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All eyes on the pace of content releases

* PVR posted an EBITDA loss of Rs781mn, restricted by CAM charges. Rent negotiations for 88% of cinemas have culminated while discussions for 13 properties and 56 screens are underway. Gross debt rose to Rs15bn from Rs12.8bn in Q2.

* The strong show of regional movies should provide the much-needed impetus for Bollywood producers to start releasing films in Q4. Any near-term tweaking in revenue sharing with producers/distributors to boost content release momentum will be short-lived.

* Management is hopeful for government’s permission for higher occupancy and for financial relief. Potential equity capital raise (up to Rs8bn) will be used for deleveraging, preparing for any unexpected rise in cash burn and any inorganic opportunities.

* We are baking in a full recovery from FY22E, while we continue to highlight that, in the near term, consistent release of films holds the key to pull crowds back to cinemas. We maintain Hold with a revised TP of Rs1,430 (12x on FY23E EBITDA).

Rent concessions restricted reported net loss: With cinemas resuming operations in a phased manner from mid-October, ticketing revenues boosted the top line by 12% qoq. It also led to an increase in overall costs. Adjusting for IND AS 116, EBITDA loss stood at Rs1.3bn. The net loss was curtailed by other income, which rose multi-fold due to rent concessions of Rs2.7bn. The company has sought ~Rs320mn in rent waivers which might be accounted for in the subsequent quarters. On the KPI front, ATP of Rs164 was not surprising considering that the company was showcasing library content for a major part of the quarter and was running various promotional offers, while SPH of Rs95 seems promising, in our view

Outlook: In the near term, there are two crucial monitorables for the company: 1) release of big-ticket films, especially Bollywood, that can draw crowds (regional movies have started to pull back audiences and box office collections starting Jan’21); and 2) government allowing higher occupancy levels across the country and any financial relief on taxes by state governments. Hollywood content releases remain in limbo with sustained Covid-19 cases in the US. The Rs2.2bn rise in gross debt to Rs15bn in the quarter is a bit worrisome and explains the necessity for the equity raise of up to Rs8bn. That said, we reiterate our positive stance on the medium-term prospects of multiplexes as a whole, given the limited availability of out-of-home entertainment activities in India. In addition, the poor financial health of smaller/regional multiplex chains could provide inorganic opportunities, leading to further consolidation in the industry and sustained premium valuations. Key risks: 1) better-thanestimated footfalls; 2) significant rise in Covid-19 cases leading to another lockdown for public places; 3) adverse outcome on incremental rental agreements; 4) lack of quality content; and 5) weaker-than-expected recovery in ad revenues

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