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UFO Moviez India Ltd

| Q3 & 9M FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤2nd Feb 26

Summary : UFO Moviez reported mixed Q3 FY26 results but anticipates strong Q4 performance driven by a robust content pipeline, while focusing on local advertising growth and considering future share buybacks.

Management Perspective positive : Management expressed confidence in driving consistent performance and growth, citing a robust content pipeline and positive Q4 outlook. They also highlighted long-term growth opportunities in local advertising and a willingness to reward shareholders.

Concall Report Analysis & Insights

Business Overview

  1. Q3 FY26 consolidated revenue was ₹1,319 million, down from ₹1,387 million in Q3 FY25.
  2. EBITDA for Q3 FY26 stood at ₹106 million, a decrease from ₹208 million in Q3 FY25.
  3. Net profit for Q3 FY26 was ₹64 million, compared to ₹153 million in Q3 FY25.
  4. 9M FY26 consolidated revenue increased to ₹3,522 million from ₹3,300 million in 9M FY25.
  5. The company's screen network includes 3,783 screens, comprising 2,304 multiplex and 1,479 single screens.

Future Growth Prospects

  1. A robust content pipeline for Q4 FY26, including high-profile releases, is expected to drive momentum.
  2. Focus on local advertising through a DSA network and digital platform is a key long-term growth area.
  3. The company is expanding its screen network, recently adding 230 Mirage screens with plans for 75 more.
  4. Management is open to considering share buybacks when financial performance allows, given current valuations.

Management Insights

  1. Q3 FY26 highlighted the critical role of content and release timing for theatrical performance.
  2. Despite mixed results in October and November, December saw strong performance from films like 'Dhurandhar'.
  3. The company is well positioned for consistent performance and growth with a stronger content pipeline.
  4. Management has historically returned cash to shareholders, distributing over ₹200 crores in dividends.
  5. CapEx for FY26 is budgeted at ₹40-45 crores, primarily for equipment upgrades and network maintenance.

Risk Factors

  1. Q3 performance was impacted by an uneven festive calendar and mixed film results.
  2. Operating margins are erratic due to the fixed cost component of advertisement revenue sharing.
  3. Government and state advertising segments have significantly underperformed, reducing ad revenue.
  4. Increased revenue sharing percentages with key cinema chains impact net advertisement revenue.

Good To Know

  1. Consolidated cash as of December 31 was ₹1,271 million, with net cash at ₹491 million after debt.
  2. The company's asset-light model is partially true, as they invest CAPEX into theaters.
  3. The explanation for tax payments despite accumulated losses involves deferred tax assets and TDS deductions, not cash outflow.
  4. Advertisement revenue sharing with exhibitors involves minimum commitments and variable percentages based on investment.

Key Drivers

  1. Strong upcoming film slate.
  2. Growth in local advertising.
  3. Potential share buyback.
  4. Expanding screen network.

Key Analyst Discussions

Competitive Environment

  1. Analysts inquired about the total number of cinema screens in India and the company's expansion plans.
  2. Management confirmed efforts to add to the advertising screen network, including the Mirage Screen Network.
  3. The company continuously engages with new screens to bring them on board for advertising purposes.
  4. The company aims to improve its product mix by increasing the number of multiple screens for advertisers.

Market Trends & Consumer Behavior

  1. A question was raised about Q3 performance not matching last year's Q3, despite a similar blockbuster release.
  2. Management attributed the difference to underperforming Diwali releases and the wider footprint of last year's multilingual blockbuster.
  3. The company noted that audience traction is selective and dependent on content and release timing.
  4. Post-COVID, tactical advertisers returned faster, while consistent advertisers took longer to re-engage.

Financial Highlights

  1. Analysts questioned the erratic operating margins observed over the past quarters.
  2. Management explained margin volatility is due to fixed advertisement revenue costs and fluctuations in ad sales.
  3. A question was raised about paying taxes despite accumulated losses exceeding ₹200 crore.
  4. Management clarified that tax expense in books is due to deferred tax assets, not cash outflow, and TDS is refunded.
  5. CapEx plans for FY26 are ₹40-45 crores, mainly for equipment renewal and upgrades to maintain the network.

Product Composition

  1. Analysts asked about the split of advertising revenue between Hindi and regional language movies.
  2. Management clarified that monetization is screen-based, not film-based, with mixed content running on screens.
  3. Southern market screens (5 states) account for approximately 1,590 screens, with the balance in Hindi-speaking markets.
  4. The ratio of revenue from different languages changes based on content pipeline and performance.

Strategic Considerations

  1. An analyst suggested a share buyback to improve ROE and EPS, given the company's cash position.
  2. Management agreed that buybacks are a better proposition than dividends at current valuations, pending financial readiness.
  3. Questions were asked about the long-term growth of UFO Moviez and the focus on corporate vs. local advertisers.
  4. Management is building a channel for local advertising using the legacy Frames platform, expecting substantial long-term growth.
  5. Advertiser stickiness varies between consistent advertisers (annual/season deals) and tactical advertisers (tentpole movies).