UFO Moviez India Limited ($UFO)

Good afternoon, ladies and gentlemen. I'm Akash, moderator for the conference call. Welcome to UFO Moviez Q4 FY '26 Conference Call. [Operator Instructions] Please note, this conference is being recorded. The company is represented by Mr. Rajesh Mishra, Executive Director and Group CEO; Mr. Ashish Malushte, Chief Financial Officer; and Mr. Siddarth Bhardwaj, CEO, Digital Cinemas Network of the company. I would now like to hand over the call to Mr. Mishra for his opening remarks, post which we can start question and answer session. Thank you, and over to you, sir.

Thank you. Greetings, everyone, and thank you all for joining our Q4 and FY '26 earnings call. Q4 FY '26 witnessed a meaningful improvement in technical momentum, supported by a stronger content pipeline and better audience engagement across markets. January started on a healthy note with films such as Ikkis, Barajas, Border 2 and Mardaani driving critical traction across the -- the month benefited from a balanced mix of commercial and regional releases, which helped sustain footfall and advertiser interest. . February witnessed comparatively lower theatrical momentum as releases such as O'Romeo and Do Deewane Seher Mein moderate audience traction. The month remained softer in terms of box office performance and advertisement engagement. March was clearly the strongest month of the quarter, led by the exceptional success of Dhurandhar: The Revenge, which emerged as one of the biggest box office successes of the year. The film delivered strong and sustained footfalls across markets and significantly improved advertiser traction during the quarter. Overall, Q4 performance reflected improving theatrical trends for the industry, supported by stronger content-led audience engagement and better advertisers sentiments. During the year, improvement in theatrical revenues, advertiser revenues and product sales contributed positively to the company's overall performance. Looking ahead to some healthy content pipeline and continued focus on strengthening our advertising network and premiums in initiatives. We remain optimistic about sustaining growth momentum going forward. In FY '26, a total of 1,834 movies were released, including versions and languages against 1,808 movies in FY '25. In total, 459 movies were released, including versions and languages during the quarter compared to 458 in Q4 FY '25 and 457 in Q3 FY '26. On the screen network, our advertising footprint now stands at 4,049 screens comprising 2,597 multiplex screens and 1,452 single screens. With this, UFO continues to maintain the largest multiplex screen advertising network in the country with the highest number of multiplex screens under the network. Turning to the key figures for the quarter and year ended March '26. Consolidated revenues for Q4 FY '26 grew by 43% to INR 1,342 million compared to INR 940 million in Q4 FY '25 and increased by 2% on a quarter-on-quarter basis from INR 1,319 million in Q3 FY '26. EBITDA for Q4 FY '26 grew by 55% to INR 182 million compared to INR 118 million in Q4 FY '25, while declining by 13% on a quarter-on-quarter basis from INR 210 million in Q3 FY '26. Net profit for Q4 FY '26 stood at $45 million compared to net loss of INR 7 million in Q4 FY '25 and was lower by 30% sequentially from INR 64 million in Q3 FY '26. For the full year FY '26, consolidated revenue grew by 15% to INR 4,864 million compared to INR 4,240 million in FY '25. Advertising increase was 36% to INR 803 million in FY '26 from INR 591 million in FY '25. Net profit for FY '26 grew by 161% to INR 249 million compared to INR 96 million in FY '25. The consolidated cash as of 31st March was INR 1,362 million and the net cash was INR 590 million after considering outstanding debt. Looking at the Q1 FY '27, began on a mixed note with the release of films such as Bhooth Bangla, Rajasayari, Pati Patni, et cetera. The outlook for the upcoming quarter remains positive with several high-profile releases, including Haddi, Hai Jawani Toh Ishq Hona Hai, Welcome to the Jungle, Parpanch, Cocktail 2, et cetera. With this robust lineup, we remain confident about continuing with the momentum of last year. I would like this opportunity -- like to take this opportunity to thank our stakeholders for their continued trust in the company. With that, I open the floor to take your questions. my colleagues, Mr. Ashish Malushte, Chief Financial Officer; and Mr. Siddharth Bhardwaj, CEO, and I will be here. Thank you.

[Operator Instructions] First question comes from the line of Anchul Janan, an individual investor.

So my question is for Sanjay Bhardwaj. I have 2 questions. Firstly, overall, as we see our employee costs and operating costs are increasing faster than revenue and profit. We feel like we are invested in a copious society not a corporate company. Sir, in trading distribution business, our employee cost should be 5% to 7%. So how are you planning for cost optimization. And if there is some disagreement internally, why don't you hire a third-party external consultancy to improve this profitability. And secondly, our Caravan business is loss-making, and 50-odd drivers are used there. So why are we not closing it as it is further driving costs and eroding shareholder wins. What is the future forecast here?

