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UFO Moviez India Ltd
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[Audio Gap]
[indiscernible], moderator of UFO Moviez India Q2 FY '23 Earnings Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note, this conference is recorded. I would now like to hand over the floor to Mr. Aasim Bharde of DAM Capital. Thank you, and over to you, sir.
Thank you. On behalf of DAM Capital Advisors, I welcome you all to the Q2 and H1 FY '23 Earnings Call of UFO Moviez India Limited. From the company, we have with us Mr. Rajesh Mishra, Executive Director and Group CEO; and Mr. Ashish Malushte, CFO. We would open the call with brief opening remarks from the management, post which the floor will be opened for queries. Thank you. And over to you, Mr. Mishra.
Thank you, Aasim. Greetings, everyone, and thank you all for joining our Q2 and H1 FY '23 earnings call.
Let me start with the updates and highlights. Business continued to operate without any COVID-related challenges in Q2 FY '23. We had a total of 522 movies, comprising of an astounding 40 films per week in all languages and versions, that were released on our network during this quarter, and a total of 968 movies were released in H1 FY '23. Number of big budget movies released in Q2 was higher than in Q1. However, the performance of these big budget movies, especially in the Hindi-speaking markets, was below expectations and comparatively lower than the movies released in Q1. The trend in the performance of movies that we are observing post pandemic indicates the importance of quality of content for the movie business to flourish.
Movies with only the big star cast today are rarely enough to pull back audiences to the theaters. And even if they do, it is a story that will help the movie to run longer at the box office. This is what happened in Q2 with several big star cast movies such as Shamshera, Laal Singh Chaddha, Liger, Raksha Bandhan, Ek Villain Part 2, et cetera, where these films did not perform as per expectations. The underperformance of these movies had a severe impact on the advertisement revenues of not just UFO, but the entire industry as a whole. Advertisers restricted themselves to lower budget allocations for big-screen advertisements.
In Q2, we had only one successful Hindi movie that was Brahmastra: Part One. While from the south, we had Vikrant Rona, Karthikeya 2, Sita Raman, et cetera. Two other movies, PS1 and Kantara that released on 30th September had turned out to be blockbusters at the box office. South movies have continued to appeal to the larger audiences pan India. And that, we believe, is a healthy trend as it will lead to an expansion of the Indian box office market.
In addition, with the increase in the number of movies releasing pan India, our CDC revenue stands to benefit. The same is visible from our quarter-on-quarter growth in CDC revenue, which has grown by 14% from INR 284 million in Q1 FY '23 to INR 323 million in Q2 FY '23. In terms of recovery, CDC revenue has recorded almost to pre-pandemic levels.
On advertisement performance, our overall advertising revenues have declined by 25% from INR 178 million in Q1 FY '23 to INR 133 million in Q2 FY '23. And the major impact is seen on the corporate [ advisers ] vertical because of the reasons stated above. Though government advertisement revenue has been similar to Q1 FY '23, government is not increasing advertising spends, and this continues to be an area of concern.
Coming to the distribution business. In our Q1 earnings call, we stated that this business has started to shape up well. We are happy to inform you that we continue to maintain the same stance in Q2 as well. During the quarter, UFO distributed 40 moves, majority of which were south films that we distributed in the North market, namely Rocketry: The Nambi Effect, that was released on 1st July, was distributed by pan India, except for Tamil Nadu. Another big movie Karthikeya 2 was released by us in Q2 in the North circuit, excluding Orissa. We believe as more of these movies find a bigger audience in the non-South markets, our business vertical of distribution will see a good ramp up and start contributing modestly. I would like to reiterate that in our current distribution business model, there is near 0 businesses.
Coming to the headline numbers for the quarter and half year ended September 30, 2022. Please note, as FY '21 and FY '22 were the washout years due to the pandemic-induced restrictions, we have compared our performance with pre-pandemic period that is Q2 FY '20 and H1 FY '20 for better representation of recovery in the business. Consolidated revenues stood at INR 1,078 million in Q2 FY '23 as compared to INR 1,251 million in Q2 FY '20, indicating a recovery of 86%. Business EBITDA, that is EBITDA, excluding onetime impairment provisioning, stood at INR 54 million as compared to INR 271 million in Q2 FY '20. We have taken a onetime provision of INR 29 million in this quarter on our investment in CDPL. Taking the impact of this onetime provisioning, our reported EBITDA stood at INR 25 million. Loss at PAT level for the quarter stood at INR 92 million as compared with INR 35 million in Q2 FY '20, the profit.
Our half yearly performance, the consolidated revenue stood at INR 1,984 million as compared with INR 2,519 million in H1 FY '20, a recovery of 79%. Business EBITDA, that is EBITDA, excluding onetime impairment provisioning, stood at INR 152 million as compared to INR 559 million in H1 FY '20. Taking the impact of this onetime provisioning in Q2 FY '23, our EBITDA stood at INR 123 -- INR 123 million. Loss at PAT level INR 117 million as compared to a profit of INR 46 million in H1 FY '20.
As far as consolidated funds position is concerned, the balance at the end of the quarter stood at INR 1,060 million. On the debt front, as of September 30, 2022, the company's net debt free with net cash of INR 227 million.
I would like to take this opportunity to thank all our stakeholders for their continued support and trust in the company.
With that, I open the floor to take your questions. Thank you.
[Operator Instructions] First question comes from Rahul Dani from Indsec Securities.
This is Saral here. Am I audible?
Yes. Yes. Please go ahead.
Yes. So Saral, this side. Sir, my -- I have 3 questions. My first question is how is the overall movie business looking to you over the medium to long term, since in the last 6 months, we haven't really seen the usual box office performance, like the pre-pandemic used to be. So what is your view on that, sir?
