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

Ladies and gentlemen, good day, and welcome to the UFO Moviez Limited Q3 and 9 Months FY '25 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 over the call to Tanuj from Ventura Securities. Thank you, and over to you, Tanuj.

Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to UFO Moviez India Limited Q3 and 9 Months FY '25 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 Networks Business of the company. I would now like to hand over the call to Mr. Rajesh Mishra for opening remarks, post which we can start the Q&A session. Thank you, and over to you, sir.

Thank you, Tanuj. Greetings, everyone, and thank you all for joining our Q3 and 9 months FY '25 Earnings Call. The third quarter of the financial year started on a subdued note with the release of films like Within, [ Jigaroala ] video, et cetera. The end of October 2024 also saw the releases of films like Lucky Bhaskar and [ Amaran ], which were made on a modest budget but resonated well with audiences demonstrating the power of engaging storytelling. November 2024, however, began strongly with the release of Singham Again, and Bhool Bhulaiyaa. Both films are achieving significant box office success, contributing to a robust start for the month. Despite this, anticipated films like Kanguva, Sabarmati Report, and I want to talk fell short of expectations. At the same time, the highly anticipated Pushpa 2 The Rule, which released on December 5, set new benchmarks in the box office. The film grossed more than INR 1,000 crores worldwide within 6 days becoming the fastest in to reach this milestone. In contrast, Baby John, a high budget film starring Varun dhawan, struggled significantly at the box office. In total, 404 movies were released, including versions and languages during the quarter compared to 502 in Q3 FY '24 and 470 in Q2 FY '25. The decline in number of releases contributed to declines in both theatrical and digitization revenues. -- riding on the success of flims in November and Pushpa 2 in December, Q3 FY '25 experienced robust advertising revenue growth, driven by the exceptional performance of standout films that captivated audiences and attracted advertisers. The success resulted in a 20% year-over-year increase and an 88% improvement on a quarter-over-quarter basis. Additionally, product sales grew by 54% year-over-year and 91% quarter-over-quarter. Overall, our total revenue for the quarter saw a healthy 17% year-over-year increase and a 43% increase on a quarter-over-quarter basis. On the screen network front, our advertisement screen network grew to 3,863 screens, marking a 13% year-over-year increase. This includes 2,246 multiplex screens and 1,617 single screens. With the addition of 456 advertisement screens over the past year and a 3% increase on a quarter-over-quarter basis. Turning to the key figures for the quarter and 9 months ended December 2024. The consolidated revenue for Q3 FY '25 stood at INR 1,387 million compared to INR 1,184 million in Q3 FY '24, showing a 17% increase on a year-on-year basis, primarily driven by advertisement revenue and product sales. EBITDA Q3 FY '25 stands out as the best quarter in the current financial year with EBITDA reaching INR 305 million, that is a 199% quarter-on-quarter and 65% year-on-year increase. The company reported a net profit of INR 153 million in Q3 FY '25 compared to a net profit of INR 46 million in Q3 FY '24 and a net loss of INR 9 million in Q2 FY '25. Regarding the 9-month performance, consolidated revenues amounted to INR 3,300 million compared to INR 2,909 million in 9 months FY '24. EBITDA for 9 months FY '25 was INR 473 million, compared to INR 524 million in 9 months FY '24, mainly due to lower exhibitor revenue. On the PAT front, the company reported a net profit of $103 million in both 9 months FY '25 and 9 months FY '24. The consolidated cash at the beginning of the quarter was INR 917 million, and the net cash was INR 259 million after considering the outstanding debt. I would also like to inform you that we have commenced the organization level restructuring exercise and the benefits of this restructuring exercise will start occurring from middle of next financial year. Looking ahead, though the quarter began on a quieter note with the release of films like Game Changer, Emergency and [ Azaad ] the upcoming release pipeline looks promising with releases such as [ Sky Force ] Deva, Marachi, Sanghavi and sons, Chavaa; English film, Capital America Brave New World and the Salman Khan star of Sikandar, which is expected to release on 28th March 2025. With this lineup, we are optimistic about building momentum in the upcoming quarter. With this, I conclude my opening remarks and throw the floor open for questions, which will be answered by myself and my colleagues, Mr. Ashish Malushte, CFO; and Mr. Siddharth Bhardwaj, our CEO. Thank you.

