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ATP and SPH to settle higher vs pre-covid?

PVR’s Q3FY22 cash EBITDA was Rs380mn, but the quarter highlighted potential opportunities from higher ATP and SPH, which grew by 14% and 29% vs Q3FY20. Company sounded optimistic and anticipates further growth. We believe maximising revenue per screen is the ultimate goal and, if it is able to protect occupancy on higher realisation, we would likely see much higher EBITDA. This will be further boosted by lower cost structure. We would wait to see durable ATP and SPH on complete normalisation. Content pipeline remains good and occupancies should increase when normal operations for cinemas are allowed. We are now penning gradual recovery and, accordingly, have cut EBITDA by 26% and 12% respectively for FY23E and FY24E. We have also cut the target price to Rs1,804 (from Rs1,874), but increased EBITDA multiple to 16x (from 14x) on the back of our increased faith in the business model and optionality for higher ATP / SPH. Maintain BUY.

* First true operational quarter post-covid has opened new opportunities. Q3FY22 was still not a fully normal quarter as screen restrictions have capped occupancies and content releases. Admits were only 14.5mn (56% of Q3FY20). But what has impressed is an all-time high ATP of Rs239 and SPH of Rs128, which were 14% and 29% respectively higher than Q3FY20. We acknowledge the movie mix should very be different considering Hollywood (Spiderman) and big budget movies contribution was higher as % of total admit. Company disclosed that premium format occupancy was up by 30% for Dec’21, while overall admit was 25% lower. Notably, companies did not increase movie ticket prices during Q3FY22.

* New normal ATP and SPH to be higher than pre-covid. PVR sounded optimistic on potential higher ATP and SPH in post-covid world. Telangana government has increased movie ticket cap to Rs290 from Rs150 (including GST), and Tamil Nadu has allowed ticket price cap at Rs210, while the company’s ATP is still at Rs160. Telangana contributed 10% to FY20 admits (Tamil Nadu too is a key market). Company also sees opportunity to take price increase in other territories. Developed markets, where ATPs are >3x India average, have taken price increases of 17-19%. SPH rise is likely due to selling more food items and not from price increase, as margins are at pre-covid levels. PVR sees even SPH to settle at higher levels compared to pre-covid. The right balance is in maximising revenue per screen where occupancy has higher sensitivity is key.

* Other highlights. 1) PVR was FCF-positive for the quarter; 2) omicron has pushed a few movie releases and the company expects pick-up from Q1FY23; 3) twenty-three cinema leases are expiring in Apr’22 and are unlikely to be renewed as Karnika Group intends to restart its multiplexes chain (this is expected to impact only 2% of PVR’s EBITDA for PVR); 4) fixed operating costs (excluding rent and CAM) will be at least 10% lower compared to pre-covid levels; 5) company plans to add 80-90 cinemas p.a. on normalisation; 6) PVR’s net debt has reduced to Rs8.6bn in Q3FY22 from Rs9.1bn in Q2FY22; 7) working capital will add to cashflow on revival of revenue growth; and 8) company does not see much pressure on FHC on normalisation.

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