So as I mentioned, while in Q2, we had a significantly lower performance of film, especially in the English-speaking market, which had an impact on us. The content pipeline for the next quarter and Q3 and Q4 seems pretty nice. The films like Drishyam 2, Bhediya, Avatar, Panther, Cirkus of Ranveer Singh, Kisi Ka Bhai Kisi Ki Jaan of Salman Khan, Adipurush is also lined up, but might get pushed ahead. So there is a very good content lineup in Q3 and Q4. And this -- we have very good hopes from these films.
That was helpful. So my second question is, has the distribution business took off since in the last call, you mentioned that it is shaping up very well. And now also, you have mentioned in the opening remarks. So what is the overall outlook?
Distribution business is picking up really well. We are concentrating on mostly on the South regional films and other regional wins also, but primarily South films because that is a very, very synergistic approach for our main core business in the sense we are able to drive our CDC earnings from that, our advertisement earnings from that. We are able to provide content pipeline to our own screens. So this ties in very nicely with our main business. And I'm happy to say that we have released almost 66 films till date. And in this quarter, it's still 17 films...
14.
14 films we have released in this quarter alone itself, which is almost 1 film a week. So we are seeing very good traction and the business has started to show decent profit. It will be not be significant profits, but this business will be very profitable on a stand-alone basis itself.
And sir, lastly, when do you think we will be reaching a pre-pandemic profitability? I mean, if I can add to that question, when do we see us reaching double-digit margins because we've managed to break even this quarter. So at what revenue level will we see decent double-digit pre-pandemic margins?
So our -- we have 3 primarily revenue streams. One is rental from cinemas. Second is CDC revenue that we earn. And the advertisement revenue. So while the rental and CDC revenues are back to normal, almost, CDC revenues, I think, 96% it has gone to pre-pandemic, the only area that we have not been able to catch up right now is the advertising front, which again is divided in 2 parts from government advertising. Government advertising has significantly reduced. They have reduced their overall spend right now currently, but we expect that to revive. Corporate advertising is catching up slowly. So I think Q3, Q4 will be a better indicator of how we are going to shape up on this thing.
Sir, what would be -- I mean, that was very helpful. Sir, at what revenue can we double -- I mean, can we reach double-digit margins? I mean, previously, we used to do INR 140 crore, INR 130 crore with decent 20%, 22% margin. So what number at current stage will be -- which will help us to reach double-digit margins?
So Saral, a slightly different way to look at it and more simplistic way, which Rajesh was trying to explain, is the differential delta between pre-COVID and the current level. It's purely the advertisement revenue. So if I go back 6 months, when the business was just opening up, the bigger concern for us was, one, whether the business would really come back because our industry was one of the last ones to come back after pandemic. Two, if the theaters open up, whether the content would start flowing and it will continue or no. Both these answers were -- both these questions are answered in positively.
Now the challenge that we are currently seeing where my -- so first, to give you the numbers, if I see quarter-on-quarter comparison, the revenue almost has got up, but my EBITDA is still down by INR 22 crores as compared to my pre-pandemic level. And if you actually look at my advertisement margin, though my revenue is almost appearing to be caught up, my advertisement margin is down by equal amount, which is INR 22 crores as compared to a reduction of INR 24 crore of revenue. So what it is telling us is the moment my advertisement revenue goes back on track, not just that I'll be hitting by 2-digit margin, but also I'll be back on my EBITDA level profitability at pre-COVID level.
Now there are reasons around where the challenges on advertisement has been primarily 2. One, government, which we have been cautioning the market, that has been not spending the way it was spending on digital media -- digital cinema media in these [indiscernible] COVID days is the first concern for us as an industry. And second one, which is a little bit of a disappointment for us, is after a very good 3 months, Jan, Feb, March, when the movie business started coming back, after that, unfortunately, there has been a series of these movies which are not performing well. And it's more like a sequential back-to-back disappointment. And that has changed the positivity, which was there in the minds of the advertiser and who started reallocating some of their budgets to the ad medium, in-cinema ad medium.
Unfortunately, with the back-to-back flops, if I have to actually give you the names, we had Jersey in Q1 -- we had Jersey, we had Heropanti, we had Samrat Prithviraj and then Jugjugg Jeeyo. I won't say those were flops, but they didn't really do well the way they should have done. This continued in Q2 when we had Khuda Hafiz, Part 2; Part 1 did well. Then you had Shamshera, which didn't do well. You had Ek Tha Villain. Worst week was Laal Singh Chaddha and Raksha Bandhan. It continued with Liger till Brahmastra arrived. So it's a long stretch of about 3 months when the advertisers on the corporate side slowly started taking a break. So they are not that they don't believe in this medium, but they are saying that the audience must come back.
So we feel it is more like a content quality issue because while Hindi movies have shown this kind of a performance negativity, the southern movies have really done very well. In fact, southern dubbed movies have also done well. So you had first question, how you look at movie business, there's no negativity in our mind. But content quality probably should come up to the expectation of consumers and then people will start coming back.
Now coming back to your question that you asked double-digit growth, not just double-digit growth in the margins, but coming back to profitability would be achieved the movement where advertisement comes back on track. So relatively simple to analyze for an analyst, but difficult to answer in terms of how the recovery would be.
Right, sir. Sir, are we seeing some green shoots on the advertising front in terms of revenues? Or which sometimes...