[Operator Instructions] First question comes from Ankit Kanodia from Smart sync Services.

Congratulations on a very good set of numbers, specifically on the advertisement revenue. Sir, my first question is related to advertisement revenue only. The thing over here is that the advertisement revenue is that portion of the business, which I think -- correct me if I'm wrong, had the biggest kicker to our margins and overall, when we talk about operational leverage, operating leverage, right? But again, on the other hand, advertisement revenue is also an area where we have very little control because we need the movies to release. If there are no good releases, we will not be having good advertisement revenue there. So -- and when I see the advertisement revenue today when the breakup of 3 major segments, which we have, exhibitors, distributors and advertisement, still exhibitor revenue forms a bulk of our revenue. So my question to you is a slightly longer term. How do we see the advertisement revenue? Do we see in the subsequent, say, 4 to 6 quarter advertising revenue becoming the bulk of our total revenue and go past [ expeditor ]. Do you see something like -- I'm not asking for a definite guide, but directionally, do we feel that is possible? If yes, then how? That's my first question, sir.

Thanks. So I know it's a very longish kind of a question, but very pertinent and important. With the set of results that we have declared for this quarter, I think one of the thesis that we wanted to convincingly establish is that when there is a content, there is a footfall. And if there is a footfall, as a cinema industry, digital cinema industry, we are in a position to get a better pie from the overall advertisement spend. So that has been resulted in our number. But that again throws the same question that you have asked that how do we move forward from here? And you have 2 questions. One, about the linkage of the ad revenue to content? And second question about the total proportion of advertisement revenue in the total income. The second question being easier. Let me first take that. In my own opinion, the better way to look at our numbers is not really what proportion advertisement income draws. And the reason being my theatrical business revenue is more or less stable from what I can -- from rental or the service that had deliver to distributors. It's more like a contractual revenue. But my advertisement, as you rightly said, there's a lot of upside, possible upside. So instead of looking at it, what proportion advertisement is of total revenue, we should try and focus on the advertisement revenue and the contours of that. So currently, you will see that the total minutes that we have is close to 5.67 and that has also significantly grown from last year's number. So that is the first lever that we have. Second lever is pricing. And both these levers, we are slowly encashing and on both these lines are -- there is an uptick and therefore, it translates into revenue. As regards content is concerned, it's -- currently, it's a concern, which is true. Unless there is a content, you can't see a significant growth in ad revenue. But to be more specific, what we all really need, I mean, from the industry side is the confidence amongst the cine-goers to come back to the cinema, which is slowly happening. And for that, you don't really need back-to-back hits. We just need a steady supply of content, which generally is there. We hope that in last 6 months, the non-Hindi speaking market is also changing its consumption pattern. Like in South, people have again gone back to movies the way they used to go in the past. In North, we are still seeing some challenge. Hopefully, this quarter, last quarter can be a starting point when people will again start coming back to the theaters. So once that happens, the content doesn't really make a very significant difference to ad revenue. It does, but not to an extent which it's currently making. So we need content. And of course, cinema industry will work only if there is a content. But we want the habits to come back slowly. This is one. Second, to an extent that the advertisement revenues dependent on content is true when we look at national or regional advertisers. In the new reorganization that we have started, what we are doing is we are having a regional focus on the retail advertisements. And in our opinion, retail advertisements are not really content specific. Those are there to -- encash the footfalls, which are there, which are most relevant footfalls for the retail advertisers. So -- that's one of our major strategy that how do we further deepen the retail advertisement pie, which is currently near and significant in our 5.68 minutes. So this is how we want to look at it. If both these things work well, people start coming back to are -- once that happens, we'll be able to deepen our minutes. And obviously, when the penetration of inventory happen, then the rates would naturally start going up, which we are seeing for last 2 quarters at least.

Got it, sir. So very -- that was very helpful. So a couple of follow-ups on what you just said. So one thing which I wanted to understand much more is what do you mean by retail advertisement pie? If you can throw some more light, that would be very helpful.

