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English/regional content plays spoilsport

Expect potential comeback of non-Hindi content

PVR Inox (PVRINOX IN) reported muted occupancy of 22.6% in Q4FY24 (900bps lower than pre COVID levels – FY20), largely on: 1) absence of large-scale English/regional content, and 2) below-par Box Office (BO) performance of large budget Hindi films. We expect momentum to pick up towards Q2FY25, helped by strong comeback in regional and English content. There are six large-ticket English films in H1FY25, which may aid BO revival. And Hindi films such as Chandu Champion (14 June 2024), Sarfira (12 July 2024), Pushpa 2 (15 August 2024), Bhool Bhulaiyaa 3 (1 November 2024), Singham Again (1 November 2024) and Welcome 3 (20 December 2024) may be the key monitorables to glean come-back in Hindi BO (56% contribution for PVRINOX in FY24). Albeit above, Hindi BO could decline 28% YoY in FY25E, as per our assessment, due to a high base last year with multiple large-budget films doing well. English BO contribution for PVRINOX declined 1,680bps from 25.2% in H1FY24 to 8.4% in H2FY24 due to Writer Association Strike (this could revive in H2FY25).

Small- and medium-budget films – Sustained revival, the key

Continue to monitor BO collections – Small- and medium-budget films are reviving, which is a respite. Q4 has seen small- and medium-budget films such as Teri Baaton Mein Aisa Uljha Jiya, Article 370, and Madgaon Express reporting good collections. If this momentum were to sustain, it would help the BO report better-than-expected performance and offset the hit from the muted slate in terms of the number of large-budget films in FY25.

Valuations: Reiterate BUY with TP unchanged at INR 1,900

As mentioned in our recent update (Favorable risk-reward dated 19 January 2024), valuation appears compelling at 9x FY26E EV/EBITDA (pre-IndAS), a discount of 35% versus pre-COVID averages. We do not expect the valuation to fall much lower than this. And with estimated occupancy of 27.5% in FY26E, we believe the risk-reward is favourable in the medium term. With the likelihood of PVRINOX gaining market share in South, a rerating on valuation is likely once the content cycle improves. Also, in H2FY25, expect content revival in the non-Hindi genres. For now, any positive surprise in small- and medium-budget content in the Hindi genre may add more respite on valuations or performance. We reiterate BUY with June-25E TP of INR 1,900, on 13x one-year forward EV/EBITDA.

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