So on the loss front, we have been conscious about this part. And over the last 2 years, we have already started optimized and are continuously doing the optimizing on the manpower cost. A slight increase in the manpower cost that we are seeing also pertains to incentives and variable, a part of the salary of the people are variable. And this year, with us meeting the numbers, a part of the variable was paid out, which was not there last year. Last year, there was no variable payout of incentive. And this year, there is a variable payout and incentive because of the better numbers. And that is what is showing the year-on-year increase. But to answer your question, yes, it is an area of continuous monitoring and optimization on our part and we will continue to be doing that rest assured. Secondly, on the caravan front, we have discontinued the operations of the Caravan business because there was a lot of inconsistency in the pipeline of the business that used to come from Caravan. And considering that, we have significantly curtailed the business and completely -- over the last year and completely shutted down and close the entire expenses on that account from this year. So that point is well taken, but already acted upon. And as and when Caravan business comes to us because we continue to be impeded on the Caravan business front because of our experience. Whenever the business comes, then only we will operationalize any third-party vans and enter into that business. Otherwise, there will be no cost on that front.

So for the Caravan business, when are we planning to sell the assets? And how much will...

Yes. On the previous question, there was one data point which I wanted to bring it to your notice, if you go on the investors presentation, Slide 18, we have highlighted that in the current year, on a full year basis, there's a INR 9 crore worth of variable payout that has happened. And that's the reason why you will see that the -- when in isolation, see, the employee cost seems to have gone up from INR 87.3 crores to INR 94.7 crores, but of which INR 9 crores is a variable cost incremental payout. And the reason why it has been paid out is obviously, you can see it in the numbers itself where there is a significant improvement in the profitability on all the parameters. And that's the reason why the employees have been paid out the variable. So that is one point which I wanted to bring -- you're asking further rate, if I'm correct. .

Yes, sir. Okay. And yes, I just wanted to understand for the Caravan business that when are we planning to sell the assets? And how much money can you realize from that?

We have already disposed of the assets. And these vans were quite old more than 10 years old. So the amount of realization on that front totally would have been around INR 2 crores to INR 3 crores. .

The next question comes from the line of Mr. Sailesh Nayak from Escort.

It's an excellent performance this time on both revenue and profitability. I had a couple of questions on operating metrics. The trade receivables are going up at a very fast pace. This year, we are ending at INR 162 crores versus INR 115 crores last year. So why this is going up. I just wanted to understand. Going at a faster pace than as compared to revenue. Second area is revenue per screen. That was dropping both in CBC and VFL. What is the reason for this? Is there a way to work it out and improve on this. The third area which I wanted to understand is revenue sharing with exhibitors on ad revenue. Now I understand that we have entered into different contracts with exhibitors. But earlier, it was 33%. Now it was coming to about 59.5%. I mean is there a way to do on it? Or is there any efficiencies or are we losing pricing power in this -- this is a 3 -- first, operating related question. If you can answer and continue the next one.

Can you repeat your second question, please?

Second question was revenue per screen that is dropping, both in CDC and EPS, like CDC has dropped from INR 64,000 odd to -- from INR 69,000 to INR 64,000 and weekly asset has dropped from 25,000 to 23,000 odd. So that's what was the question.

Okay. So -- let me -- and your first question was around.

I have 3 questions. First was trade receivables. Second was revenue per screen. And third was related to exhibitor ad revenue percentage.

So your observation with respect to increase in absolute terms is correct. And the simple -- one of the key reasons why the receivables seems to have gone up is primarily because the sales are -- I mean, the advertisement sales typically have a realization cycle historically of anywhere between 110 to 150 or 160 days depending upon whether it is corporate or a government segment and that you can see historically. Particularly here, one of the reasons why -- in fact, 2 reasons why you would see the number going up is one on absolute terms, the revenues have moved up in advertisement sales. And more importantly, the key revenues that -- I mean, one of the significant revenues stream -- I mean the significant chunk of revenue got booked on Dhurandhar. And Dhurandhar was actually, if you know -- if you know got released towards the end of financial year, towards the end of March. So everything that has been booked on that movie is entirely sitting into receivables. And that has been one of the best movies for the entire film industry being digital cinema service providers, and there was a sizable amount of revenue that was booked on this movie. And that's the reason why it appears that it has gone up, but let me quickly tell you in terms of the DSOs, day sales outstanding on its current year consolidated number is 147, which is higher than FY '25 numbers of 121. And this is one of the key reasons. But in -- I mean, 3 COVID days, which we keep referring to when film industry used to be having a good time in terms of profitability and good turnaround. FY '19, the consolidated days used to be 134, which have now moved to 147. Nothing to worry about as such. The books are properly provided for in terms of wherever there is provision required to be taken. The increase of 12 to 14 days over the normal DSOs would entirely be attributable to the higher revenue of Dhurandhar. So this was the first part. Then you had a second question is about revenue. So I will -- my team is gathering information. But in the meantime, let me take your third question. And what was your third question about.