Pretty simple, very simple. When we go to a theater in the vicinity of theater, so generally, people come from, say, 2 or 3 kilometers radius in cities like Mumbai, right? So previous whoever is having a retail business can be, it can be a retail shop, it can be a saree shop, it can be a gym, it can be classes, anybody. For them, this is the most relevant medium, so to say.

So -- and the second point was related to the number of minutes sold which you touched upon. So even if you look at the last year. So is it some sort of a seasonal thing because last year also Q3 numbers were about 5.3 and this time it is 5.67. But when we look at the 9-month run rate for us in this year, it is 3.62 only. And when you compare that with the average of total of last year, that is 4.28 so what do you make of this?

Yes. To answer your question, yes, there is a seasonality, and seasonality is in our favor in Q3, which is generally the festive season until Christmas. And in the past, Q4 also used to be so-called seasonal because in those days, the government spend used to be high, which currently is not. But yes, to answer your question, there is seasonality. However, the jump that you see, okay, it's not on account of seasonality alone. That is where the ad sales team have really been able to penetrate deeper and get the business back to this extent.

Got it. Got it. And sir, the Caravan advertise revenue has dropped significantly. Of course, it forms a very small insignificant proportion of our total advertisement and total revenue of the company. But still, what explains this drastic fall from INR 4 crores to, I think...

Yes, near 0. So actually, the Caravan business is very, very event specific. There could be a corporate or there could be a government agency who wants to run a campaign where they want to reach deeper into the rural segment, and that is where they make use of this Caravans to carry their message and messaging. So if there are -- so there's no certain business as such. It is -- as we have been explaining, we are trying to create this opportunity in the country. It more or less remains very, very specific to the requirements of these 2 sets of customers that we mentioned. Last year, there was some uptick from corporates and also some of the central government agencies, and therefore, there was a business. This quarter also, we were hoping that one of the regions we will be, through state government, we will be able to get it. It has got pushed forward. But nevertheless, as you rightly said, Caravan is not a major mover for us. Even if there is a revenue, the margins are maybe around 15% to 20%, sometimes 25%, but not a major kicker. But in a way, it adds to the overall bouquet of offering that my ad sales team can take it to advertisers. So to that extent, it has an advantage. But a drop there hurts my profitability to the extent of 20%, but we are not really very, very optimistic, particularly looking at that segment to add to our overall pie, the way we are focusing on our core offering of in cinema advertising.

[Operator Instructions] Next question comes from Aditya Sen from Robo Capital.

So we see that the revenue from sale of products have gone up from INR 28 crores to INR 43 crores in Q3. So is this any sort of one-off or we can analyze the INR 43 crores revenue to roughly INR 120 crores, INR 130 crores for full year.

So can you repeat the last line, please?

Can we analyze the INR 43 crores revenue from the sale of products that will make INR 120 crores, INR 130 crores from this segment?

Okay. No, no, you shouldn't do that. And there's nothing like one-off, onetime here. Let me explain you our Middle East operations where DCI is quite prevalent is where we have an opportunity of doing integrated offerings to cinema, new cinemas that come up. And that is where we do product sales. And in the first 2 quarters, if you go back and see, our performance was below the target or the budget in the international market. That's because some of the business was shifted, that business came in Q3. And to that extent, Q3 has been in a way a phenomenal quarter for our international operations. But this is not a normal annualized turnover that you can see. So what we have seen last year, sale of products being in the range of INR 28 crores. So anywhere between INR 30 to INR 35 -- INR 25 crores to INR 35 crores could be the run rate that we generally take at our end. But we look at it differently, International in India, International is more certain. India is depending upon which screens want to go on their own procurement mode. The important point there is in the business, though the sale has gone up, the margins have remained intact. And we still have in excess of 22%, in fact, higher margin in this quarter. Those margins are also slightly higher, but we see 25% should ideal in a normal scenario be between 21% to 23%.

And the second question is that we see that the exhibitors are now participating in the rereleases. So in the rereleases also, will we be able to deliver content. And if yes, then will it help us with the advertisement revenue?

