO, and I will be happy to take your questions. Thank you.

[Operator Instructions] The first question is from the line of Rehan Saiyyed from Trinetra Asset Managers.

I have a couple of questions. First on the business outlook side. So sir, you have Caravan Talkies side revenue has rebounded sharply this quarter. So can you comment on the sustainability of this uptick and whether there are any plan to expand this rural outreach platform? This is my first question.

Yes. So the Caravan Talkies business is not a steady-state business. That's why we had given very limited advice on this also. Going forward also, we are looking at business coming in from government and corporate agencies. But the way the business is structured, it cannot be predicted exactly. So typically, like it was a monsoon period. Otherwise, it could have been better also because this is an open air viewing. But going forward, we have decent hopes on this business coming in.

Okay. Fair enough. My second question is on the merger side of Scrabble Digital. So the merger of Scrabble Digital and UFO Software is now complete. So what operational or cost synergies have started to materialize from this integration? And how should we look at this impact going forward? Is there any comment you have to put it here?

So as regards to this merger, which got completed last financial year, there were -- as regards to the operational advantages, synergies, some of those were reaped in by the company when the acquired company or the merged company was made 100% subsidiary. So basically, around the time when it became 100% subsidiary, the management of the entire operations were handled by UFO. And to some extent, the operating teams were -- in that operating company, which is Scrabble Digital were reduced and the workload was shifted to UFO's teams. So in other words, slowly in last 3 years, 3, 3.5 years, the synergies were slowly already being reaped in. Going forward, there is no significant cost synergies that we are seeing that are going to come because of this merger. It was a critical task so that the structure of the organization, I mean, of the group looks leaner. And also Scrabble Digital was very, very, very synergetic with the operations of the core business. So we had to, at some stage, take this step since it was not a wholly owned subsidiary, we had held it back. But on the cost front, most of it, I would say, almost 90% of the -- or 95% of the cost benefits are already subsumed in the numbers that you're seeing, at least for last 2 quarters.

Okay. Okay. Fair enough. And my last question is on the -- like I want a bit understanding regarding the market industry side. So how is the management viewing the current trajectory of digital cinema adoption in smaller towns? So are there any plans to expand presence beyond the current 1,300 cities that we have?

Yes. So good question. And in fact, this is where we feel that the upside for this company and this industry lies in 2 areas. One is increasing the volume and pricing for advertisement and second is increasing the screen network. And you have rightly pointed out that there is a decent opportunity in the smaller centers or smaller towns. But as you know that this industry actually went through a very, very tough period post COVID. And I would say that slowly we are getting out of it as an industry. And your company is no different -- doesn't have a different fate than the industry's fate. So as an industry, we are slowly emerging out. Firstly, there was a COVID-related problems, then there were issues around content and now there were issues about people moving to OTT and not coming in the theaters. But I would say for the last at least 2, 2.5 quarters, these -- most of these issues are settled in our minds and most of us are continuing to consume the -- slowly continuing to consume the content in cinema the way we used to do in the past. So for us, what is more critical now is to get our acts together and -- as an industry and make sure that cinema is back on track the way it was in pre-COVID era. Sorry, you will hear this COVID thing from us because we are really, really hurt as an industry because of this onslaught. And we are almost there as an industry, that's what I feel. So once that is done, then there could be focus on the other areas because the other areas which you said the smaller centers, there you need to have investment that needs to go in. And the investment would start going in only when the business starts becoming meaningfully viable the way it was in pre-COVID. So I would say, yes, the opportunity is there. But for the opportunity to actually materialize, it would be a few years away. Firstly, we should focus on going back to the levels of profitability and business, which was there in the company and in the industry in the pre-COVID, that is '19, '20, '18, '19.

[Operator Instructions] The next question comes from Vipul Kumar Anupchand Shah from Sumangal Investments.

Congratulations for a relatively good set of numbers. So my question is we were doing 5.54 minutes in FY '19, right, sir? I'm talking about advertising minutes. So slowly, we are reaching there. But over what time frame we should be reaching there in your opinion?

