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Remarkable collections record….

PVR Ltd. and Inox Leisure Ltd. merged on Jan-2023 and formed PVR Inox Ltd. It owns and operates multiplexes across 361 cinemas in 115 cities, with a total of 1,708 screens in India and Sri Lanka. Major income segments for them are box office, food & beverage (F&B) and advertisement (Ad).

• In Q2FY24, ATP (Average ticket price) rose to Rs.276, and SPH (Spend Per Head) reached Rs. 136, reflecting a QoQ growth of 12.2% and 4.6%, respectively.

• In Q2FY24, the total admits reached 48.4mn, showing a substantial 43% QoQ increase, mainly due to outstanding performances in both the Hindi and regional box office segments.

• Increased ATP, SPH, and total admits resulted in a record operational revenue of Rs. 2,000cr, resulting in 53% QoQ growth.

• Net debt reduced to Rs.1,103cr from Rs.1,430cr in Q2 FY24, with Rs.390cr paid off through free cash flow. More reductions are expected using future cash flows, targeting a 1:1 debt-to-EBITDA ratio.

• Given the increased trust in regional films, the management is strategically concentrating on the South Indian region, aiming to introduce an more screens.

• We expect a strong performance in the upcoming quarters due to a strong content lineup with the added benefits of synergy. However, valuation appears expensive at the current level. Hence, we downgrade our rating on the stock to Accumulate with a revised target price of Rs.1,878 at 2.5x FY25E EV/Sales.

Prominent Growth in ATP and Occupancy

In Q2FY24, the Average Ticket Price (ATP) surged to Rs.276, marking a substantial 23% YoY increase from the Rs. 224 recorded in the same quarter of FY23. This increase is attributed to rising inflation and the contribution of the entire synergy's ATP. Additionally, the pipeline of blockbuster movies has played a significant role in bolstering ATP. Moreover, the Spend Per Head (SPH) reached 136 in this quarter, marking the highest SPH ever recorded compared to the past. In tandem with the growth in ATP and SPH, the sector also witnessed its highest-ever admissions of 48.4mn, driven by the performance of blockbuster movies. The rise in ATP, SPH, and Admits collectively led to the highest-ever operational revenue of Rs. 2,000cr and EBITDA of Rs. 706cr.

Expansion of screens and content lineup to drive demand

Volatility in the performance of Hindi films has significantly diminished, leading to an improvement in the average collections of Hindi movies. The presence of Hollywood films also contributed to an excellent start to the quarter. The success of regional films underscores the increasing acceptance and appeal of regional content. In the first half of this fiscal year, the company successfully added 68 new screens while strategically discontinuing 33 underperforming screens. Looking ahead to FY24, there are plans to introduce 150 to 160 new screens and an exit strategy for a total of 60 screens during the current fiscal year. There is a particular emphasis on the South Indian, where there is a high level of confidence due to the continued success of regional films in the coming years. The anticipated expansion is set to be funded through internal funds to avoid any impact on the debt profile. PVR anticipates further debt reduction using future cash flows.

Valuation

We expect the company to achieve healthy revenue growth and profitability, aided by the new screen additions, healthy content pipeline, upcoming festival season, industry-leading ATP, and a robust SPH on food. However, valuation appears expensive at the current level. Therefore, we downgrade our rating to Accumulate with a revised target price of Rs.1,878 at 2.5x FY25E EV/Sales.

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