Yes, yes. So after Brahmastra, luckily, now the situation is slightly changing after 3, 3.5 months of negative views in the minds of advertisers. Fortunately, Brahmastra came at a time when the festive season was around. So again, this is slowly bringing the advertisers back, and that's what Rajesh mentioned that if some of these movies really start doing well, and they should, then again, we will see these green shoots converting into revenues.
And this is an industry level issue that we are seeing, and advertising will follow the success of films. We have had a lean period, but that is not the way the industry will function forever. And with the success of films, this will quickly ramp up again for us.
Sir, if I can squeeze in one more question as a strategic question, sir, what is your thoughts on the OTT platform? We are working on, I think, Zinglin and Plexigo. So do you want to give some color there as to what is your strategy?
So right now, we have not seen much traction on that front, and we have significantly ramped down our costs also on that. We are working on a couple of projects, which when [indiscernible] 55, we will definitely come back to the market about this. But right now, it's on the back burner with very, very minimal costs.
So Saral, just to add one point here quickly. When you say OTT, the way it can be perceived as a company wanting to launch its own OTT brand. And therefore, it will entail investment in content and popularization of OTT, which means it's a deep pocket game. And I would like to clarify that this is not what we ever intended to be. So we have pivoted from the initial phase into the current phase where we are trying to position it more like a white labeling solution for other OTT players. So that is something which I just wanted to put as a thought in your...
And the next question is from Aditya Sen from RoboCapital.
This question on the cost structure. In Q2, we have done a cost of INR 105 cr, which is similar to December '19, that is pre-pandemic cost structure. So I'd like to know why the cost structure is growing faster than the revenue structure. Like, we have reached the pre-pandemic cost, but the revenues are exactly the opposite.
You repeat the numbers so that I'm in sync with what you're saying. You're seeing in Q2, the total cost, which is INR 105 crore, is exactly equal to you mentioned...
Similar to December '19 cost, that is INR 106 cr...
Pre-pandemic.
Okay. Pre-pandemic loss.
Yes. Pre-pandemic.
And in spite of that -- so what is the -- so I understood...
So the question is -- so the question is that the cost structure is back to the pre-pandemic, but why isn't the revenue scaling in the same way? Or the other way we can take it is that if the revenue is still at the lower levels, why are we scaling up the costs this much?
So the total cost, more or less, you're right, INR 98 crores to INR 102 crores, which is how it is looking like. What we need to actually see is do a deeper dive and differentiate between the direct cost and the SG&A and manpower cost. So if you see the SG&A and manpower cost, SG&A cost has still not reached that level. It is still 20% lower. That is a cost synergies or cost benefits or cost reduction that drives that we initiated during pandemic is supporting us.
Manpower cost has gone up because for 3 years, we had not given raise to our employees. The majority of increase that you would see is in direct cost. And even in direct cost, the increase would be more in cost of goods sold, which is the -- which is a direct cost leading to sale of equipment and that cost has actually gone up, but whereas the advertisement-related direct cost has not reached the same level. It is almost -- if I see quarter it is INR 3 crore less and if I see half year, it is INR 10 crores less.
So what happens is if you look at the total expense as one bucket, then you would have the question rightfully so what you had. But if you do a deeper dissection, this is how the numbers pan out. And therefore, since the direct cost [indiscernible] advertisement is low, that is the same point which I was trying to make. When the ad revenue goes up, of course, this cost would also go up, but the margin would significantly grow.
[Operator Instructions] Next question comes from Vipul Kumar Shah from Sumangal Investments.
Sir, I'm joining the call after so many quarters. So, yes. So am I audible, sir?
Very much.
Yes, we can hear you.
Yes. So I have a general question, sir. After the pandemic, people have moved to OTT and you yourself alluded so many good -- many megastar movies are not doing well. So I think something has changed for the movie industry. So what is our path to regeneration or restoration of profitability as we will appreciate that you had issued the shares in IPO at around more than INR 600, and investors have lost 80% of the capital. So -- pardon me, but I feel that ours is a broken business model. So your comments, please.
While it is true that some films have not been performing well, but if you look at the all India level, OTT impact should have been happening across the country also. So we don't think it is OTT impact as much as the quality of films that have turned up in this quarter. South films have done well. South audiences are coming to the theaters. North also comes to the theaters, provided the film is good as has been shown in the Brahmastra also. So I would not say it's a broken model. It's -- only it's dependent upon the quality of films that come in.
And as I said, out of 3 revenue streams, 2 are back to normal. One, advertisement, which is closely linked to the success of films. This has been seen in other industry players also, same the level of debt they have also been seeing. So with the improvement in the quality of content that comes in, this business will surely come back. I don't think it's -- there is a serious broken issue about this business as such.
No. In that case, you -- sir, you should be getting more advertisement in the southern -- Southern India, no? You said there you are not facing any content problem. And there you should be getting more advertisement, but that is also not happening, sir.
Yes, yes, it will happen, it will happen. It's a growing trend, and it will pick up across there also. It takes time for the advertiser confidence to build up, which was hit by the pandemic and then by the failure of the films, it will pick up.
No. Because right now, government finances are also in very good shape. So why government is reluctant to spend on this media, I fail to understand, because there must be some problem with the return they must be expecting.
No. As far as the way we are seeing it, government has reduced their advertising spend across on all media. They are significantly reduced by 70%, 80%. And what we have -- this is not something which is in our control. Government advertising is driven by government policies. So this is not something that we can go and pitch to them or procure the business by making a hard sell for our business. This is -- they were advertisers, big time advertisers on the media, across media, but since they have reduced their spending, there is not much we can do about it in that area. And we are that's why concentrating more on the corporate ad sales. And that is where we will see traction once the quality of films pick up.
