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Addressing the investors' concerns

During our interaction with investors, key concerns raised were primarily around the probability of occupancy revival, threat of OTTs, potential of re-releases and outlook. In this report, we put forth points which makes us believe occupancy rates are on the cusp of recovery and footfalls should sustain in future. We remain positive on the movie exhibition industry and maintain BUY on PVRINOX with TP of Rs1,980.

* Occupancy revival: What are the odds? – Movie theatres witnessed a disengagement with audience in FY21-22 due to restrictions imposed on account of pandemic, further exacerbated by the rise of OTTs. We believe audience engagement is a factor of Motivation, Ability and Triggers. Motivation, being a factor of content, should improve as content pipeline is improving. Producers are adapting to changing consumer preferences and higher threshold for good quality content. This will be further supported by shift of new content from OTTs to cinema halls. Additionally, Hollywood, which was absent last year due to workforce strikes, is expected to make a strong comeback in CY25. PVRINOX has est market share of ~55% in Hollywood movies in India. On the Ability front, company has been enabling consumers to watch movies at affordable prices through PVR INOX passport program, Cinema lovers’ day etc. This can help to keep broad spectrum of movie goers engaged with PVR franchise. For triggers, company is leveraging its large data base of consumers to notify them about upcoming movies and offers.

* What is the potential of Re-releases? – PVRINOX curated shows is yielding good results with ~6-8% contribution to total footfalls, which directly provides ~200bps cushion to occupancy levels. Though ticket prices (ATP) of re-released movies are est ~30% lower compared to new releases, F&B spends generally remain healthy, ensuring better realizations for the company, especially in the periods of dry content pipeline. It also helps in re-developing the habit of experiencing movies on a large screen and keep audiences engaged with theatres.

* Where does the OTT stand? – Investments behind new content for OTT platforms have been on the decline, especially with unclear path to profitability. This is evident by the number of direct to digital releases, which halved from 105 in 2022 to 57 in 2023. We believe role of OTTs will remain limited to day-to-day consumption of content, which can pose a threat to TV broadcasters. While new movies, will largely remain experience reserved for the cinema halls, in our view.

* Near-term outlook is also positive: 3Q saw multiple blockbusters such as Singham Again, Bhool Bhualiya 3 and Pushpa 2. Further, Mufasa: The Lion King, Vanvaas and Baby John are key movies yet to be released in December. Q4FY25 also has a strong line-up including Fateh, Emergency, Azaad, Chhava, Captain America, Sky Force etc. Pushpa 2 has reached Rs10.5bn Domestic GBOC with Hindi version surpassing Rs5bn. Hindi accounts for ~60% of total collection for PVRINOX. Thus, it should benefit from strong show of Pushpa 2 on the box office.

* Risk Reward looks favorable: PVRINOX is trading at a FY27E EV/EBITDA (Pre-IndAS) multiple of 8.5x, which is much lower compared to other discretionary names. Occupancy levels are unlikely to fall below current levels of 24-25%, especially with good content line-up and multiple initiatives at the company level. Given a high fixed cost model of a movie exhibition business, even a gradual increase in occupancy will also result in sharp accretion to earnings.

* Outlook and Valuation: Over FY24-27E, we expect modest +120bps expansion in occupancy and estimate revenue/EBITDA CAGR of +9%/19%. We value PVR INOX at FY27E EV/EBITDA (Pre-IndAS) of 14x and arrive at TP of Rs1,980. Retain BUY.

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