Yes. I mean, rerelease is, in fact, good you raised this point because this has -- I mean, it has a very deep meaning, rerelease happening and people going back watching rereleases, including the Gen Z guys still lining up and watching some of the rereleases, which were released even before they were born. What it tells us, honestly, is the fact that there is an urge for a citizen or a normal consumer to go back and go back to theaters and watch movies. It's not that OTT has scaled this medium, which has been one of the beliefs and that probably is hitting the way the market and the analysts look at the exhibition industry players like us and some other players. And that could have been true if people were not coming to the theaters, but the fact that if for re-releases, they are coming back. And obviously, for regular releases, they will certainly come back. Now rerelease give us an opportunity that normally in any year, you don't have a good content week on week. You have some dry periods. Now if the rerelease are doing good, then people can keep offering rereleases in the market. Coming to our role, when the rerelease comes, we are very much in a position to release it on our network. In fact, many of these movies could be on our library straightaway. So we continue to get benefited. In fact, rereleases are targeted in dry weeks and in those weeks, we will be able to get advertisement revenue.

Next question comes from Vaibhav Badjatya from Honesty and Integrity Investment.

So any update that you have on the central government advertising and the expected revival, do you see that it is reviving. And are you getting any indications from the government that this can come back?

So central government advertising is still a challenge for us as we have been pointing out. This is something which is really driven by the DAVP and the Ministry of INB. So one has very little control over something like this. But our team continues to keep engaging with ministries and IM ministries, and we hope it comes back, but there's really no guarantee about it. So as you said, it's a concern area, and it will come when it comes.

But while it's a concern area, I must tell you that few quarters back, we said that we are moving slowly and changing our strategy to have dependency -- reduce the dependency on government. To that effect, this quarter has been largest grossing corporate advertisement quarter in the history of UFO when we have done INR 35 crores. Previous to this, the best was in Q3 FY '19 when we had done INR 31 crores. More importantly, the volumes have grown for Corporate segment from 3.48 to 4.61 in this period. And this is where we are trying to reduce our dependency on government advertising.

Our state revenue continues to keep advertising and growing with us.

Next question comes from Rahil Shah from Crown Capital.

So a very direct question with regards to Q4. Now in Q3, our performance has been good on many fronts. Can this continue in the next quarter, given that you see a good pipeline of releases and you're trying to push the ad revenue as well. So can this performance continue in for the next 2 quarters?

So my humble request is, we should look at more in a slightly longish period, quarter-on-quarter can be different. It's too difficult to predict that the advertisers behavior, as Rajesh mentioned, the films have not been very good in Jan. And therefore, the momentum becomes a little weaker. But looking at quarter-on-quarter, it doesn't really help some strategy -- I mean, we have been hurt because of the expectations around cinema industry, whether it's survival, existence, growth. And I think to that extent, there are some positive indications which are very, very clear. And therefore, my request will be we should look at least 1 year, 1.5 years horizon, which looks quite promising.

I just want to add over here would be that we have 2 films coming up, Deva and Chavaa shortly in the next couple of weeks. And however, one big film, Salman Khan star will be releasing on 28th March. So the impact of that would largely spill over into the Q1 of next year. So this is the way it plays out, it's largely a content-driven marketing scenario. And it will depend upon the -- how the films fare in the cinemas. Good part that we are seeing with an increasing trend across the board is regional cinemas, having playing a greater and greater role and Pushpa 2 has really put the [ Hindi ] speaker market as a huge potential market for the South films. And we see more and more of such cross over films coming up and releasing in the North market also, which increases the content pie for the India market. So earlier it was either Hindi films or it was some Hollywood films that would come in. Now we have South films coming in, regional films are catching up, Hollywood films continue to play their role and Hindi film are also there in the pipeline. So we remain optimistic about it.

Overall, if I say a general strategy for you, is it completely the business is dependent on constant and consistent content creation, correct, which you get and the same applies for the ad revenue as well. Only if there is a great amount of footfalls will you see the business grow.

