IPO Note | Media
April 25, 2015
UFO Moviez India
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Issue Open: April 28, 2015
IPO Note - Valuation attractive; Subscribe
Issue Close: April 30, 2015
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
Issue Details
operates India’s largest satellite-based, digital cinema distribution network using
its UFO-M4 platform, as well as India’s largest D-Cinema network.
Face Value: `10
In cinema advertisement segment to drive overall growth of UFO Moviez: UFO
Present Eq. Paid up Capital: `25.9cr
Moviez has reported a strong ~64% CAGR over FY2012-14 in the advertisement
O ffer for Sale**: 0.96cr Shares
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
Post Eq. Paid up Capital: `25.9cr
and stable due to a large number of single screen players tied up with the company
Market Lot: 24 Shares
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
O ffer for sale (amount): `600cr
like UFO Moviez, which have a pan India presence in the ad screening segment.
Price Band: `615-625
Going forward, we expect the company to be able to generate strong numbers on
Post-issue implied mkt. cap `1,593cr*-
the advertisement revenue front on back of (a) higher growth in cinema ad
1,619cr**
industry. The current industry size is of around `490cr, which is expected to grow
Note:*at Lower price band and **Upper price band
to around
`1,380cr 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
Book Building
inventory from 3 minutes to 10-15 minutes per movie show.
QIBs
50%
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
Non-Institutional
15%
numbers of screens. According to CRISIL, the company has an ~54% market
Retail
35%
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
Pre Issue Shareholding Pattern(%)
October 31, 2014, which according to CRISIL, is six to seven times greater than
PVR, the largest cinema chain in India.
Promoters Group
37.8
Outlook and Valuation: Currently, UFO Moviez looks a tad expensive in terms of
MF/Banks/Indian
PE valuation, partly because of higher depreciation charge (~20% of gross block).
FIs/FIIs/Public & Others
62.2
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.
Key Financials
Y/E March (` cr)
FY2013
FY2014
Net Sales
337
421
Net Profit
33
47
OPM (%)
31.7
31.3
EPS (`)
12.9
18.0
P/E (x)
48.5
34.8
P/BV (x)
4.7
4.0
RoE (%)
9.6
11.6
RoCE (%)
12.4
13.2
Amarjeet S Maurya
EV/Sales (x)
4.9
3.9
+91 22 3935 7800 Ext: 6831
EV/EBITDA (x)
15.4
12.6
[email protected]
Source: Company, Angel Research; Note: *The above numbers are considering subscription at the upper end of the price band
Please refer to important disclosures at the end of this report
1
UFO Moviez India| IPO Note
Company background
Incorporated in
2004, UFO Moviez India is India’s largest digital cinema
distribution network and in-cinema advertising platform in terms of numbers of
screens. UFO Moviez operates India’s largest satellite-based digital cinema
distribution network using its UFO-M4 platform, as well as India’s largest
D-Cinema network. UFO-M4 is a satellite-based, E-Cinema movie delivery
platform. “E-Cinema” is a commonly used term to describe various technologies
used to digitally deliver movie content other than through D-Cinema. Since the
beginning of its operations, UFO Moviez has digitally delivered more than 8,800
movies in India. As on February 28, 2015, UFO's global network spans 6,625
screens worldwide, including 4,911 screens across India and 1,715 screens across
Nepal, the Middle East, Israel, Mexico and the USA. UFO provides D-Cinema
solutions through its subsidiary Scrabble Entertainment Ltd (Scrabble) in India and
overseas. Scrabble’s international deployment includes UAE, Bahrain, Qatar,
Oman, Kuwait, Lebanon, Jordan and Israel. Post successful deployment in India
and the above countries, Scrabble has rolled out DCI solutions in the United States
of America and Mexico through associates.
Issue detail
The company’s private equity backers are selling their shares in the offer for sale
issue via the book building process in the price band of `615-625 (face value of
shares: `10/- each), aggregating up to `600cr. Private equity investors such as
3i Research (Mauritius) Ltd and P5 Asia Holding Investments (Mauritius) Ltd (P5),
and promoters will pare their stakes through the IPO. The offer for sale will
constitute ~37% of the post-issue paid-up equity share capital of the company.
Objects of the offer
Achieve benefits of listing equity shares on the stock exchanges; and
Enable sale of equity shares for selling shareholders.
