UFO Moviez Research Report By IDBI Capital

– We believe that the impact of demonetisation on UFO Moviez’s ‘in-cinema’ advertisement revenue would ease in Q4FY17. Given the strong movie slate, we expect up-tick in the growth in FY18 lead by growth in both Government and corporate segment driving a 29.2% YoY growth in ‘in-cinema’ advertisement. We forecast growth to sustain in FY19 (+31.2% YoY).

– We now forecast Caravan business to achieve EBITDA breakeven in FY19E. We await management’s outlook on this business.

– We factor relatively slower advertisement growth and cut our FY17E/18E revenue by 3.6%/6.4%. As a result, we cut our FY17/18E EBITDA and EPS by 8.3%/11.6% and 16.3%/16% respectively. We believe that our forecast has upside triggers from faster ramp-up in advertisement growth.

– We maintain that UFO Moviez has significant re-rating opportunity on the back of – 1) healthy earnings growth (we still forecast FY16-19E CAGR of 14%), 2) improving RoE (18% from FY18E onwards up from 13% in FY16), 3) FCF yield of 7.3%/9.6% in FY17/18E and 4) net cash B/S. We maintain BUY on UFO Moviez with new TP of Rs690 based on EV/EBITDA of 9x FY18F.

CMP offers deep value and ignores the quality of earnings growth

Even after the cut in our forecast, we expect UFO Moviez to generate FCF of Rs3.1bn over FY17- 19E. At CMP, even the FY17E FCF yield is at 7.3% and FY18E FCF yield is 9.6% which we believe is extremely attractive. Further, we still forecast RoE to improve to 17.7% in FY18E vs. 13.3% in FY16. Thus we believe, that the stock has significant re-rating potential and maintain our target EV/EBITDA of 9x FY18E. We maintain BUY with new TP of Rs 690.