My question is regarding Slide 9. So in distributor revenue, there is others INR 149 million H1 FY '23, INR 149 million. So what is the others, can you elaborate, please?
Yes. So for this 6-month period, what you see is INR 14.9 crores or INR 15 crores revenue. And if I'm correct, for Q1, this number will be close to INR 10.5 crore. If the gross revenue that we book for the distribution business, that is -- if you were there on the call sometime back when there were questions around distribution business, we explained that it is picking up good traction. In this quarter, we have released 14 movies. But to clarify, since we -- mostly, we have an accounting background, all of us, the way the revenue is booked is whatever billing when a movie is procured by us from producer, he would bill us and that goes as my expense and whatever revenue is generated at the theaters, that distributor share come to me and that becomes my income.
So when I say that I have generated INR 2 crores of profit or INR 1.9 crores of profit from this revenue -- this business line in this quarter, against that, my top line for the quarter is INR 10.5 crore, or for 6 months, it is INR 14.5 crore. And this is something which was not there in pre-pandemic period, and therefore, you don't see a corresponding revenue there.
So my request would be not to look at it as a top line, but this should better be understood as a net revenue because as Rajesh explained, our policy here is to take 0 content risk, near 0 content risk. And therefore, it is better to look at it how -- what kind of net revenues we are generating. So here, in Q1, we generated INR 1.9 crores. And in Q1 plus Q2, we generated close to INR 3 crores -- INR 3.2 crores of revenue -- net revenue. But to answer your question, what is this INR 14.5 crores or INR 10.5 crores, that is the top line attributable to my distribution business.
So to elaborate it further in distribution business, you mean to say that you don't take any content risk even if movie sales. Is that understanding correct?
Yes. So you're right, absolutely rightly captured. If it was a big budget movie, they might insist that a distributor should pay a minimum guarantee to say a producer, which is what we don't do. All these movies are distributed on either a percentage commission or a fixed fee commission, which means I don't give any commitment to the producer that how much money I will pay him. But he comes to me because he sees a lot of value in UFO because we have this network and the reputation of last 2 decades and the connection in the exhibition business because of which, otherwise, he was unable to reach out to the theaters. But through UFO's risk-free distribution model, at least he can reach out to the exhibitors and do some collection. Therefore, our target is not those the big budget or A-class movies, we are more into focusing into quality movies, which are from regional side or some of the Hindi movies with not so big star cast, which -- where the producer doesn't have an expectation of fixed minimum guarantee.
How scalable is this business?
Sir, I'm sorry to interrupt you...
So let me take this question, then we can request sir to go back in the queue. So scalability, again, if you actually go back to our 2 quarter back presentation, we had very categorically said that this business is not -- we are not looking more as a revenue driver or a profitability driver directly. But what we were observing was as the competition was intensifying in our core business, it was becoming more important for us to have more deeper kind of a connect with my exhibitor and distributor community, which fetches me my rental and distribution revenue or CDC revenue and in turn my advertisement platform. So till the time we got into a distribution business, we were, in a way, on a sideline and a service provider.
The moment we are now into this distribution business, and we have distributed 66 movies, which means we are in connect -- direct connect with the theaters, they have started looking at it more like a deeper level partner, and this has more strategic value, which will help us to retain these screens and grow these screens, but it is not just a strategic and a qualitative importance. Additionally, it is fetching me the steady revenue line.
Coming back to what number of movies you can distribute. As we said that this quarter, we did 14. All India, there were 515 movies that were released. But the scalability entirely depends on how many movies come in the bucket, which I explained to you.
And this is a business which is, as I said, works synergistically well because if we are pushing south content into the North markets also, so to put this in perspective, south releases almost 1,000 films by themselves across the 4 main languages. And this is even if we convert around 10% of these movies into the North market, it increases my content flow in the North market significantly, which will reflect better for us in our CDC and advertising revenues.
And the next question from Krunal Shah from ENAM Investments.
So actually looking forward to...
Can you speak a little louder, please.
Krunal, we are unable to hear you properly. Yes. So if you can come close to the...
Is it better now?
Yes, yes, much better.
Yes, much better.
The question is actually in line with the previous participant was asking. So in the net revenue that you report for the film distribution, what would be the contribution there or how the cost would be there?
Okay. So it's very simple math. As I explained just imagine a movie, a Marathi movie wants to get distributed through us. We tell him that my fee will be, say, either 5%, 7% of the share rate I collect for you. No commitment given. He gives me the content. I enter into the arrangement with, say, 150 theaters in Maharashtra. Whatever collection happens, if my revenue share agreed as per the understanding is 50%, 50% comes to me, assume that, that collection becomes INR 10 crore, argument sake. Now of the INR 10 crores, my share is INR 5 crores. So INR 5 crores will become my top line. Okay?
And so my revenues will be INR 5 crores from this movie, for example. And since my share is only going to be say, mathematical easy 10%, which is not that high normally, then the distributor will correspondingly bill me INR 4.5 crores. So INR 4.5 crores becomes my cost, okay? So net -- therefore, I would always, going forward, be bringing out INR 50 lakh in this case, which is my net margin. Instead of explaining that my top line is INR 5 crore. INR 5 crore has no meaning as such to me, I mean, to my investors. More important is this INR 50 lakh. Okay? And we are also in discussion and figuring out whether because we are of the view that this should be more represented even in top line as net, but it is more like an accounting technical discussion. So that is going on. If that happens, then we'll start reporting only the net level.
Okay. And in this net, suppose, say, INR 3.2 crore for H1, the entire thing will flow to the bottom line?