Siddharth?

So this is Siddharth. This is -- your question is a very important question for the company. I think as Ashish just mentioned, there are 2 challenges. One is getting the volume in of advertising. So in the minutes, it truly reflects the number of -- the amount of volume that is coming on board in terms of advertising -- advertisers affinity to come back and embrace cinema as a preferred advertising platform. So over the last 6 months, we have seen a consistent flow of content coming in, so -- which has brought back the advertisers on to cinema, and they are consistently advertising. However, as Ashish just mentioned that we are yet to come back to that level of -- the same level of footfalls on cinema. We are still missing the big blockbusters, the big mega stars who used to draw disproportionate amount of footfalls to the cinema screens. And as a result, disproportionate amount of demand used to -- in terms of minutes used to come on cinema. Slowly, I think the ship -- it's a fairly large ship. It takes time to turn. And we feel that we are just around the corner. And the pipeline of content that we can foresee for this quarter and the subsequent quarter is fairly robust. There are some large mega blockbusters that are in pipeline, which we expect will not only help drive volume, but would also drive value in terms of ER. So next 2 quarters will be -- the quarter we are in and the quarter 4 for this financial year should -- we foresee should be the turning point where we'll be able to at least on the volume front, come back to same level. And I think value will follow after that. I hope I've answered your question.

Yes. I mean volume means number of minutes sold, right? And value means yield per minute?

Yes, yes, yes.

So in 2019, if I see government was 53% and corporate and hyperlocal was 47%. Government share has come down drastically. So have we lost any market share? I mean, what are the main challenges for attracting government advertising again, sir?

So there are 2 parts of government advertising. One is state-led advertising. And the second one is advertising, which is central, right, so which we call DAVP. It is -- it comes in from the central releasing agency. So these are largely dependent upon the government's willingness to communicate with the audiences. What we feel is the total spends by government on the medium have shrunk dramatically. It depends upon various factors which are beyond the control of your company, right? So they are all dependent upon how government sees the entire environment, right? So we feel that we haven't lost market share, but the pie has shrunk on central advertising, advertising by the central agency, which has shrunk dramatically. Whatever revenue we see on the board is largely led by state advertisers, the state governments. The center has shrunk advertising dramatically, and that is largely dependent upon how the government sees the political environment and its need to communicate with the audiences.

So regarding -- yes, sir. Yes, sir. So regarding yield, we are lower in terms of percentage as compared to 2019 by how much?

So yes, so I'll give you the number also exactly how much it is down, but I would like to bring out the positive side of the situation. Government taking a call of reducing the outreach on digital cinema medium is not a new thing. It is on for last at least 3 financial years. And ever since that has happened, you rightly pointed out that at one point in time, we were having almost 60% of our revenue coming from central and state governments, and we were very, very apt medium for them to reach out to their audience. But once this happened, your company immediately swung into action, and we decided that we need to, in a way, reduce dependency on this one revenue stream to a major extent what we can manage. And that is where the effort started to push the corporate ad revenue. And therefore, if you actually see the last 3 years' numbers from near 0 post-COVID, corporate has really swung back into decent numbers the way we are seeing now. Of course, there's an upside from here as well. But as a result of which, what has happened is there is more certainty and more reliability to the numbers that we are now seeing. We are also hopeful that the government should at some stage start looking positively towards this medium. But assuming that doesn't happen as a worst case, we are now out of those woods that we were in a difficult season, half of your revenue has gone. That's not a situation anymore. And what happens is because corporate advertisement in cinema on a large network like yours is not really, really that -- the pricing cannot be very expensive. And that is where the challenges on pricing has been in corporate segment. The pricing in corporate segment pre-COVID, if I'm correct, was close to INR 62, INR 64. And now I think it should be in the range of close to INR 55 to INR 60. So we almost, you can say, about 10% lower than pre-COVID, 10%, 12%, in some of the quarters. But government rate used to be almost 20% higher than this. Of course, that is because government used to get a lot of advantages in reaching out to the right audience through us. So government has reduced -- therefore, the better rates have -- better rate business has come down. And as a result of which, when you see a combined yield, that combined yield as compared to 2019 appears to have gone down. The positive side of it is the overdependency that your company had on the government revenues has, to a major extent, come down. And on top of it, if government again starts looking at it positively, that will be a great thing for the company.