April 25, 2015
2
UFO Moviez India| IPO Note
Key investment arguments
UFO Moviez to benefit from in-cinema ad industry growth of
~19% CAGR over next 5 years
Increase in number of multiplexes and digitization of screen has created strong
footfalls in theatres which is attracting advertisers to increase the share of ad
budget in cinema advertising. The current industry size is of around `490cr which
is expected to grow to around `1,380cr by FY2020E (ie a CAGR of 19%) on back
of growth in number of screens and improvement in overall GDP.
Exhibit 1: Projected growth in cinema advertising industry
1,600
1,400
1,380
1,200
The current industry size is of around
`490cr which is expected to grow to
1,000
around `1,380cr by FY2020E
800
600
400
490
390
200
-
FY2014
FY2015E
FY2020E
Source FICCI-KPMG, Angel Research
Normally in-cinema advertising comes from three main sources (a) private
companies, (b) government agencies and (c) local businesses. Typically companies
in the FMCG, financial services, telecom, mobile phone manufacturing, healthcare
and airlines use in-cinema advertising. Government agencies award their
advertisements to the advertisement agencies empanelled with them. The
advertisement agencies in turn deal directly with large multiplex chains such as PVR
and Inox to play the advertisements, and with digital integrators like UFO Moviez
to air the advertisements at single screens at remote locations.
Exhibit 2: No. of ad screens
Exhibit 3: In cinema ad revenue trend
120
4,500
3,900
4,000
100
3,332
100
3,500
86
2,859
3,000
80
69
2,328
2,500
60
2,000
37
1,500
40
1,000
20
500
-
0
FY2012
FY2013
FY2014
9MFY15
FY2012
FY2013
FY2014
9MFY15
Source: RHP, Angel Research
Source: RHP, Angel Research
April 25, 2015
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UFO Moviez India| IPO Note
Currently UFO Moviez has more than 3,900 screens, out of which, ~1,500
screens don’t have advertisement rights (they sell their own advertising inventory)
which includes PVR, Inox, etc. As of now, the company has an average inventory of
3 minutes per movie show as compared to 15 minutes inventory per movie show
for PVR, Inox, cinema multiplexes etc. According to the company, the in-cinema
advertising segment would undergo substantial growth in the coming years. The
UFO Moviez is planning to increase its
company is planning to increase its ad inventory from 3 minutes to 10-15 minutes
ad inventory from 3 minutes to 10-15
to generate more revenue by tapping growing ad markets. Currently, the company
minutes to generate more revenue by
caters to corporates and government and is planning to tap the local retail market
tapping growing ad markets.
by providing tailor-made services. The company is also sharing a portion of
advertisement revenue with exhibitors. The company has reported strong revenue
growth in this segment, ie of around 64% (CAGR) over FY2012-14. Further, we
expect the company to report strong numbers on back of wide reach. The
company has a reach of over 3,700 screens spanning 1,800 locations across
India, which attracts advertisers.
Exhibit 4: Comparison of major peers
Ad screens
Ad revenue (` bn)
No. of locations
PVR
*454
1.4
107
Inox
*298
0.5
92
UFO Moviez
**3,709
1.0
3,532
Source: RHP, Angel Research, Note:* as of 30th September 2014, ** as of 31th October 2014
Leading player in the digital cinema space with market
leadership in number of screens
UFO Moviez provides end-to-end, high-quality digital cinema solutions which has
made it an essential partner for movie producers, distributors and exhibitors in
According to CRISIL, the company has
India. We believe that this has helped the company in creating a leading digital
an ~54% market share in India’s digital
cinema distribution network, in terms of market share, size and scale. According to
cinema exhibition industry in terms of
CRISIL, the company has an
~54% market share in India’s digital
screens that use digital cinema
cinema exhibition industry in terms of screens that use digital cinema distribution
distribution networks
networks. The company has grown the number of screens that use digital cinema
distribution network in India from 1,817 as of March 31, 2010 to 4,911 as of
February 28, 2015.
Exhibit 5: UFO Moviez’s no.of screens in India
Exhibit 6: Market share in no. of films certified
5,000
4,703
95.2
1,900
96
4,500
4,200
95
1,850
4,000
95
3,500
1,800
3,500
94
2,700
1,750
94
3,000
2,500
1,700
93
1,817
92.3
1,856
2,000
93
1,650
1,500
92
1,600
1,000
92
1,630
1,550
500
91
-
1,500
91
FY2010
FY2011
FY2012
FY2013
FY2014
FY2013
FY2014
Source: RHP, Angel Research
Source: CRISIL, RHP, Angel Research,
April 25, 2015
4
UFO Moviez India| IPO Note
According to CRISIL, the number of films certified in India for fiscal years 2013
UFO Moviez released 1,504 and 1,767
and 2014 was 1,630 and 1,856, respectively. Out of these, UFO Moviez released
films, respectively, representing
92.3%
1,504 and 1,767 films, respectively, representing 92.3% and 95.2% of the total
and 95.2% of the total number of films
number of films certified in the respective years.