Except the direct cost of the manpower relating to that and the manpower cost, which Rajesh was saying, there are 2 parts. One, which is directly working on this. There's only a very small team of 4, 5 people working at HO, okay? And except one, the rest will be at a very junior level. The bigger cost comes in the form of my -- my extended staff, which is sitting in my regional offices where this distribution is happening. But this is where the synergy comes in. In any case, I'm observing their costs as part of my core business, they are doing this incremental work, but no cost will get, in a way, reduced from my INR 3.2 crores. So somebody doing in a segment report, there will be apportionment. But at a consol level, if we see again INR 3.2 crores, those only HO level small manpower cost will be there. The regional manpower cost is typically the synergistic move that we have got.
Okay. Okay. Got it. Got it. And so coming back to again government revenue, is there anything that have changed fundamentally government using different medium to market? Or is it they're approaching more digital medium or they're using their previous platform? What have you seen there?
Not really. I mean, what we have been observing is that, while they are spending some amount on print, on all other mediums, they have reduced their costing across the boards, even on print, compared to what they were spending earlier because there is an overall reduction in their ad spend even in television, across television, hoardings, print, they have reduced their costs significantly. Some level of cost restriction is happening at their end.
Right. No, but the point is that with Aadhaar and all now the government has so much data, it's easier for them to market directly via SMSs and all. So have you seen that happening?
It's really for them to market through?
SMSs or directly measuring the customer, the beneficiaries of the scheme?
So to be honest, I have personally not seen any kind of such campaigns happening at a personal level. And more or less, even if we see the digital medium where at least we are present, we don't -- I mean most of us would be present. We don't see the government spending happening on those mediums. So we see more like probably it's a pause at the government end. But certainly, there are and there will be areas where both state and central government would like to reach out to the [ residents ] of the country to explain about schemes and what moves they have.
So at some stage, this should take a turn. But as Rajesh mentioned, we have proactively started looking more as to see how we can push corporate more because ultimately, we have to say 12 minutes or 15 minutes. If I can sell it through corporate, then that is it. So and that was the reason why from my IPO time, we were highlighting the government segment and corporate segment.
We wanted to explain how our dependency on government we are slowly reducing. Unfortunately, COVID and post-COVID, this has reached a stage where that revenue stream was completely dried before corporate could take it over.
All right. Got it. Sir the next question is on the CapEx. So what's the CapEx plan for FY '23?
FY '23 is current year, right, FY '22, '23. So this year, we had absolutely decided not to go on our CapEx because we used to have INR 40 crores, INR 50 crores of annual CapEx, which is required to maintain my network. But we have been saying that this CapEx, which we do is completely in our control, wherever we need, we do it, and we can also delay or prolong the upgradation of my own lease equipment. And therefore, this year, we decided not to exceed my CapEx beyond INR 22 crores to INR 25 crores.
In first 6 months, we have spent INR 10 crores, of which almost INR 7.5 crores is on the CapEx on servers. And almost 60% of that, we had to invest because some of the items were going out of the life, I mean end of life. And therefore, we needed to replenish it much before the time. And this will help us get some savings in my [ AMC ]-related costs. Some of those are evident in my current year numbers. So CapEx, to summarize, 6 months CapEx, INR 10 crores. Full year CapEx estimate around INR 25 crores. Of the INR 10 crores, 75% is on servers. Of that, almost 60% is because of the end-of-life situation.
Okay. Got it. And so one thing I observed in the result is that the advertisement revenue sharing has gone up, but the absolute advertisement revenue has gone down. So that doesn't -- I'm not able to understand what's happening there.
Yes, I'm glad you have suggested that. Otherwise, we had to explain it on our own. So it's a very important observation. If you see Q1 -- I mean, Q1 versus Q2, revenue has dropped by INR 4.5 crores, but ad share has gone up by INR 2.4 crores. So if you see my ad share level has 2 components. One is the minimum guarantee, which I give to a theater of, say, monthly INR 10,000. And the contract is such that it provides for a certain percentage of sharing, say, 25% of revenue or minimum guarantee, whichever is higher. But till the time the revenue is exceeding, say, INR 40,000 in this case, we will keep paying INR 10,000 as a minimum guarantee, okay? So ideally, if this was a hit in this quarter, similar should have been the hit in Q1 also.
But what happened was since we were just exiting the pandemic, the minimum guarantee arrangement, where we were committing to the theater a certain minimum amount, we had planned in such a way that it was going to go closer to pre-pandemic level from Q2 onwards. Therefore, you see there is an increase in Q2 versus Q1. And correspondingly, there has been -- in those cases, there has been increase in rental charges also.
Now if you look at the number, in other words, Q1 numbers where lower on minimum guarantee, which is part of sharing, because of these strategic reasons where we had discussed with the theaters that we will increase it from Q2 onwards, which in other words, means that this will be more or less my minimum guaranteed commitment for the rest of the 2 quarters for this year, irrespective of my revenue lines. But if my revenue keeps going up, which is what is the expectation, till the time I hit the minimum guarantee threshold, I am not required to share anything more. And therefore, the percentage will keep dropping. So this is the reason why you see that revenues have dropped, but still in Q2, my MG has gone up, and therefore, the margins have disproportionately gone down.
Got it. Got it. So going forward, so if I would say the revenue goes up...
Can you speak a little louder, please.
Yes, sorry. So going forward, suppose if my revenue went up how much would be the incremental share from the incremental revenue that would have been needed to be shared with the exhibitors?
