'Rang De Basanti' drives UTV Q4 revenues

MUMBAI: It is the Aamir Khan superhit Rang De Basanti (RDB) that has propped up UTV Software Communications' revenues for the last quarter of the fiscal ended 31 March 2006. The company's consolidated turnover was up 67 per cent at Rs 858 million.

We have seen good growth in revenues. Our tent-pole production RDB was released to packed audiences and is rated as one of biggest blockbusters of all times. RDB continues its successful run and we see value in its future exploitation," said UTV CEO Ronnie Screwvala .

UTV, however, has reported a 21 per cent fall in consolidated net profit at Rs 66 million for the quarter. "Our operating margins were under pressure. We made heavy investments into animation including training and tests for our large order book. Airtime sales business added ten hours a week during the quarter but since they were all start-up shows it takes four to five months to turn a long-term profitability. We took a very large hit and which we believe is a one-off and without that our margins would have been substantially better than the year before," said Screwvala.

Even for the fiscal ended 31 March 2006, UTV's 18 per cent growth in revenues to Rs 2.14 billion was primarily driven by the film segment. It contributed 63 per cent of the company's revenues.

Net profit, however, was down by 43 per cent at Rs 93 million. The company faced significant pressure on margins primarily driven by the following factors:

a. Two films -- Deewane Hue Pagal & Shaadi No.1 in distribution business during the third quarter of the fiscal did not fair well at the box office, booking net loss of more than Rs 70 million

b. UTV moved from a variable cost model to the fixed one and ramped up its facilities to a 250-seater. Initial ramp up costs written off during the quarter was over Rs l5 million.

Regarding UTV's performance for the fiscal ended 31 2006, Screwvala said, "Overall, the year has registered growth of 18 per cent. Hungama has really exceeded our own expectations especially when taking on two large media companies in the world as competitors. Going forward, we have one of the most interesting movie line ups under production and have an interesting package of new TV shows on Sun Network that will show profitability in the quarter to come. We also have an interesting animation order book with all the training costs behind us. Last but not the least for Hungama we have just signed John Abraham as brand ambassador, who is a star among kids between 4-14 and his following will add great value to this asset of UTV."

The company has consolidated the financials of UTV-US, UTV-UK, UTV-Mauritius and UESL.

UTV is exploring strategic investors into the company. "We are in talks with strategic investors to jointly exploit growing opportunity in the entire media space and we believe that the partner will drive substantial future growth with synergies to our business model. Another positive development is in the kids broadcasting space, with Hungama TV emerging as clear no. 2 player in a seven-channel kid's space. As part of our strategy to achieve leadership position in the kids space and expand our overall kids agenda in South India, we also announced our MoU with Astro, a Malaysian Broadcaster for a 26.01 per cent stake in United Home Entertainment Ltd. for $ 7 million."

At the end of 31 March 2006, net debt of the company stood at Rs 949 million. Debt was primarily used to meet working capital requirement for films and capital expenditure for animation and post-production businesses. Total capital employed in the operations is Rs 2.35 billion as of the end of 31 March.

Television Segment

Television segment primarily consists of all products and services offered for the small screen businesses. This segment constitutes TV content production, airtime sales, animation, ad films and dubbing businesses. During the last quarter, UTV produced over 72 hours of programming across genres, dubbed over 205 hours of content and sold over 100,000 seconds of airtime.

For the year ended 31 March 2006, television segment has contributed 34 per cent to the company's consolidated revenues. Due to a significant ramp up in airtime sales operations, the margins remained under pressure. The new slots added during the last two quarters would take about four -five months to mature.

Introduction of new programmes in content production and matured slots in airtime sales is expected to translate into better margins during the next fiscal.

TV Content: UTV experienced a churn in its production slate of TV content mainly driven by its key programmes like Bombay Talking (Zee cafe) and Metier going off-air during the quarter under review. But this was coupled with opening up new avenues in content on SET - Kabhi To Nazar Milao, a new daily soap, which is expected to go on-air on 6 May. A new comedy show Arranged Marriage is expected to go on air on Star One during the next quarter. Also on the anvil are four more shows - Sohni Mahiwai and Chamatkar on DD, and a show each on Discovery and Travel and Living.