certified in the respective years
Exhibit 7: Strong reach in terms of number of screens
Source: RHP, Angel Research
The company has further established its market share with pan-India presence,
with a network of sales offices and service centres with field engineer staff across
India, and a dedicated workforce, with in-house teams for software development,
advertisement sales and repairs and maintenance. Further, according to CRISIL,
the Indian film industry is expected to continue growing despite growth of digital
entertainment (ie entertainment delivered through mobile and the internet). We
believe these factors position the company well for future growth.
Expected to generate higher cash flow
Going forward, we expect the company to be able to generate higher cash flows
UFO Moviez has invested around
due to its high profitability. UFO Moviez has invested around `455cr in its business
`455cr in its business in the last five
in the last five years (until FY2014) while in 9MFY2015 it has been able to restrain
years (until FY2014)
its investments to just ~`31cr. As per the Management, the company has met most
of its capex requirements in the near to medium term and going forward, further
capex would be restricted with the company expecting a capex of just `25-30cr
over the next 3-4 years.
April 25, 2015
5
UFO Moviez India| IPO Note
Exhibit 8: Historical free cash flow trend of UFO Moviez
FY2010
FY2011
FY2012
FY2013
FY2014
9MFY15
60
38
40
20
0
(20)
(14)
(26)
(28)
(28)
(40)
(60)
(63)
(80)
Source: RHP, Angel Research
Strong financials and robust growth track record
The company has reported total revenue CAGR of ~42% and profit after tax (PAT)
The company has reported total
CAGR of ~227% over FY2012-14 on the back of growth in number of screens
revenue CAGR of ~42% and profit after
and strong growth in ad revenue. Also the company has grown in segments like
tax (PAT) CAGR of
~227% over
virtual print fees (both for E-cinema and D-cinema), lease rental income,
FY2012-14 on the back of growth in
digitization income and sale of products (sale of digital cinema equipments and
number of screens and strong growth in
lamp). Going forward, we believe that the company will be able to increase its net
ad revenue
revenue owing to expansion in number of screens and higher growth in the
advertisement segment (on back of increase in inventory sales; the company is
increasing its advertisement inventory from 3 minutes to 10-15 minutes).
In FY2010 and FY2011, the company reported losses due to lower revenue growth
and higher operating expenditure (initial stage of business operating). However,
since the last 3 years, the company has reported strong profitability due to higher
revenue turnover and improvement in operating margin. Hence, going forward,
we believe that the company would be able to increase operating margin and
profitability owing to increase in advertisement inventory which will result in
additional revenue with the same operating costs. Hence, going forward, we
expect UFO Moviez to deliver a strong performance on both the top-line and the
bottom-line front.
Exhibit 9: Historical revenue trend
Exhibit 10: Historical Operating Margin & PAT trend
450
421
50
40
33.9
400
45
357
31.7
31.3
35
337
350
40
30
35
25.2
300
30
25
250
208
25
20
200
20
15
150
15
10
100
10
50
5
5
4
33
47
37
-
0
0
FY2012
FY2013
FY2014
9MFY15
FY2012
FY2013
FY2014
9MFY15
Source: RHP, Angel Research
Source: RHP, Angel Research
April 25, 2015
6
UFO Moviez India| IPO Note
Outlook and Valuation
The company is India’s largest digital cinema distribution network and in-cinema
advertising platform in terms of numbers of screens. Also, the company
has reported a total revenue CAGR of ~42% and PAT CAGR of ~227% over
FY2012-14 on the back of growth in the numbers of screens and strong growth in
cinema ad revenue. We expect this growth to continue on back of improving
economy which would drive the ad segment. Over the next 3-4 years, the
company would have a higher focus on the cinema ad segment. Further, the
increase in the number of screens in India would help the company to generate
additional revenue for the company.
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.
Key investment concerns
Competition could hurt market share
As of now there is no big player in this segment and the company is the market
leader in terms number of screens in India. Entry of new players in this segment
will create competition for the company which could lead to loss in market share
and it will resultantly affect the profitability of the company.
Slowdown in Indian economy would impact overall ad spend
The company’s ~25% revenue comes from in-cinema advertisement segment
where the government and corporates are the major client segments. A slowdown
in the economy could affect the spending from these client segments which will
resultantly affect the company’s overall earnings.