So it goes each theater, just to again repeat an example -- how much is quarterly revenue per quarter per screen? Just give me a minute. So first screen revenue, which is reported right now on Q2, if you go to Slide 12, you will see a INR 37,000 revenue. Okay? Per screen. So which means monthly INR 12,000 for argument sake, let's take it INR 12,000 for sake of simplicity, okay? So INR 12,000 is my monthly advertisement revenue. So 25% of that translates to INR 3,000. So if I didn't have a minimum guarantee with the screen, I would have paid only INR 3,000. But since from Q2, I'm -- my MG has kicked in, now I'm paying him INR 10,000 as minimum guarantee, which is equal to rental. Okay?
But let us keep rental aside and only compare INR 12,000 ad revenue with INR 10,000 MG. Now what it means is in the next quarter, if hypothetically, this revenue doubles from INR 12,000 to INR 24,000 a month, 25% would still be INR 6,000, which is lesser than INR 10,000. So in Q2 also for this theater, my hit will be INR 10,000 only. Whereas entire incremental advertisement will flow into margin. So what happens with this theater depending upon how the contract is structured with each theater, it becomes more like a -- but more or less a structure as such, only the percentages differ and the minimum guarantee amount differ. But I try to explain you the concept how incremental revenue can [ fit ] into the margin.
What would be the broad range of the percentage right now after COVID?
Pardon?
What would be the broad range of the sharing percentage after COVID now?
So currently because of this unique situation, you are seeing a sharing to be 66% for H1. We are expecting it should come down to the range of 45%, 47% in a normal scenario. And eventually settle to 40%, which was my pre-COVID level.
Okay. Got it. Got it. Great. And one last question is on this...
Sir, I am sorry to interrupt you. Sir, I request you to join back the queue again for the next question, sir.
[Operator Instructions] Next question comes from Manan Patel from Airavat Capital.
Am I audible?
Yes.
Yes, Absolutely.
And sir, first question is regarding the impairment. I think sir mentioned that we had an impairment of INR 2.9 crores in CDPL. And on the stand-alone, the impairment is almost INR 13 crores. So can you help me understand what this impairment is related to first, from what I understand till last year, we were exercising options on CDPL or [ warrant ]. So can you help me understand this?
Yes. So firstly, very important first point before I get into the numbers. Till last year, you were exercising warrants this year, we have taken provision for impairment wise. Okay? So first -- and let me answer this. This is according to me more critical question and also I'll answer the numbers part of it. This Cinestaan was a more strategic investment that we decided to do, which we thought will help my advertisement revenue in a peculiar way. And this investment was finalized in December 2019. And of course, Cinestaan team has its own business plan, which we wanted to -- that to flourish the way they wanted it or they had planned it. But unfortunately, in COVID, like some of the other businesses, this business came to a complete standstill.
Unfortunately, the revival was completely dependent on more of a Hindi content come back and Hindi content started coming back much later. Till that time, there was an ongoing cash burn in this company. And that cash burn was being in a way funded through the investment infused by -- from our side, which was as per the investment agreement. Now this particular business, beyond 2021 or beginning of 2022, was not looking more meaningful to us. So we decided to not continue investing in this business because we had more important things to handle in terms of bringing our core business back on track. So a decision was taken not to continue any further investment beyond whatever was agreed in 2019.
And in -- now coming to your question, why were you exercising options, you coupons still 2000 -- last year, the answer to that is because that was a contractual arrangement and obligation on us under my 2019 agreement. So when we fulfill that contractual obligation, which helped us from keeping some of the other obligations falling on us away. Then we decided to move ahead with this. And therefore, in other words, we have decided not to further infuse any funding in this business. And as a result of which, this business may not grow or be able to go back to its pre-COVID level. And as a result of which, we decided to take a provision on my entire investment, which was INR 291 lakhs in consol level. With this, whatever investments we have done and whatever exposure we had in Cinestaan is fully provided for either in the form of the impairment provision or in the form of the losses, which came into my consol over a period of time.
So to answer your question, why you were exercising your coupons till last year, it was more of a contractual arrangement, had to be done. Otherwise, we would have got into a different legal tussles. We've honored that commitment. We're still very hopeful that the business may shape up well in 2021. But post the second phase of COVID, which was Delta, we were more or less clear that we should focus more on our core business. Therefore, we have now taken this provision on Cinestaan and cleaned our books to the extent of this investment.
That was very helpful, sir. The second question is, so you are going to have some more clarity on the Nova cinema concept. So any updates on that?
Yes. So Nova, we are progressing nicely on that. Our first project is coming up near Nagpur in [indiscernible] area. We hope to see it going live by next month. And there are additional 4 projects, which are currently underway on the -- in Uttar Pradesh. So this is gaining traction. As we have said earlier also, this is a long-term business, and it will take some time to [ 55 ]. We are working with local level players and providing them service and know-how and inputs so that they can create more cinemas. That is the basic idea of Nova. And as I said, with these 5 projects coming up, we will see some traction, which will drive the business further. These will act essentially as demonstration units, which will propel the business further along with other entrepreneurs. Essentially, it's a very asset-like model. We are basic service providers to these companies. The idea is to grow the number of cinemas in the country. And this is what we are hoping to achieve with this model.
Sir. And the last question is related to the sale of product business, so lamps and all that we sell. So from what I understood historically, it has been a very -- it has been a decently profitable business. But in this quarter, if I look at it, the sale is around INR 28 crores versus the cost of INR 25 crores. So the margins have come down. So is it like a sustainable thing or like the margins will stay down from here on? Or is it onetime?
So I'll answer it in 2 parts. One, whether in this quarter, we had a lower margin. So first, answering that and then giving you what we feel about this line of business. 20% margin in this quarter against this business and 20% on the sale value, okay?