Third question was having with exhibitors, I know there have been certain agreements like with the retrain and all which you had higher absolute amount or given to them. Still vis-a-vis 33% now is at 59.5%, right? Is there a scope for improvement? Or are we losing pricing power in our negotiation that was the only thing.

Yes. Firstly, we are not losing pricing for sure. In fact, the fact that we have been able to increase our advertisement network actually indicates the point that the theaters really want to be connected and the chains really want to be expected with UFO. So that was more importantly, I wanted to clarify. Coming back on the numbers part, yes, it is a fact that the number of -- the sharing has been going up. And the reason for that is purely 2 reasons primarily. One, if you know the business model of UFO is such that we charge rental to the theater, and we also give a minimum guarantee of revenue share from advertisement to the theater. In other words, there's one billing happening on the theater and one revenue sharing happening to the theater. And the contract is structured so the minimum guarantees in non-DCI installation cases is always equal to the minimum guarantee paid for -- I mean the rental charges levy. Now over a period of time, the rentals because of the better equipment being declared have also started going up. And therefore, correspondingly the sharing has gone up. That is one component, but that is a smaller one. The bigger component is we were very successful in getting into the chains and the theaters and aggregating the ad rights where we have not done the investments from our side and in the situation where the investment is not from our side, the sharing that we do with the data, rightfully so is on the higher side. And going forward, it is going to be the scenario that we will encourage both these growth avenues, one where we invest, where the sharing is going to be more, where the sharing typically in the range of 35% to 45%, depending upon revenue. But in the second category that also we are investing because there where investment is minimal or 0 and we are only augmenting our inventory advertisement. Thirdly, the sharing percentage you will find a dropping as my revenue would go up because almost all of this is currently into a minimum guarantee structure where we are not really hit a minimum guarantee. And therefore, almost 80% of revenue sharing expense would fit into this category. And that's the reason why you will find that the ratio is going down.

If you could answer the second -- revenue per screen on the trade receivables, yes, trade receivables, is there a possibility to share with us DSO which is about 120 days or DSO, which is about, let's say, 160 days, if that was the metric, which is there, whichever is the right metric. Because looking at the absolute trade receivables and the film is released closer to the quarter as you said, about Dhurandhar. So this might cloud our view. So can you share in the presentation what is the DSO about, let's say, 120 days or whatever the right metrics, which you would like to show so that we understand that there is an improvement, and there is not a problem in it. You can answer third part.

It's a very valid and useful suggestion, especially in the quarters where we have situations, positive situations like Dhurandhar, we need to provide this information, and it will be included going forward in such quarters. So we wanted to add a data point with respect to sharing. So I think that's a very valid observation that you have made on account of ad sharing increasing from 30%, 35%, which used to be our legacy percentage. And now it has gone into 50s and 60s. So this is on account of change in the nature of your network. In those days when share was low, a large percentage of our screens were single screens, right? Multiplex proportion was far lower. Whereas if you see now, your company is largely known as a company which has a network, which is largely multiplex. So the exact numbers, I think it's around 2,500 multiplexes now, multiplex screens, which used to be around thousand-odd multiplex screens when our percentage was in the range of 30% -- 30%, 35%. Now I'm sure you'll appreciate that a multiplex screen, which provides a better experience, better infrastructure will demand a higher -- so that is also 1 reason. But what should give you comfort is the fact that being a multiplex network, we have the ability to monetize our screens better and which increases the upside that we can provide in terms of advertising revenue.

I appreciate that point. In that context, our ad revenue per screen should also go up because if we have higher quality of screen, I mean the kind of output or the return per screen should also go up from what it was earlier. That is not visible. That's maybe probably it might be content related, but that was one point in that direction. Yes. You had something to say on the revenue per screen?

Yes. So your question on -- I think that was the same question and your observation was the revenue per screen on CDC and VPF is going down, correct? So that observation is correct for few -- but if you see full year basis, the revenue has gone up on CDC category as well as VPF category. And Q4, the reason why it has gone down is because -- and this happens almost always that whenever there is a bumper -- I mean a big blockbuster expected to be released, none of the movies try to release around that movie. In this case, if you actually check entire February was blank. In fact, there was no meaningful movie in February. And therefore, our CDC revenue has taken a beating, which obviously gets compensated and some because of the advertisement revenue growth. But the lower revenue translates to lower per screen revenue. And that is evident in Q4 comparison. But full year basis, you will see them increasing which obviously because the performance of the movies are going up. So I think to help you understand this a little better. VPF and CDC is a function of 2 things. One is number of movies and how wide the movies are released, right? So though the number of movies were consistent. But what we saw that because of Dhurandhar and Border, which were very wide released movies, right? None of the other movies went really wide. So hence, the VPF, CDC took a little bit hit. But it all evens out in a year. And we are confident that this will -- this is -- this will stabilize -- this has stabilized. And it will have a very consistent performance.