This is not -- it's not fully true. It's not that we need constant supply of content. As I said, I mean this very company between 2017 and '20 never had this challenge, it's only post COVID, the habits of people change. And now the views of investors and analysts have probably slightly more thinking that to what extent OTT will damage this industry of cinema viewing. I think over there, there is what -- I was trying to say that if there is a content which was there last quarter, where people are slowly coming back in theaters. We need to average 5 to 6 views, I mean, per cine-goer in a year, that are only close to INR 13,000 crores in the industry side. So if that is coming back, then there is no challenge in terms of perception. But we don't need consistently back to by back Pushpas and only then this industry will be able to deliver revenue. Currently, this is how it is. So we are in the process of changing, which you can see in the last 2 quarters.

In fact, the smaller budget levels have fared well. I mean if you see traditionally, there have been many films, which have been made for small niche markets with low budgets, and they have performed really well. So the footfall will keep coming. It's not going to be either/or situation.

Okay. So this restructuring that you mentioned in the opening remarks and then this behavioral change of cinema goers coming back to those historical levels. So in 1.5 years, you can expect the game change view for the business. Is that fair?

Yes, very much.

So the restructuring was more at our corporate level and internal thing, nothing to do with the film patterns or anything like that. This is an endeavor to bring in fresh pair of eyes and minds into the business. A lot of our senior members have got superannuated and a lot of our second level people have been elevated to the higher post like my colleague, Siddharth Bhardwaj, who joined me on the call today. He's been alluded as CEO. Siddharth earlier handling advertising sales and now is the CEO of the entire business. And as I said, the structure is more from internal purposes to optimize areas of revenues and costs. So from that perspective. So from that perspective, this was just sharing with...

Yes, that's what I meant, only for the better for the business. I wish you all the best.

We have a follow-up question from Ankit Kanodia from Smart Sync Services.

My next question is related to the Nova Cinema new initiative. Last time we mentioned, I think, in the last call or maybe the call before that, that there's just one -- I think in UP, somewhere we are trying to do that. So any update on that, how it is progressing and any feedback you want to share?

Yes. So we have started another property in UP in an area near Meerut, Kolkata, and another property is in the pipeline over there. There is one property that we are targeting in Maharashtra. So still early days. Right now, there are only 2 properties operational, and they have just seen 2 months of operations. So still early days, we remain hopeful about this endeavor.

Sir, the reason I'm asking a question about Nova Cinema and Caravan is that -- my understanding is that, again, you are a better person to know how things work out. But what I was thinking is that it if there is any scope of scaling up these initiatives that in one way, we get ourselves ready to -- get ourselves prepared to maybe bear the shock of volatility of the content flow or the footfalls which we see in the theaters, right? So don't you think we can scale this up and make this part of the business, which is not too much into what it is happening in the other part of the country. That could help us in stabilizing our revenues and profits. Any color on that, sir?

Yes. So very good point. If you see these 2 businesses, Nova, which is targeted to do the penetration of theaters in semi urban or maybe higher rural areas, that would still have a dependency on whatever dependency you mentioned on content. So it will not be insulated in any manner. But Caravan could have been and can be sort of an opportunity where you can -- you can have -- the content would not really affect that Caravan business because it's not a theatrical business.

But the way you answered my previous question earlier when I asked, so it felt if you are waiting for the corporate and the government to give you projects there, rather than you going to them and pitching your thing, am I right.

Of course, there is an extensive marketing effort that happen. I'm saying that to that extent, that market has not really arrived and people are not really -- both in these segments are not really making use of this avenue. And therefore, we said that this is not my primary focus. The primary focus still continues to be cinema. And sooner, we will see that there is to some extent, decoupling with the best of the content has to be there for advertisement to come. It could be another couple of quarters, and then it should meaningfully get decoupled.

Sir, my last question is. So recently, I went to a PVR cinema to watch a movie with family. And there, I see advertisement done by a lady who is actually an ad advertisement -- someone from ad media company. And she highlights the importance of doing advertisement in cinema and what kind of advantage you have. So do we enter into these kind of initiatives where we make all these retailers aware of the prospect of doing advertisement on because that can also lead to a lot of growth on our advertisement revenue. Do we have any such plans in place where we reach out to some because there are so many retail public -- retail small companies which can actually benefit from this. So what is our advertisement or campaigns? Do we involve them in this. That is what I wanted to understand.