So the numbers you mentioned are, per screen, what is the unit of measurement?

When I say INR 60, it means 1 minute of advertisement played in 1 theater for 60 seconds will cost the advertiser INR 60. So as such, the pricing is very, very attractive, but that's the kind of pricing that we used to operate.

Sir, this is Siddharth. So I wanted to further expand on it because this may not give -- this should not give a wrong impression. So we have a large network. So this is average yield. So dependent upon what is a mix of screens, what is the specific weeks, blockbuster rates, they are different. So dependent on content, how the content flow is, the yield changes. So as the content becomes more promising, the yield will automatically improve. So the revival of the yield is also dependent on content as content improves, your company should start delivering better yield and come back to -- the corporate should come back to old levels. So that -- those are my 2 bits on yield of advertising.

And sir, my last question is we have 3 major verticals that is exhibitor, distributor and this in-cinema advertising. So whatever additional delta and profitability will come from advertising vertical only and the other 2 verticals are relatively stable revenue streams. So is that understanding correct? Or I'm missing out something?

All the 3 revenue streams as it stands now are stable. The instability or the variation part to a major extent has got taken care of as the business has become better as an industry. But the upside, what you see from now on would be primarily in the advertisement vertical. As regards the exhibitor vertical and the distributor vertical, that revenues would go up only when the number of screens would go up. And we don't see that to happen in a very big way anytime soon. And therefore, those revenue streams would be stable, but won't disproportionately grow like how the opportunity is there in the advertisement.

So my last question is, why we cannot -- we are near a monopoly in this digital content delivery, right, sir?

Yes. We can't say monopoly, but yes, we are one of the significant players.

Yes. So when we see -- when we go to the theaters, ticket prices are going through the roof in Juhu, where I stay, PVR on weekdays charge INR 500 plus for any good movie. So why -- since we -- it's a niche business, why we cannot charge more for this digital content? That question, if you can answer, it will be really helpful.

Yes. So as Ashish said, it is not a monopoly business. There are factors in play like there is 4 or 5 competitors in the market also. And also, this is something which if we increase the number of amount that we are charging on this beyond a particular point, it will be counterproductive to the whole business segment because it will start probably curtailing the release of the films. So we believe currently, we are sitting at a sweet spot. And there is not any need or there's no movement also that we can take up on something like this because, as I said, this is a competitive market. There are a lot of other players also in the market. So it's not a scenario that only one can decide. Plus there are exhibitors, distributors, producers. These are -- all market segments are over there. So as I said, we believe that this is a sweet spot, and there is no need to increase this.

So just one more perspective to this is if you actually see you are already at almost INR 100 crores of revenues from this team. You sir must also be using Google Maps. And somebody can say Google Maps has basically a monopoly over all of us. And why is Google not charging, say, $50 or something per month, and that could translate into substantial revenue. But the business model, which they have adopted is let's get the footfalls or rather the eyeballs on the screen for Google Maps and then they monetize it in a different way. Not exactly the same way, but in a similar way, what we are trying to do is we are trying to provide the digital infrastructure services to exhibitors and distributors at a very reasonable cost, thereby attracting them to remain on this leased pay-per-use kind of digital infrastructure instead of investing on their own. And in return, we are getting the advertisement inventory, which we are monetizing. So a better and a more sensible approach could be to not really make your core offering very expensive when you have a very, very big opportunity possibly at your hand in terms of growing the volume and the yield of your advertisement network. On the same network, you can probably increase your volume by twice and pricing by twice and all of a sudden, you see 4x your total ad revenue growing up. If that opportunity exists, we felt that -- and we have been of that view that we should focus more on that, not really to be 5%, 10% on your core offering, which will fetch you INR 10 crores, INR 15 crores and a lot of resentment and then you start becoming more and more expensive as compared to what you had in the past. So this has been philosophy. And we believe that this is a very strong philosophy to push the overall value of the business and the value of the shareholders once this actually translates into the numbers that we are trying to work.