Second, regarding this future, I mean earlier we should talk about those initiatives that we would have some software for monetizing the ticketing or footfall monitoring and possibly some in-theater advertising also in terms of just like you have in outboard advertising, we have something to use that real estate, which the theater has which is -- it's not just use screen for advertising, maybe possibly other options. We -- I remember of discussing this hearing this discussion in conversation, I don't know which year but these 3 things, software, footfall monitoring and all those things are not now a days covered in the presentation or -- any development on those.

Footfall measurement is basically a tool to catalyze.

Yes. segmentation earlier, I hope to hear that you are trying to segmentize the theaters and try to get a higher revenue from advertisers. There were certain initiatives which you had done, done some surveys and all that stuff. Yes.

Yes. So these are tools and which are which we use to actually evangelize cinema as a platform and our network, right, that what is the value that we deliver with the advertiser. And the revenue impact that these tools make are reflected in the numbers of this year and this quarter.

Yes. Have you done something like that, earlier, there some plans we are going to do this and categorize so that we can get it closer to, let's say, what PBR earns and all, right? That's what...

We have a tool called ProCAT, which is a performance measurement tool for advertisers. So we have used it to evangelize cinema with the advertisers. So what it essentially means is playing excitement around content and around our own network at what does it deliver? So just to give you an example that in any big blockbuster movie, UFO network delivers around 40%, 45% of footfalls, right? But what we were not getting a proportionate share of advertising on the specific movie, right? So using this tool, we are demonstrating to advertisers that we deserve a better advertising revenue share because we deliver disproportionate impact, right? So -- and on Dhurandhar and movies like that, we are able to demonstrate that, and we have consistently seen that our share has gone up. And just to give you an example, we believe that we got almost 30% of this on Dhurandhar whereas we delivered somewhere around 38% of the football, which is a very, very positive trend. And this could -- this was made possible because we had a tool and we were able to market that tool to advertisers and create belief around our ecosystem, right? So these are trade marketing initiatives which help enhance and catalyze our revenue processes. So -- and we see positive traction building around all our initiatives, all such initiatives. So this is a footfall measurement, and you did mention activation and off-screen advertising, we have initiated work around that also, but these are in bits and pieces, right? So as and when we see substantial development around that, we'll keep updating you on this.

And just final one last thing. Can you just tell me what is the free cash flow that we generated this year and this as one data point.

So should I answer your free cash flow.

Yes.

So that can be better seen in my net debt situation. So my net cash has improved from INR 48.3 crores to INR 59 crores in this year in spite of almost INR 11 crores getting further held up into working capital. So this is where, in fact, INR 11 crores in working capital and INR 4.5 crores in TDF. Because that is also stand refundable. So about INR 15 crores stuck into working capital. In spite of that, my net cash position has moved from INR 48 crores to INR 59 crores, INR 11 crores improvement.

But when the cash has improved, then why we have gone for higher borrowings in both long term and current.

Yes. So that's a very interesting question. We have always been following this policy actually to closely see our numbers for the last 10 years. We have always been having cash as well as debt on the books. And the reason why we initially had it after listing was because as you all know that some of the initiatives that time, we were trying to start more on M&A front, could not be funded or it's not easily been funded by a bank line. And then we had kept it with us as it -- when that was not needed, we have also gone ahead and distributed dividend impact to the tune of INR 300-plus crores over a period of 5 years. However, what we realized during COVID was because we had that net cash with us or gross cash with us, we were able to survive the worst hit industry, which is entertainment industry for an extended period of 3 years. And that's the reason why our conviction is that we should continue to hold cash and also -- what happens is sometimes you may find debt going up in a year. And that's -- the reason for that is the way that debt procurement is structured in this company is that the debts are only and only taken to fund the expensive equipments that are going to the theater. And the way it is funded is we directly open an LC and LC gets converted into loan. So that has not kept track as such that it is really going up or down in which particular quarter. Therefore, in a quarter or in a year, you may feel that, oh, you have generated cash, but you didn't. That's because both things are running parallelly independently. But I wanted to explain you why philosophically, we have been holding cash with us. And obviously, when the excess cash is not required and the possibility of rewarding shareholders was there in the past. We have always done that. And hopefully, soon with the turnaround in profitability, we should be able to reach that stage.

[Operator Instructions] I believe there are no further questions, sir. Now I hand over the floor to Mr. Mishra for closing comments. Thank you.

Thank you all for joining today's call. We value your time and continued engagement with our business. Our teams remain available for any further queries or clarifications. We appreciate your support and look forward to updating you again next quarter. Thank you, everyone. .

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