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After a disappointing Q2FY23, box office collections have improved in the first two months of Q3FY23. As per our calculations, QTD box office collections have already crossed the previous quarter’s collections with a few large movies still lined up for release in December. Going by box office performance in the first two months and a strong movie pipeline, we expect occupancy levels in this quarter to trend toward those reported in Q1FY23. ATP and SPH might also see some uptick (on a QoQ basis) with an increased number of higher-budget movies being released as compared to the previous quarter.

Although there is some visible rebound in the performance of Bollywood content from the likes of Drishyam 2 and Bhediya, we would wait for consistency to conclude Bollywood is ‘out of the woods’. Regional content continues to do the heavy lifting in the absence of appealing Bollywood content. We also believe the inflationary scenario and higher ticket prices have raised the cost of movie-going, which has increased content-quality filtration by patrons. Consequently, footfalls have remained lower visà-vis pre-Covid levels. The underlying stock price of the exhibitors has also been tracking the box office performance. Going ahead, sustained content quality would augur well for re-rating in PVR and Inox. The NCLT is set to meet on December 15, 2022, to take a call on the proposed merger of PVR-Inox, which could potentially conclude the merger process in the stipulated time frame. We remain positive on the sector and maintain our BUY rating on both PVR and Inox with a TP of Rs2,340 and Rs695, respectively

Bollywood performance improving: In our previous notes, we have been highlighting the importance of Bollywood for exhibitors (Bollywood yet to get its mojo back and Bollywood block‘bust’er performance concerning). The recent performance by Bollywood films seems encouraging. Drishyam 2 has been well received by audiences and is only the third Bollywood film post Covid-19 to have crossed the Rs1bn mark (net box office collections) in the first week of its release. Initial collections of Bhediya also seem encouraging and positive word-of-mouth should help drive up collections, though a clash with Drishyam 2 (released one week prior) might hurt some of its business. Ram Setu, despite mixed reviews, did decent business (Rs737mn), while several movies, including Goodbye, Doctor G, Thank God, and Phone Booth, failed to find too many takers. The failure of Vikram Vedha was also disappointing

Regional scoring again: Ponniyin Selvan: Part I (PS-1) and Kantara have done stellar business in this quarter. PS-1 was in fact the highest-grossing Tamil movie this year. Kantara was a surprise hit with Rs2.9bn NBOC (Rs811mn in Hindi). The success of PS-1 and Kantara in the Hindi-speaking markets also proves that the box office success of RRR and KGFChapter 2 was not a flash in the pan, and audiences are now more receptive to regional cinema content. Other regional movies that have done decent box office collections in this quarter include Sardar and Godfather. Contribution of regional movies to overall collections continues to remain >50%, as Bollywood is yet to bounce back completely.

Hollywood remains steady: Both Black Adam and Black Panther: Wakanda Forever have done steady business in the quarter, largely on expected lines. The movies collected Rs491mn and Rs632mn, respectively.

Pipeline looks strong: In December, the key release will be Avatar: The Way of Water. The first installment of the series had collected a whopping US$2.9bn worldwide (>Rs1bn in India). The second installment is also expected to do well, with very strong pre-booking more than three weeks before its release. Other key Bollywood movies to be released include Cirkus (Ranveer Singh), Ganpath (Tiger Shroff and Kriti Sanon), and An Action Hero (Ayushmaan Khurrana); and regional movies include Vaathi (Dhanush) and Kushi (Vijay Deverkonda and Samantha Ruth Prabhu). In H1CY23, Salman Khan starrer, Kisi Ka Bhai Kisi Ki Jaan, and Shahrukh Khan starrer, Pathaan, will be the key releases

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