A unique concept

UFO is one of the unique play­ers in the film exhibition business, where it has three buckets of rev­enue. The first bucket of revenue is from exhibitors, where it gives digital equipment on lease to help exhibi­tors show movies in the digital for­mat to cine-goers. It has tied up for 4,911 digital cinema screens, withUFO Moviez (Z instead of S is a numerological take-off) is going public with its 100 per cent offer for sale (hence no fresh issue of capital) with an issue size of ?600 crore (it reduced the size as, previously, it had plans to raise ?750 crore), with a price band of ?615-625 per share. Investors like 3i Research Mauritius and P5 Asia Holdings Investments, which bought shares few years ago, are divesting their partial holdings in this offer. Even promoters are selling their partial holdings in this offer. The company did not divulge the quantum of shares each one is offering in this offer, but promoters’ stake before this offer is at 37.77 per cent and may further fall in case they sell a major chunk of this offer. The issue, which opens on 28 April, will close on 30 April and the listing would be over by 15 May. Based on the price band, company’s market cap would be ?1,600 crore.

have high revenues per screen per annum. While PVR gets ?30.84 lakh per annum per screen, Inox gets ?16.78 lakh per annum but, for UFO, it’s at a mere ?2.65 lakh per annum.

UFO Moviez’ larger chunk of rev­enue comes from distributors, fol­lowed by exhibitions and then advertisement. But, going forward, the company believes that the adver­tisement revenue should drive the business, as the potential is huge on this front.

While we understand that UFO comes with a unique concept and, hence, deserves market premium on the bourses, there are some risk fac­tors too, which the investors can’t ignore. To start with, UFO’s revenue realisation per minute of in-cin- ema advertisement is coming down. It was ?64 per minute in 2013-14 but came down to ?52 per minute during the first nine months of 2014-15.

Based on the company’s first nine months of the 2014-15, it is expected to report a net profit in the region of ?55 crore for 2014-15. In 2013-14, the net profit reported by the company was ?50 crore, which means the growth in net profit would be about 10 per cent. Since the company does not intend to do any major capex, going forward, growth in earnings in the near future may not be substantial. Based on this, the company is asking for a PE of 30 times, which does not leave enough for investors to make money in the IPO. And, last but not the least impor­tant, the companies related to cinema business have not helped investors to make money in the long run; they have also been found quite volatile. A list of such companies include Tips Industries, Cinemax, Mukta Arts, Ashtavinayak and Pyramid Saimira, to name a few.

In fact, Pyramid had a business model similar to UFO. At the same time, there are exceptions too, like PVR, which has helped investors to make decent money. But, looking at the stiff valuation UFO is asking, it may not sustain the above-IPO price level for a long period of time.

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