UFO has been sharing advertising revenue with the exhibitors for a while now…In some quarters it is as high as 40% of the advt revenue(calculated by dividing advt rev share in operating cost/advt revenue). 40% is quite significant in my opinion. What good is a duopoly if they cant take advantage of it. They dont hike their VPF too often. I find that difficult to understand since the distributors dont have many options other than UFO and Real Image.
UFO does not do physical delivery of the content. It encrypts and encodes the content, uplink the file using the services of HCIL in Hyderabad, installs ‘Cine Blaster’ servers at exhibitors that receive the file through the satellite and it is then projected on the screen using projectors which in most cases are leased out by UFO(Panasonic brand and not owned by the company). As far as I know, physical distribution is only done for DCI JPEG 2000.
- Advertising is the key growth driver for the company now. VPF from D-Cinema is expected to decline. VPF-E Cinema depends on the number of movie releases. Leasing of equipments will give them stable revenues. Since Indian theaters are nor 100% digitized, I wouldnt expect much growth from VPF and Equipment. Not sure if the company can replicate its past growth only from advertising. Lets not forget that distributor revenue grew by 64% CAGR since 2010 and now its declining/slowing down.
-Capex cycle is over. The company is expected to generate fcf going forward. The company used to buy equipment which was expensive. Also acquisitions of stakes in their subsidiaries led to high capex.
-Caravan Cinema, Club Cinema and UFO framez are some initiatives taken by the company to grow its advertising business.
Corporate Governance issues
- Case against the promoters for illegal acquisition of land through Valuable Technologies
- There have also been instances of misappropriation of funds by employees in the past.
- UTV Movies filed a case against the company due to issues related to piracy.
- 80 group companies out of which 64 are loss making and 24 have negative net worth.
- There are significant related party transactions in the case of UFO Limited.
- The company also completely wrote off investment worth 8.4 cr in of its subsidiaries right before the IPO.
- Majority cash in current account
- Patent infringement case (Real Image)
- The company has not been paying full tax. There was also a tax raid at UFO movies and Valuable group.
- Acquiring subsidiary companies at a premium and Goodwill forms a significant part of the book value.
- No records of share capital prior to 2008