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Capitalised to sail through current challenging times

PVR had another washout quarter as expected; however, costs remain under control and it is sufficiently capitalised to sail through these challenging times. Company remains confident about its business model. Globally, performance of multiplexes post normalisation of covid-related situation has been encouraging, and we expect the same to happen in India in course of time. Movie pipeline remains healthy as well. We have cut our adjusted FY22 EBITDA estimate by 71% on factoring-in minimal revenues in H1FY22, and 8% for FY23. Accordingly, we cut our target price to Rs1,531 (from Rs1,679); maintain BUY.

Company confident about business model.

India cinema market is shut due to covid second wave; however, globally, as theatres open, performance has been encouraging enough to confirm sustainability of multiplex business as patrons return. China had record box office collection and it has already reached FY20 levels. PVR remains confident of producers showing movies at theatres as the situation normalises in India – and that the movie pipeline is strong to help revive business. Radhe’s pay-per-view model has not really worked well enough to excite producers; in fact, the movie had normal theatre release in many overseas markets.

Costs under control; company well capitalised.

1) Rent cost (incl. CAM) during the quarter was down >45% YoY due to concession on rentals, which was agreed till Mar’21 (PVR is negotiating for concession even for the second wave);

2) other overheads were down 50%; and

3) employee costs were cut by 22% YoY. Average monthly cash burn is Rs300mn. Company has cash balance of Rs7.5bn, which should help sail through this challenging situation. Annual debt refinancing is Rs2bn3bn, which it is able do.

10% of single screens to shut.

Of 5,500-6,000 screens in India, PVR estimates at least 10% of them may be permanently shut in the aftermath of covid. Others are surviving due to owned property and skeleton structure, or owners have other sources of funding. Industry has anyways seen 250-300 screens shut down even prior to covid. A few screens have reduced occupied space to 30-45% and are using the remaining for commercial purposes. See our detailed note on consolidation

EBITDA loss adjusted for Ind-AS 116 was stable QoQ:

PVR revenues declined 72% YoY to Rs1.8bn largely on account of 70% fall in admits to just 5.8mn. Average ticket prices dipped 10% YoY to Rs183, which was good, and spend per head was Rs95 (down only 1% YoY). Sharp 3.2x QoQ jump in advertisement revenue provides us comfort that it may revive in tandem with rise in occupancy. Employee costs and other expenses rose QoQ as the situation was normalising. Other income included Rs0.7bn of rental waiver. Tax was higher by Rs1.1bn due to change in income tax law, which disallows benefit of depreciation on goodwill.

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