Ankit, this is Siddharth. So these testimonials, what advertisers actually run are part of the trade campaign that any media platform plans. Now every media platform chooses different ways of disseminating this information. Yes, since we are the owners of cinema screens, it's a good idea to run it on a cinema screen. But we may also want to do it, but I think more effective is direct to our clients and prospects. And we do all these testimonial campaigns also, which may not be visible to advertisers on our cinema screens, but trade marketing is an integral part of any marketing efforts or sales efforts that we do. And we also do the same using best case studies and taking them to potential advertisers, whether they are -- many times they're part of our pitch deck and many times, we create customized mailers and share the same information with -- more effectively with our direct prospects. Just running it on cinema screens where some of our potential advertisers may be there is also an option, which we have done -- we have used this -- resorted to this option in the past. But we have maintained to focus our efforts because we know who our prospects are, and they are part of our database. So we can do it more effectively by going direct. Yes, this is an option. As and when the need arises and when we have a campaign of that size, we'll definitely use our own cinema screens. We may use other media platforms also.

And I was not asking specifically for the cinema screens only. What I was asking for I got your answer actually.

[Operator Instructions] We have a follow-up question from Aditya Sen from Robo Capital.

Sir, you shared the content pipeline for Q4. But what are your views regarding the content pipeline for FY '26 compared to FY '25?

So as I said, it seems like a very healthy pipeline because the -- compared to this, there are Hollywood films which are lined up, big budgets cast films from the Hollywood side like Avatar and all those things. South films, a lot of them will be migrating into the north riding on the success of Pushpay and earlier things like [ Mahubali ] and everything. Regional films also are picking up in the market, especially Punjabi, Gujarati, Marathi. These films carry a lot of footfall with them because they are released on a very, very focused markets. And of course, the Hindi films are also lined up. The biggest one that we are seeing up close is Sikander, which is starring Salman Khan. But the FY '26 lineup is expected to be one of the best lineups that we have seen in the last 3, 4 years. So it is a very healthy lineup.

Aditya, this is Siddharth. So I think what is different this year is for the first 2 quarters, we have a good visibility, right, of content. And -- which is very, very important for -- at this part -- having a visibility in quarter 4 of the next year's subsequent 2 quarters because this lineup actually helps advertisers build conviction about integrating cinema in the part of their annual budgets, right. Last year, though quarter 4 was strong pipeline. It delivered well. But quarter 1 and quarter 2 pipeline was weak, so which did not give too much confidence to advertisers to commit to the medium, right? So what drives confidence in the industry is that as of now, we can see a good pipeline, not only language content, but also Hindi content, right? We have Jaat, which is Sunny Deol's movie, which got pushed into quarter 1, [ Jolly LLB ]. We have Raid 2, even Housefull 5, War 2, Delhi Files, many films are -- and Wanted 2. Karate Kid, Housefull 5 is in quarter 1, quarter 2, a lot of movies. And good visibility of Hindi content. So this year has been not so good for Hindi. It got compensated by regional content, right? So it gives us confidence that Hindi comes in. And the habit of Hindi audiences lapping up, southern dub content also. So it will give us a really good kick to the footfalls because it will be 2 things working together, right. So that is actually helping build confidence on our side and more importantly, on the advertising side. I hope that answers your question.

And one last question. Regarding the rereleases, do we get the same realization in rerelease also when compared to the first new movies?

Sorry, can you repeat the question? We missed some part.

Rerelease, do we get the same realization as the newly released movies in terms of advertisement revenue?

We hope they do. However, rereleases currently for a very small percentage of the overall number of shows and the movies that release, there is no clear trend visible as of now, right. As and where they start contributing, there is newness to this phenomenon of rereleases. But if you look at the overall contribution to the number of shows that contribute to the cinema industry, it is still very, very small. There is no clear trend visible. As and when some trend is visible, we'd be in a position to respond to this.

[Operator Instructions] There are no further questions. Now I hand over the floor to Mr. Rajesh Mishra for closing comments.

We thank you. We thank everyone for joining this call. You're welcome any time to reach out to our teams for any further clarification information that you need. Thank you very much, everyone.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation. You may now disconnect your lines. Thank you, and have a good day.