In an intereview to CNBC-TV18, Kapil Agarwal, Joint MD of UFO Moviez said that the June quarter generally is weak and not many films were released in the first quarter of this year. However, the current quarter is seeing good traction with movies like Sultan and Kabali.
Agarwal is confident of meeting the guidance of 30 percent in advertising growth. Advertising revenues will improve margins, he said. Below is the verbatim transcript of Kapil Agarwal's interview to Nigel D'Souza.
Q: Revenues did come in low as well by around 8 percent; in fact it is coming off a high base because Q1 of FY16 was splendid. What did see some of the big films come out, not enough prints?
A: Quarter one did not see any big films. However, Q2 is seeing good traction with movies like Sultan and Kabali.
As you rightly pointed out that we had a big base. Last year, because of the spill over from the World Cup in January-February-March quarter, April quarter was very good. We had almost 88 percent growth in advertising revenue. We had a big base. However, this year, with that base, we still grew 10 percent in terms of advertising revenue which is very good for Q1 because Q1 generally is weak. Last year was an exceptional thing.
Q: Your total income is down about 8 percent but you made the point about your advertising revenues coming higher by close to around 10 percent though you have a big target - 30 percent, so that means that in the next three quarters you should do more than 35-40 percent to make up for this gap. How confident are you on that front?
A: Absolutely no issue. The revenues which are already in hand, we are absolutely in line with our growth target of 30 percent. I do not think there is any issue in delivering 30 percent plus advertising growth, in fact Q2 numbers will explain as it comes out.
Q: Your sense on the average advertising minutes that have been sold. I think it was at 3.9 and on a sequential basis though it has come down from 4.5 or thereabouts.
A: If you see the Q1 last year, it was only 3.81 minutes. This year Q1 has been 3.97 minutes. So quarter-on-quarter comparison it is slightly higher. However, when you have to achieve 30 percent growth, on trailing quarter you will see substantial growth at the end of the year.
Q: Where can this number stabilise?
A: It should be in excess of 4.5-5 minutes by the time we close this year. The advertising revenues never equally divided; last year also we saw one quarter grew by 8 percent and one quarter grew by 88 percent. This keeps fluctuating because advertisers bet on different kind of movies, but overall I do not see that as a problem.
Q: What can we see in terms of your margins - that has come down. Could that be a case of worry or do you expect that as well to pick up to 35 percent that you have been normally seeing because this time it came at around 27 percent?
A: The margins are proportional to the ad revenues because the ad revenue - 55-60 percent of the gross ad revenue directly goes to the bottomline. So if you have 10 percent growth, it is a different number, when you have 40 percent growth or 30 percent growth, it will be a different number. So I do not see any pressure on the bottomline as well.
Q: Your caravan business, the number of caravan are at around 90 plus and those have been increasing but when can we see breakeven coming there because that is going to dragging your profitability?
A: We started the year with 91 caravans. We are not doing anymore capex because we want to stabilise this business and like any other new business, this is going through its own teething troubles but it is stabilising. Therefore, current quarter which is Q2 -- Q1 has dragged it down, so when you see 26 percent net profit after tax is down by 26 percent, if I remove the losses of Caravan, we are up by 6 percent. So the main business, which is the continuing business, there is absolutely no problem. However, in Q2, Caravan will be shut because of monsoons; there will be no operations and H2, we are expecting it to stabilise and come into a cash breakeven situation and next year it will be quite profitable. So the operation seems under control now.
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