Hold PVR Inox Ltd For Target Rs. 1,040 - Prabhudas Liladhar Capital Ltd
Razor sharp focus on cost & BS health
Quick Pointers:
? Plans to open ~100-110 screens in FY26E.
? Footfalls declined 6.4% YoY to 30.5mn.
PVRINOX reported better than expected performance with pre-IND AS EBITDA loss of Rs110mn (PLe loss of Rs366mn) led by better cost control (on same-store basis fixed cost was up 0.4% YoY to Rs7,639mn). Given the ongoing challenges surrounding footfall growth, PVRINOX is now in a reset mode where the focus is to 1) rationalize cost, 2) reduce debt and 3) migrate towards an asset light model with an aim to conserve cash. Progress on cost rationalization exercise is noteworthy as fixed cost per screen has remained flat at ~Rs20mn over the last 5-years. Even the net debt is down by Rs4,782mn post-merger. Transition towards the asset light route is also progressing well with 101 screens signed till date. Overall, while the strategic initiatives taken to control cost and improve BS health are commendable, re-rating hinges on footfall recovery. We expect modest footfall CAGR of 6% over the next 2 years given persistent weakness in Bollywood with pre-IND AS EBITDA margin of 12.4%/15.7% for FY26E/FY27E. Retain ‘HOLD’ on the stock with a TP of Rs1,040 (11x Sep-26 EBITDA; no change in target multiple).
Top-line remains flat YoY: Top-line decreased 0.5% YoY to Rs12,498mn (PLe Rs12,941mn). Movies like Chaava, Sky Force, Sankranthiki Vasuthunam, Daaku Maharaj, Game changer, Dragon and Vidaamuyarchi aided the topline. Footfalls declined by 6.4% YoY to 30.5mn (PLe 30.5mn) with an occupancy of 20.5%. Gross ATP increased 10.7% YoY to Rs258 (PLe Rs256) while gross F&B SPH was down 3.1% YoY to Rs125 (PLe of Rs125).
Pre-Ind AS EBITDA loss at Rs110mn: Ind-AS adjusted EBITDA loss stood at Rs110mn (PLe Ind-AS adjusted EBITDA loss of Rs366mn) for the quarter. Ind-AS adjusted EBITDA loss was lower than our estimates due to lower-than-expected other expenses at Rs4,441mn (PLe Rs5,541mn). Ind-AS adjusted loss stood at Rs1,058mn (PLe Ind-AS adjusted loss of Rs1,231mn) for the quarter. Higher than expected other income of Rs614mn (PLe Rs427mn) helped narrow bottom-line losses.
Con-call highlights: 1) In FY25, over 7.1mn and 3.4mn footfalls were recorded from re-releases and affordable pricing initiatives, respectively. 2) To date, 101 screens across 23 cinemas have been signed under the capital-light growth model. 3) In FY25, 72 screens were closed while 77 new ones were opened. 4) One Hindi movie opted for a direct digital release given the ongoing national conflict. However, PVRINOX took legal recourse against the producer and a stay order has been obtained, with the matter now being sub-judice. 5) 72 screens that were closed during the year had reported EBITDA loss of ~Rs80mn in FY25. 6) Roughly >50% of new screens planned to be opened in FY26E will be on capital light route. Of the capital light screens, ~30% will be on FOCO model and ~70% on the asset light route where developer will fund partial capex. 7) Capex for FY26E is estimated at ~Rs4-4.25bn. Roughly, ~Rs2.5-3bn will be allocated for new screens and the rest for renovations. 8) Under the FOCO model, PVRINOX earns a revenue share of 8– 10%, with the entire amount directly flowing to EBITDA. 9) PVRINOX’s film hire cost typically ranges between 45–46%. In FY25, it was slightly lower at 44.6% due to fewer Rs1bn+ films, leading to reduced bonus payouts and higher re-releases that carry lower film hire costs. Going forward, film hire cost would remain in the band of ~44.5–46%. 10) The Karnataka government had proposed a cap of Rs200 on movie ticket prices. The order is not implemented and is currently in abeyance. 11) Under the asset light model, only PVRINOX’s share of capex gets capitalized on balance sheet as RoU asset. 12) On account of closure of 72 screens during the year, RoU assets declined from Rs54.9bn in FY24 to Rs49.9bn in FY25.
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