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Dominant market positioning; awaiting a leg-up on content

PVR reported a strong 3QFY23 due to a combination of the festive season and multiple bigticket movies performing well across all languages. Revenue came in at INR 9.4bn (+3% of 3QFY20 pre-Covid levels; +53% YoY; +37% QoQ) on the back of strong box office collections. During the quarter, revenue witnessed a spill-over from Vikram Vedha and Ponniyin Selvan 1, which were released in the last week of September. Operationally, average ticket prices (INR 241; +18% YoY; +6% CAGR over 3 years) as well as spends per head (INR 132; +32% YoY; +10% CAGR) on food & beverages have recovered well and surpassed preCovid levels, and admits improved significantly to 22mn (+21% QoQ; down 16% compared to 3QFY20). PVR plans to add 47 screens in 4QFY23 and is on course to open 110 screens in FY23. Further, it has received approval from the NCLT, Mumbai bench, for its merger with Inox. As a result, the merged entity will own 1,623 screens across 361 cinemas. Going forward, the merged entity plans to add 200-250 screens each year, taking the total to c.3,000 screens over the next 5 years. We believe PVR-Inox has a long runway for screen penetration and can enjoy higher profit pools post the merger. However, the Hindi content pipeline might take a few quarters before self-correcting. We maintain BUY Rating with a Sep’23

* QoQ improvement in content rubs off on box office collection: PVR saw a strong box office collection (INR 4.36bn; down 4% over 3QFY20; +33% QoQ) as Hollywood movies such as Avatar 2, Black Panther: Wakanda Forever, and Black Adam, and Hindi / regional content such as Drishyam 2, Kantara, Vikram Vedha, and Ponniyin Selvan 1 performed well. The content pipeline in 4QFY23 looks healthy with Pathaan, Shehzada, and Selfiee from Bollywood, and Babylon, Ant-Man and the Wasp Quantumania, and John Wick Chapter 4 in the Hollywood space.

* Reported financials: Reported revenue came in at INR 9.41bn (+2.7% over 3QFY20; +53% YoY; +37% QoQ) led by a rise in ticketing revenue (INR 4.36bn; down 4% over 3QFY20; +45% YoY; +33% QoQ), food and beverages (INR 2.88bn; +17% over 3QFY20; +60% YoY; +25% QoQ), advertising revenue (INR 0.79bn; down 35% over 3QFY20; +94% YoY; +38% QoQ) and convenience fees (INR 0.43bn; down 9% over 3QFY20; +6% QoQ). EBITDA (pre-IND AS 116) came in at INR 1.28bn (13.6% margin; loss of INR 22mn in 2QFY23). PVR reported a net profit of INR 253mn (INR 219mn and 565mn loss in 3QFY22 and 2QFY23 respectively).

* Ticket prices and spends healthy; occupancy yet to recover: In 3QFY23, ATP increased to INR 244 (+16% over 3QFY20; +2% YoY; +9% QoQ) and SPH to INR 133 (+33% over 3QFY20; +3% YoY; +4% QoQ). Average occupancy for PVR stood at 29% (down 440bps over 3QFY20; +500bps QoQ).

* Maintain ‘BUY’; Sep’23 TP of 2,155 (29% upside): We maintain BUY rating with a Sep’23 TP of INR 2,155 (29% upside). The impending merger with Inox can potentially re-rate the stock further. Key risks: Weak content pipeline and competition from OTT.

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