And sir, lastly, regarding revenues from exhibitors, so this lease rental income and sale of products, so the products which we supply them, we source from whom and the equipment which we rent, we must be also -- so how that model works, if you can give some overview.

So the product sales business largely comprises of projectors and servers that are deployed in cinemas. And we source them from Christie, the projectors and from Panasonic also and the servers are sourced from Dolby. So the business is a plain business of adding margin and supplying it to the cinemas. The idea is to get more and more into -- more number of cinemas. And along with this, also earn a certain amount of money from sale of products. This is one area where there will be increased focus from our side on sale of products business. And we would also be looking at adding other product lines like sound and other equipments to increase the potential of this business.

[Operator Instructions] The next question comes from Majid Ahamed from PinPoint X Capital.

Am I audible sir?

Yes, we can hear you.

My first question, sir, is that I just want to understand what were the levers for the improvement of the gross margin, like from 51.5% last year to 55%. So like what type of mix where you able to change to get to such high gross margins this quarter? That's my first question, sir. And secondly, what is your CapEx guidance going forward? Like what type of screen additions that you're looking this year?

So your first question on better gross margins. The business is structured such that better ad revenue translates into substantially better margin. Every incremental rupee that we earn from advertisement, almost 65% of that would get into my PBT. That's the kind of business model that we have. That's because the core costs relating to advertisement, fixed cost, which is sharing with theater is currently at a high level of fixed sharing. And unless a particular threshold is broken, our obligation to pay them further doesn't arise. So that is called minimum guarantees that we have paid them. And as a result of which you would continue to see this kind of a betterment in margins as the advertisement revenue in that quarter on a Y-o-Y basis, if it improves, like what has happened now. So that's a simple answer because the business is in that way, simply structured. As regards to your second question about CapEx, the CapEx guidance we had given even in the earlier calls that this year, we are looking in the range of INR 40 crores, INR 45 crores of CapEx, and that is primarily to maintain the network. As the projectors and the servers get old, we need to replace them. And that is a cost that we are looking at. Incrementally, there are new screens which also come up. And some of this CapEx also goes into the equipment that we supply to these new screens. So overall, that's the CapEx guidance that we have -- we had for the current year. And we -- even in the middle of the year, halfway through, we are on track with respect to that CapEx guidance that we had initially projected.

Sir, just want to follow-up on the advertisement revenue, like you have said there is a minimum guarantee. So would it remain same or would it improve? Just want to understand that part.

For a contractual period when the minimum guarantee is given, it remains fixed. So if it is, say, for 2 years, and if I've given you a theater a minimum guarantee of INR 15,000 per month, then it will remain INR 15,000 only, whether I generate INR 20,000, INR 25,000, INR 40,000. So the moment in this example, first quarter, if I have generated INR 15,000 -- INR 20,000, my margin is INR 5,000. And in the second quarter, if I have generated INR 30,000, my margin goes up to INR 15,000, and I don't have an obligation to pay you because you are in my contract is for 2 years. When the contract comes up for renewal, there are different dynamics which come into play, the market condition, the theaters condition, the footfalls in the theaters, the importance of the theater in overall product mix for us. And at that point in time, there are negotiations that happen, and there could be upward revision when the contracts come to an end. Many times, those are renewed almost at the same level. But that's not a rule.

Got it. But it gets fluctuated on a year -- on contractual basis?

Yes. It's -- fluctuates as per the contract for every theater.

We have a follow-up question from Vipul Kumar Anupchand Shah from Sumangal Investments.