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Profitability Hiccups, Long-Term Confidence Intact …

PVR Ltd. and Inox Leisure Ltd. merged on Jan-2023 and formed PVR Inox Ltd. It owns and operates multiplexes across in 113 cities, with a total of 1,754 screens in India and Sri Lanka. Major income segments for them are box office, food & beverage (F&B) and advertisement (Ad).

* In Q1FY25, revenue declined by 9% YoY to Rs. 1,191cr, mainly due to fewer film releases and no blockbuster hits during the election period.

* The weak content lineup resulted in a ~5% YoY decrease in average ticket price (ATP) to Rs. 235, and occupancy rates fell from 22.3% in Q1FY24 to 20.3% in Q1FY25, a 200bps decline.

* Several releases were postponed to Q2 and Q3, expected to boost revenues. The festival season demand looks promising, supported by a strong content pipeline.

* The lower-than-expected Q1 performance led to a downward revision of our estimates. However, the long-term outlook remains positive due to a strong content pipeline with re-releases.

* The stock remains attractive due to its appealing valuation. As a result, we are revising our rating to Accumulate while maintaining the target price at Rs. 1,709 based on 2.4x FY26E EV/Sales

Profit disruption due to postponed movie release...

In Q1FY25, revenue declined to Rs. 1,191cr, representing a 9% YoY decrease. This decline was primarily due to a reduced number of film releases and the absence of blockbuster hits during the election season. The weak content lineup also led to a ~5% YoY decrease in the average ticket price (ATP) to Rs. 235. However, management noted an improvement towards the end of Q1 following the release of the movie ‘Kalki.’ Occupancy rates dropped from 22.3% in Q1FY24 to 20.3% in Q1FY25, reflecting a decline of 200bps. EBITDA decreased by 589bps YoY, dropping from 27% to 21.1%, primarily due to a subdued topline . The combination of lower revenue and increased costs resulted in a loss of Rs. 179cr. Given the lower-than-expected Q1 performance, we are revising our FY25 estimates and adopting a conservative approach for FY26 projections.

Festival seasons expected to drive topline growth..

Compared to Q1FY24, the general elections in April and May affected the release calendar, resulting in a 13%YoY decline in film releases for Q1FY25. Several releases were deferred to Q2 and Q3, which is anticipated to boost revenues for 9MFY25, particularly in those quarters. The demand for the festival season looks promising, supported by a strong content pipeline.

Strategic focus shifts toward the southern region..

By the end of Q1FY25, the company successfully launched 50 new screens, with a focus on the southern region of India. Currently, ~33% of PVR's screens are in the southern region. This strategic concentration is expected to significantly boost revenue, particularly from regional films. The growing trend of higher consumption and compelling content from the south further enhances the attractiveness of this market. During Q1FY25, there was a net addition of 36 screens, as 14 screens were closed. Looking ahead, we anticipate 50-60 additional screens throughout the remainder of FY25, aligning with the management's target of 120 screens.

Valuation

The recent decline in revenue can be attributed to a slightly weaker content lineup during the election season, prompting us to revise our estimates downward. In addition to the decline in topline, there has been a significant increase in per-screen costs related to the right-to-use asset, along with higher amortization expenses. As a result, we have adjusted our PAT estimates. However, the stock remains attractive due to its appealing valuation. Consequently, we are revising our rating to ‘Accumulate’ while maintaining the target price of Rs. 1,709 based on 2.4x FY26E EV/Sales.

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