UFO Moviez India (UFO Moviez) is India’s largest digital cinema distribution network and in-cinema advertising platform in terms of numbers of screens. It operates India’s largest satellite-based, digital cinema distribution network using its UFO-M4 platform, as well as India’s largest D-Cinema network.
In cinema advertisement segment to drive overall growth of UFO Moviez: UFO Moviez has reported a strong ~64% CAGR over FY2012-14 in the advertisement segment. As per the Management, the ad segment is a higher growth driver for the company. Further, the company’s business model in this segment is reliable and stable due to a large number of single screen players tied up with the company for ad screening. Single screen players are unable to draw advertisement assignments due to their lower scale of operations. Thus they tie-up with companies like UFO Moviez, which have a pan India presence in the ad screening segment.
Going forward, we expect the company to be able to generate strong numbers on the advertisement revenue front on back of (a) higher growth in cinema ad industry. The current industry size is of around Rs490cr, which is expected to grow to around Rs1,380cr by FY2020E which would make UFO Moviez a key beneficiary on this account with it operating 3,700 screens across 1,800 locations across India and (b) with the company planning to increase its advertisement inventory from 3 minutes to 10-15 minutes per movie show.
Market leadership in the digital cinema space: UFO Moviez is India’s largest digital cinema distribution network and in-cinema advertising platform in terms of numbers of screens. According to CRISIL, the company has an ~54% market share in India’s digital cinema exhibition industry in terms of screens that use digital cinema distribution networks. In terms of advertising screens, the company has a reach of over 3,700 screens across 1,800 locations across India as of October 31, 2014, which according to CRISIL, is six to seven times greater than PVR, the largest cinema chain in India.
Outlook and Valuation: Currently, UFO Moviez looks a tad expensive in terms of PE valuation, partly because of higher depreciation charge (~20% of gross block). Going forward, in our view, the company will be less expensive on a PE valuation basis on the back of higher growth in in-cinema ad segment leading to a higher EPS for the company. Further, incurrence of less capex will bring down the depreciation expense for the company which will boost the bottom-line (as per the Management major business capex is already through). On the EV/EBITDA front, the company is valued at 10.1x (at the upper end of the price band) and on PE front the company is valued at 32.9x (at the upper end of the price band) on the basis of 9MFY2015 annualized numbers. Considering future growth potential, we recommend a Subscribe on the issue for listing gains as well as for accruing handsome rewards from a long term investment.