In addition to this, one of the most popular bi-weekly show from UTV stable, Shanno Ki Shaadi is expected to be aired tri-weekly from the next quarter. All new additions on various channels are expected to translate into more than 15 hours of content per week as an average for the fiscal 2007.

Air Time Sales: During the year under review, number of hours marketed by UTV on South Indian channels have grown by more than 100 per cent as compared to the previous year. During the quarter, the company managed an average of over 22 hours per week across various South Indian channels. The company expanded its operations to Kannada language in addition to its presence in Tamil, Telugu and Malayalam markets in South India. Margins witnessed pressure due to sudden ramp-up of operations during last two quarters.

Animation: UTV is investing a total of Rs 85 million in animation facilities, which is expected to be fully operational during the first quarter of fiscal 2007. These investments will enable the company to execute present outsourcing order book over a period of next 24 months and venture into creation of its products for domestic and international markets, the company said in a release.

During the quarter under review, it has added an output deal of over $3 million to its order book from Mike Young. This will be a combination of co-production and outsourcing deal. Due to ramp up in operations to 250 seats in animation business and fixed overheads on training and manpower resulted in lower profitability in the segment by over Rs l5 million.

Film Segment

Film segment comprises all products and services resulting in the big screen exploitation and directly related activities. Hence, it comprises all film production and distribution related activities in India and abroad. During the year, this segment has contributed 63 per cent of the company's revenues and has grown by about 70 per cent as compared to the previous year.

"The quarter for films started on a very strong footing with RDB storming the theatres on 26 January. The movie has grossed record-breaking numbers at the box office, which is reflected in the growth in the film segment revenues. Film distribution revenues have also added to the top line with the release of successful movies - Bluffmaster and Taxi 9-2-11. Bluffmaster, which was released in the latter part of December 05, has been accounted for in this quarter," the company said.

During the year, UTV produced / distributed over nine films and all of them but two proved successful for the company. Two films namely Shaadi No. 1 and Deewane Hue Pagal did not fair well at the box office, thus translating into a net loss during the third quarter.

"UTV remains cautious in film acquisition strategy and will continue to develop its own IPR in the long run for better efficiencies," the release said.

During the quarter under review, UTV Home Entertainment released Bluffmaster, Rang De Basanti and Taxi 9-2-11 in the overseas markets through its DVD label. In line with the Company's strategy, UTV has tied up with Madhur Bhandarkar (two films), Vishal Bhardwaj (two films), Annez Bazmi (two films), Prakash Jha (two films), Milan Luthria and is in talks with others as well.

Allied Content Services

This business segment comprises of post-production activities, which contributed 3 per cent of UTV's consolidated revenues. The planned expansion of facilities in special effects and digital Intermediary is expected to be operational during May 2006.

Hungama TV

The capital employed in United Home Entertainment Ltd is Rs 840 million, which is used to fund Hungama TV's /operations. UTV has made investments of Rs 680 million into the channel so far.

With an overall view to expand kids space and establish leadership position not only in India but Asia, Astro, a Malaysian TV content and distribution major, entered an agreement with UHEL to invest $7 million for a 26.01 per cent stake in the company. Promoter's holding post Astro equity infusion is expected to dilute accordingly.

Business outlook

UTV is working towards strengthening its film slate for the next two years. "The company is using marketing and distribution learning from RDB to de-risked and high return model. Led by Namesake, International co-production remains to be an integral part of film business. The company is working towards finalizing a significant co-production deal, which will establish itself a truly global player in filmmaking business in India. Film business in South India looks to be an attractive opportunity for the company. It will shortly announce its foray into regional film space and associations with key talent in those markets," the release said.

As part of the strategy to move up the value chain in the animation business, UTV is currently working on 14 DVD home video titles in addition to the TV series order book to be executed over next 24 months.

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