Now if we go back even in pre-COVID period, my margin used to be, if I tell you, 21% in FY '20, 15.4% in FY '21, in Q2 of FY '20, it was slightly higher to 25%. But more or less, we have seen in pre-COVID periods, the combined margin on sale of equipment and sale of lamp in the range of anywhere between 16% to 20%. So this continues to have the same margin. The -- in fact, 2 components. One is the lamp. Lamp, we know what margin we are selling it at. The only delta comes from the sale of the equipment, which is predominantly in the Middle East region, where in some of the contracts, depending upon how you negotiate, you might get slightly higher margins, which happened in Q1.
In Q1, our total margin was 25%. So to answer, the margins have not dipped. In fact, they are there where they used to be historically at 20% level. As regard this revenue stream is concerned, it is more like an ancillary revenue string to my core business. Since I'm in digital cinema, since I'm an intense player, reliable player, people prefer us when they go for procurement of their own equipment.
And this would continue to give this certain percentage of my revenue and profitability coming from this line. We are hoping that in the next few quarters, at least, it will be on a higher levels because of some expectations in Middle East, where we are hoping that because the previous sets of equipment are reaching end of life. We may see some uptick in either sales or some other structures there. So this is how we look at this entire revenue line and the potential of this revenue here.
Next question comes from Vaibhav Badjatya from Honesty and Integrity Investment.
Yes. So in terms of government revenue, before COVID, can you -- at the time of, say, for example, in financial year 2019 or 9 months of financial year 2020, how much was from the central government and how much was from the various state government or local bodies?
So broadly, central government ministries used to contribute anywhere between 75% to 80% in some cases. But what we were seeing was the trend was where the state government and PSU share was slowly increasing and from a level of 15%, 16% in the initial years, like 2014, '15, it had one stage reached at 25% level. But major contribution, the lion's share was coming from central government.
And in the central government, is there any separate department, which just handles the whole government advertising fees or you have to go to separate ministries and kind of ask for the rightful share of the -- how that whole thing is organized is what I'm trying to understand?
There is a central agency, DAVP, which is now Bureau of Communications. They basically channel all the advertising of the various ministries through them. So typically, we would make pitches to the various ministries, but all the advertising gets channeled through this agency, centralized agency. So individual ministries on their own do not release the advertisements. It comes from one centralized nodal point.
Yes. But how much is -- how much should be to print and how much should be through theatrical advertising? It is decided by individual ministries, not by DAVP, right?
Technically, you're right. But everything gets channeled through DAVP or Bureau of Communications. As I said, right now, what we are seeing is advertising some level happening on the print medium, while all the other mediums have been totally curtailed. Even print has been significantly curtailed from the pre-pandemic times. So there is an overall dip in the expense. So they would be spending around INR 300 crores, INR 400 crores, let us say, in this -- in a quarter. And in this Q1 of this thing, we had just seen around INR 23 crores happening. So overall significant dip has happened on the government advertising front.
Yes. On that front, last quarter, if we read the transcript of your last quarter, you seem to have kind of suggested the opposite that they have not -- government has not curtailed spending in any other medium. And it was just that in-cinemas they have curtailed the spending. But this quarter, this time, you are saying that it is across the medium. So...
I guess that was not the situation because the bigger pain point for all of us is not just our medium, for all of us is that government has, in a way, curtailed it spent. And it's not just our transcript or what we said in the last quarter, but that was evident in some of the questions that were asked in parliament when the answers were given. I will try to put those public domain information and share it with you. But I don't think we have mentioned that the spends on other mediums is stronger, growing and only on -- in-cinema, it is going down.
In fact, historically, if you see in-cinema was much late entrant. We became DAVP approved only in 2010 or 2011. Till that time, government used to spend in other mediums, but the pace at which this in-cinema game was liked by the government agencies was evident from the fact that from INR 0 crore in 2009, we, as an industry, in-cinema, not UFO, in-cinema as an industry reached a level of close to INR 300 crores, INR 350 crores in central government, when they spends were like INR 1,200 crores, INR 1,400 crores.
So there has been a disproportionate liking that they had, and there are reasons which we feel go in our favor that we can give them the right kind of visibility, the larger screen, no remote in their hand. They can do targeted advertisement, language-based advertisement, that sell-through. So we were probably the larger beneficiaries when the allocation -- when somebody sees allocation in 2007, '08 versus 2017, '18. So I would actually urge my IR team to connect with you to confirm your understanding where we mentioned that the spends on other medium is strong, but on in-cinema, it is weak, government spend.
See we probably would have said that the advertisers have not stopped their advertisement spends on other medium, but those are the corporate advertisers, the regular advertisers. This is not the government advertiser. So there could have been a question that whether the advertisers as a whole have reduced their advertisement spends. Answer to that has been that in other medium, they are doing strong and therefore, they should do better on our medium as well. And which happened in Q1, not just us, but PVR, INOX also saw uptick in their ad revenues, which comes from corporate. So we need to reconcile this. This is my position. We will confirm it separately offline on a call, and my IR head is here, and he will connect with you. And you please help us identify where you have seen it in this transcript or the earnings transcript last quarter.
Yes, sure, sure, for sure. So I will connect separately on this. I think that's it from my side. All of my questions have already been answered. So that's it from my side.
[Operator Instructions] We have a follow-up question from Vipul Kumar Shah from Sumangal Investments.
Sir, can you comment on the performance of Caravan? How is it in shaping up post-COVID?
Caravan is pretty much very low performance right now. We have passed our banks, and we are awaiting empanelment from government. And right now, we have very low business on that. So around INR 20 lakhs business we have done in quarter 1 and quarter 2 both. So not much traction over there. But we have curtailed our cost entirely on that.
