UFO Moviez India Ltd Q1 FY2023 Concall Summary

Key Takeaways

• First restriction-free quarter, but recovery uneven: Q1FY23 was the first quarter since March 2020 with no lockdowns or capacity limits, yet advertisement revenue recovery stalled at ~40% of pre-pandemic levels, dragged down by a slump in Hindi film performance and absent government spending.
• South films carried the quarter: Dubbed versions of big South movies contributed almost 60% of Hindi box office revenue from January to April, but the release trend and success rate weakened in May and June, exposing the fragility of a single-industry reliance.
• Rates restored, volume still the lever: CDC rates, rental charges, and advertisement rates are back to pre-pandemic levels, but actual advertisement realization lags because inventory utilization, while jumping to 2.8 minutes, remains below the pre-pandemic ~3.3 minutes.
• Distribution business adds a zero-risk content pipeline: The company distributed 12 films in Q1, mostly South films in the North market, with no IPR investment and no additional cost, a strategy designed to steady content flow for the core business.
• What to watch next quarter: Whether the slate of upcoming Hindi big-star releases actually converts to box office success and pulls corporate advertisers back, and whether the first NOVA franchisee center becomes operational by November as planned.

The Hindi Film Slump & South Film Dependence

• South films dominated the box office: From January to April 2022, dubbed versions of big South movies, led by RRR and KGF Chapter 2, contributed almost 60% of Hindi box office revenue, supporting CDC revenues even in Hindi-speaking markets.
• May-June downturn exposed concentration risk: The release trend and success of movies weakened in May and June, with many big star-cast Hindi movies slumping at the box office, directly impacting both theatrical and advertisement revenues.
• Hindi recovery framed as cyclical, not structural: Management strongly believes the lag in Hindi film releases and box office performance are cyclical vagaries that will reach pre-pandemic levels in coming months, pointing to a slate of upcoming releases as the catalyst.
• South-to-North migration expected to persist: The company expects the upward trend of South language films entering Hindi-speaking markets to continue, increasing the volume of films available for release and positively affecting revenues.

Rajesh Mishra: "if Hollywood films dubbed in various languages work across the globe, there is no reason that films from the same country, the same culture, will not work in the North market and that is exactly how we are proceeding with this."

Advertisement Revenue: Volume Over Rate

• Corporate recovery at 55-60%, government spending absent: Corporate advertisement recovery reached 55-60% of Q1FY20 levels, but significantly lower government ad spending restricted overall recovery to ~40%, with the curtailment specific to cinema and not replicated across other mediums per market intelligence.
• Hit-driven engagement gives confidence: During releases like RRR, KGF, and Bhool Bhulaiya 2, the company saw good engagement from advertisers, reinforcing the belief that recovery will accelerate when more movies perform consecutively.
• Rate discipline held through the pandemic: Marketing sales teams held rates despite the severe pandemic impact, with no desperation to drop rates to fill inventory, a decision management believes avoided long-run damage to the pricing structure.
• Volume upside exists before any rate action: Inventory utilization rose to 2.8 minutes from 0.94 minutes sequentially but remains below the pre-pandemic ~3.3 minutes, and management sees significant upside in filling that volume gap before scarcity drives rates higher organically.

Ashish Malushte: "In spite of the severe impact of the pandemic on the business, marketing sales teams have been able to hold the rates and there was no desperation in dropping the rates to fill the inventory as we believe such an effort would have a negative impact in the long-run."

Distribution Business: A Zero-Risk Content Engine

• Strategy is to feed the core business: The distribution arm distributed 12 films in Q1, the majority being South films distributed in the North Market, with the explicit goal of supporting the core cinema business with a steady content flow.
• Near-zero content risk by design: The company makes no investment in film IPR and utilizes existing infrastructure and manpower, so there is no additional cost and no downside if a film underperforms.
• Scale ambition is 40 to 50 films yearly: Management expects to distribute around 40 to 50 films on a yearly basis, spanning both big and small titles.

Rajesh Mishra: "There is no investment in the IPR of the films, so there is no risk to us. Secondly, we are utilizing and leveraging our existing infrastructure and manpower. Hence, there is no additional cost involved."

NOVA & New Initiatives

• NOVA prototype ready, first center nearing completion: A prototype is operational at Bhiwandi to popularize the concept and attract franchisees, while one franchisee has almost completed theater construction in Maharashtra and is expected to be operational by November.
• Business model details withheld: Management declined to elaborate on the NOVA business model on the call, stating that 3 to 4 variants are being finalized and will be posted on the website probably this quarter.
• Zinglin pivoted to second-screen role: The short content video platform has been transitioned to serve more as a second screen for the core business and is expected to be operational around the festive period.
• CapEx curtailed on existing stock: Replacement CapEx is kept at a minimum, with full-year CapEx expected at ₹25 crores versus ₹45 crores pre-pandemic, though no restriction applies to new CapEx for acquiring or adding new screens.

Financial Structure & Disclosures

• Rate restoration completed: CDC rates and rental charges were restored to pre-pandemic levels effective April 1, 2022, with the discounts provided in Q3FY22 and Q4FY22 discontinued. Advertisement rates are also more or less at pre-pandemic levels, though actual realization has not yet caught up in some streams.
• Distributor revenue re-segmented: From Q1FY23, distributor revenue is split into two buckets: CDC, where almost 100% flows to EBITDA after small direct expenses, and VPF service fee, where a significant portion is shared with exhibitors. This replaces the earlier E-cinema/D-cinema categorization.
• Single-screen decline improved the mix: Single screens suffered most during the pandemic and declined, while a significant increase in multiplex screens improved the overall product mix.
• Scrabble amalgamation on hold: The decision not to pursue the Scrabble merger has been taken for now, with a call possible towards the end of this year or early next year.
• Fund usage earmarked for inorganic opportunities: Funds raised through equity infusion remain available for new initiatives or inorganic opportunities if they arise, though nothing is on the cards currently.

Guidance & Commitments

Key Metrics