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Tuesday, April 28, 2015

UFO Moviez India Limited IPO Review

Issue Highlights

Issue Period
28/4/2015-30/4/15
Price Band
R. 615-625
Issue Size
Rs. 600 crore
Issue type
100 % book built
Minimum bid lot
24
Face Value
Rs. 10
Registrar
Karvy Computershare Pvt. Ltd.
Listing
Bse, Nse

Issue Details


Offer for sale: mainly by 3I research Mauritius and P5 Asia (and a few promoters)
OS share prior to the issue: 2, 58, 97,669
OS shares after the issue: 3, 54, 97,669 #

Allocation:
QIB (Qualified Institutional Investors): At least 50 % of the issue size
            NB: Out of which Rs.180 crore already raised from the anchor investors.
NII (Non Institutional Investors):  Up to 15 % of the issue size
RII (Retail Individual Investors): Up to 35 % of the issue size

Company Profile

The company was initially incorporated as Valuable Media Private Limited in 2004 at Mumbai and finally the name was changed to ‘UFO Moviez India Ltd.”.
Presently, UFO Movies is India’s largest digital cinema distribution network and in-cinema advertising platform. The company operates India’s largest satellite based digital cinema distribution network and D-cinema network with an overall 54 % market share.
UFP Moviez delivers its content through -

(1)UFO M4 : It is the satellite based E-cinema movie delivery platform with a wide reach around 3,462 cinema screens across India.

(2) D-cinema network: This format is used mainly by major Hollywood movie studios and UFO movies collects d-cinema VPF from these studios and provides D-cinema equipments to D-screens-cinema across India.

The company receives revenue from-

      (1)   Advertisers: through in-cinema advertising
Revenue Breakup



     (1)   Advertisers: through in-cinema advertising

Impressive CAGR growth

   (2)   Movie producers and distributors: for secure delivery and screening of their movies


The modus-operendi


Strengths:

     (1)   The company enjoys a leadership position in the digital cinema space with a market share of 54 % and enjoys a status of an essential partner for movie producers, distributors and exhibitors as a majority of films are released on its network.
     (2)   The digital model has significantly reduced the distribution costs for producers and audience too get a faster access to new movie releases that too with a high quality viewing experience.

Risks:

     (1)   Patents infringement disputes with Real Image going against the company could adversely affect the financial viability of the company.
     (2)   Rising clout of alternative avenues of entertainment like TV and internet providing options like ‘Video on Demand’, direct streaming to mobile/pc etc besides movie DVDs could be detrimental for the company.

Objects of the Issue

     (1)   To avail the benefits of listing of the stock exchanges and to provide an exit to selling share holders. The company shall not receive any proceeds from the issue and all the proceeds will go to the selling stake-holders

     (2)   Towards the  issue related expenses



Financial Profile #

Parameter
FY 15
P/E ###
41.1
P/B ###
5
PEG(profit) 3 year ###
.4
PEG(profit)  2 year ###
2.3
Net profit Margin (%)
11.4
EBITDA Margin (%)
33.9
ROCE (%)
28.1
 ROE (%)
12.2
Interest Cover
7.7
EV/EBITDA
12
ROIC (%)
10.4
Sales CAGR (3 years) %
31.77
Total Liability/Equity
.8
AR Collection Period
86

#   using annualized consolidated data at the upper price band
### Using post issue OS shares




Comparison with the Peers #
Parameter
UFO Movies
PVR Limited
Inox Leisure
ENIL
Eros International Media

P/E
41.1
46.67
61.16
30.16
31.46
P/B
5
6.63
3.78
5.29
4.35
N PM %
11.4
4.12
.65
20.5
17.52
ROCE %
28.1
14.12
8.15
19.93
18.82
ROE %
12.2
14.03
1.31
14.4
15.99
PEG Profit  % (3 Year)
.4
NM
NM
1.78
1.76

# consolidated data as latest as available on moneycontrol

Inference

The valuations of the company are stretched and the stake-sellers are charging a significant premium for company’s profitability and the leadership position in the industry.  Its overall sales and the in-cinema ad revenue are growing at an impressive CAGR of   32 % and 20 % respectively.
UFO Moviez’ gross profit too is soaring spectacularly but higher depreciation and to some extent finance costs are eating up a major chunk of it and thus net profit is not showing similar growth.
Accounts Receivable collection period is higher than Eros International and the same is reflected in reduced OCF.
Though higher PEG justifies higher price-to-earnings multiple but it is important to note that things change dramatically when we consider 2 years CAGR instead of a 3-year one as then thisissue appears pricey.
But despite all these quantitative dampening, qualitative future prospects of the company seems great.  The way Indian cine-industry is growing and a paradigm shift in Indian economy- especially in so-far unexplored rural and semi-urban areas- is awaited, and there lies a huge potential for digital way of releasing movies. This shall not only ensure the same day release in interior parts of the country but shall be a major dampener for rising piracy besides providing a great viewing experience to the audience.
I also see a huge opportunity in in-cinema advertising as advertising in a country like India with regional diversities where ads with multi-lingual support that too with high transparency and last-minute-scheduling flexibility, can do wonders for advertisers and advert service provider company like UFO Moviez enjoying a market leadership position.
 I shall go for the issue and as usual using the ASBA option through net-banking

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