April 25, 2015
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UFO Moviez India| IPO Note
Consolidated Profit & Loss
Y/E March (` cr)
FY2013
FY2014
9MFY15
Total operating income
337
421
357
% chg
62.5
24.8
-
Total Expenditure
231
289
236
Operating direct costs
128
167
140
Personnel Expenses
45
55
43
Others Expenses
58
68
53
EBITDA
107
132
121
% chg
104.5
23.1
-
(% of Net Sales)
31.7
31.3
33.9
Depreciation& Amortisation
54
65
57
EBIT
53
66
64
% chg
299.7
24.2
-
(% of Net Sales)
15.8
15.7
18.0
Interest & other Charges
15
20
16
Other Income
3
3
4
(% of PBT)
7.5
6.9
7.0
Recurring PBT
41
50
52
% chg
375.6
20.8
-
Prior Period & Extraordinary Expense/(Inc.)
-
-
-
PBT (reported)
41
50
52
Tax
2
(1)
13
(% of PBT)
5.8
(2.2)
24.4
PAT (reported)
39
51
39
Add: Share of earnings of associate
0
(1)
1
Less: Minority interest (MI)
6
4
4
PAT after MI (reported)
33
47
37
% chg
666.0
39.4
-
(% of Net Sales)
9.9
11.1
10.3
Basic EPS (`)
12.9
18.0
14.2
% chg
666.0
39.4
-
April 25, 2015
8
UFO Moviez India| IPO Note
Consolidated Balance sheet
Y/E March (` cr)
FY2013
FY2014
9MFY15
SOURCES OF FUNDS
Equity Share Capital
26
26
26
Reserves& Surplus
321
374
416
Shareholders Funds
347
400
442
Minority Interest
11
15
7
Total Loans
85
101
99
Deferred Tax Liability
-
-
-
Total Liabilities
443
516
548
APPLICATION OF FUNDS
Net Block
268
346
318
Capital Work-in-Progress
31
20
15
Investments
13
11
15
Goodwill
131
137
168
Current Assets
183
216
278
Inventories
11
10
9
Sundry Debtors
75
91
134
Cash
42
52
54
Loans & Advances
46
53
61
Non-current trade receivables
0
0
-
Other Assets
9
11
21
Current liabilities
186
227
265
Net Current Assets
(3)
(11)
13
Deferred Tax Asset
2
13
19
Mis. Exp. not written off
-
-
-
Total Assets
443
516
548
April 25, 2015
9
UFO Moviez India| IPO Note
Consolidated Cash flow statement
Y/E March (` cr)
FY2013
FY2014
9MFY15
Profit before tax
41
50
52
Depreciation
54
65
57
Change in Working Capital
(21)
2
(33)
Interest / Dividend (Net)
14
19
15
Direct taxes paid
(8)
(17)
(23)
Others
4
1
0
Cash Flow from Operations
84
120
69
(Inc.)/ Dec. in Fixed Assets
(99)
(146)
(51)
(Inc.)/ Dec. in Investments
(11)
3
(5)
Cash Flow from Investing
(110)
(143)
(56)
Issue of Equity
-
-
-
Inc./(Dec.) in loans
55
41
(3)
Interest / Dividend (Net)
(14)
(18)
(15)
Cash Flow from Financing
42
23
(19)
Inc./(Dec.) in Cash
17
0
(5)
Cash & cash equivalents acqd from subsid.
-
1
0
Unrealised Gain/(Loss) on Forex
(1)
2
3
Opening Cash balances
15
30
34
Closing Cash balances
30
34
32
April 25, 2015
10
UFO Moviez India| IPO Note
Key Ratios
Y/E March
FY2013
FY2014
Valuation Ratio (x)
P/E (on FDEPS)
48.5
34.8
P/CEPS
18.6
14.5
P/BV
4.7
4.0
EV/Sales
4.9
3.9
EV/EBITDA
15.4
12.6
EV / Total Assets
0.3
0.2
Per Share Data (`)
EPS (Basic)
12.9
18.0
EPS (fully diluted)
12.9
18.0
Cash EPS
33.6
43.3
Book Value
133.8
154.5
Returns (%)
ROCE
12.4
13.2
Angel ROIC (Pre-tax)
14.2
15.1
ROE
9.6
11.6
Turnover ratios (x)
Asset Turnover
1.3
1.2
Inventory / Sales (days)
11
8
Receivables (days)
82
79
Payables (days)
38
51
Working capital cycle (days)
55
36
Note: Valuation Ratio at the upper price band
April 25, 2015
11
UFO Moviez India| IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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April 25, 2015
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