And lastly, sir, for my understanding, this CDC revenue, so what is it like? I think previously you must be reporting it under some other heads. So if you can basically explain what the CDC revenues are?
See, CDC, this is my core revenue. When a movie is -- a distributor wants to show his movie in a theater, in the past, he used to give a physical reel that's exactly what UFO made sure and eliminated it through its network. Now there's no physical expensive reel is required to be invested by the distributor for last 17, 18 years, ever since UFO came in. And in lieu of that INR 70,000, INR 80,000 cost, what we charge is a content delivery charge to the distributors for taking their film from their place to a theater and ensuring that it plays out in the theater only as per their instructions.
So if they have said you play it out 3x a day, it will play out only 3x a day. And for every playback, we charge them per show fee. That is one model or there could be a fixed weekly fee, a variant of that. And the combination of this gives us what we call as our content delivery charges is revenue coming from distributor. This is nothing but a small share, which we are charging to the distributor community for a larger cost arbitrage, a cost saving that we have brought to them over a period of time. And therefore, you see movie goes into 2000, 3000 screens, the larger Hindi movies, or even regional films like Punjabi, Marathi film going into 250, 300 screens, which was not the case before UFO. So this is my core revenue.
So -- but previously, this revenue, you were charging for 2, 3 weeks only. Beyond 2, 3 weeks, you were not charging. It was something like that, right?
You're absolutely right, sir, in -- the model continues. In the Hindi movie circuit, we charge for week 1, week 2, week 3 onwards, there is no charge. In some cases, the distributors have an option of choosing a package, but these are variants. But primarily, what you said is right. The model remains the same.
Okay, sir, I have many questions, but I'll get in touch with your IR.
We have a follow-up question from Krunal Shah from ENAM Investments.
Actually, just a clarification I wanted. So CDC revenue you explained. Then what is the VPF service revenue that we report now?
Okay. So good you have -- you have asked this question. So if you remember from 2015, when we did the IPO, we were trying to explain to the market that there is a sunset in my revenue line. And therefore, we used to show our revenue as D-Cinema and E-Cinema. But what happened was after 2019, my sunset business attributable to Hollywood studios, both in India and international reached sunset, which means whatever revenue I was supposed to lose contractually slowly as a waterfall that I reached the time line. So after that, there was no meaning in showing D-Cinema, E-Cinema revenue and confusing the market.
Therefore, now we have repositioned from Q1, the revenue line from distributor as content delivery charge revenue and virtual print fee revenue. Wherever you see a virtual print fee revenue, there is an arrangement of sharing of that virtual print fee with the theaters. There has been content delivery charge that entire revenues directly goes in my contribution.
As regards VPF revenue line is concerned, the model is same. This is the money received from distributors for delivery of their content and play out of their content. But contractually, there, we have entered into an arrangement with theater to share the revenue, and therefore, you will find a corresponding cost item of virtual print fee sharing.
Okay. So just to elaborate a little bit more, this VPF...
So if you go to Slide -- sorry, sorry, before you proceed, if you go to Slide 12, you will see that VPF revenue and correspondingly, there is a small bar, which will show the net revenue. The difference between the 2 is what we shared, which is a significant share as high as 85%.
I [indiscernible] you are talking about, sorry.
We couldn't hear you, please.
Okay. Sorry. The question is, again, so in the VPF services revenue. So if we were to see VPF E-Cinema and D-Cinema previously, we had sharing only in D-Cinema. And in E-Cinema, there was no sharing, hardly any. So...
Yes, you're right, hardly any, some share. Correct.
Yes. So would it be, like, if you were to equate D-Cinema with VPF services revenue now and E-Cinema with CDC, would that be right way to model it going forward as well?
It will be more or less right, but there are variants in that. For example, we would have acquired certain screens for VPF arrangement, which were not there in the past.
But typically, these are screens where the equipment and all is owned by the cinemas, where we have not invested in them. And the cinemas when they buy their own equipment, typically approach us for the [ AMC ] services or collection of their VPF. In many cases, advertisement rights also get assigned to us. It's a 0 investment areas where we share the VPF.
But you're right, if you go back historically since you're tracking us that way, the major chunk of VPF what is shown now will come from the bucket of the D-Cinema. But D-Cinema was going down systematically as per [ contract ]. And therefore, we thought it is better to now present what is my distributor revenue, which is not getting shared, which is CDC; what is my distributor share, which is getting shared, which is VPF.
Okay. Okay. And so just to elaborate a little bit more. So as you -- as sir was saying that where the equipment is owned versus leased. Is that also -- does that also make a difference in the classification here because I was also hoping that doesn't matter...
That is not the only criteria. The basic criteria is the screens where I'm not required to share my distributor [indiscernible], which is purely my revenue from my network [indiscernible] content delivery. And contractually, if I'm required to share the revenue, there will be 2 categories, either invested or I'll [indiscernible] required to share. That's a contractual arrangement. So if I'm contractually [indiscernible] the revenue, it becomes a VPF service revenue. Okay?
Okay. Got it. And so in case of VPF services revenue...
Let him take this last question.
Follow up, just the last one. So in case of VPF service revenue, the exhibitors will mostly be the multiplex teams, right? That can...
There you are. There you are.
That would be the last question for the day. Now I hand over the floor to Mr. Aasim Bharde of DAM Capital for closing comments.
Yes, sir. Thanks, everyone, for joining the call today and also to the UFO Moviez team to giving us a chance to host them. Wish you all a good day ahead. Take care.
Thank you.
Ladies and gentlemen, this concludes the conference for today. Thank you for your participation and for using Door Sabha's conference call service. You may disconnect your lines now. Thank you, and have a pleasant day.