Neutral PVR-Inox Ltd For Target Rs.1,250 by Motilal Oswal Financial Services Ltd
Weak quarter despite an all-time blockbuster release
* Despite the release of the all-time blockbuster, Pushpa 2, PVRINOX (PVR)’s footfall remained stable QoQ at 25.7%, due to weaker performance from the Hindi language movies.
* Revenue increased 11% YoY to INR 17.1b (+6% QoQ, 3% beat) driven by alltime high average ticket prices (ATP), spends per head (SPH), and recovery in advertisement revenue.
* EBITDA (pre-Ind-AS 116) improved 17% QoQ to INR2.4b (5% beat) driven by lower movie exhibition costs. Margin expanded to 13.8% (20bp beat).
* FY25 has been a muted year for PVR, due to the lack of tent-pole movie releases in Hindi and the impact of the Hollywood strike.
* We expect the content pipeline to improve in FY26, with several tent-pole movie releases in Hindi and an improvement in the Hollywood movie slate.
* However, PVR’s business remains highly sensitive to occupancy trends, which are dependent on the quality of content (not in PVRL’s control). Although management sounded upbeat about the FY26 content pipeline, we note that even a 200-300bp blip in occupancy could derail the company’s screen economics.
* We cut our FY25-26 revenue estimates by 2-5% and EBITDA by ~10-15% primarily on lower footfall assumptions. Reiterate Neutral with a TP of INR1,250 (based on ~14x pre-Ind-AS 116 FY27E EBITDA).
3Q ahead of muted expectations on lower movie exhibition costs
* Consolidated revenue grew 11% YoY (+6% QoQ) to INR17.2b (3% beat). Blockbuster movies such as Pusha 2 contributed to the revenue uptick.
* Ticketing revenue at INR8.8b (+6% YoY) was up 5% QoQ, largely on account of a 9% QoQ improvement in ATP to INR281 (+4% YoY) as occupancy remained stable QoQ at 25.7% (vs. 25.2% YoY).
* F&B revenue at INR5.2b (+9% YoY) was flat QoQ as 3% QoQ higher SPH at INR140 (+6% YoY) was offset by ~4% QoQ decline in admits (+2% YoY).
* Ad revenue was up 6% YoY (-7% YoY) to INR1.5b.
* EBITDA (pre-Ind-AS 116) rose 17% YoY to INR2.4b (5% beat)
* EBITDA margin stood at 13.8% (vs. 11.5%/13.1% QoQ/YoY; 20bp beat).
* Movie exhibition costs at INR3.5b came in at ~40% as a % of ticketing revenue (vs. 39% QoQ, 45% YoY).
* F&B COGS at INR1.3b, came in at ~25.7% of F&B sales (vs. 30bp higher QoQ, 26.2% YoY).
* Depreciation declined 5% YoY (-6% QoQ, 8% below).
* Reported PAT was up ~66% YoY to INR682m (vs. est. of INR506m) led by higher EBITDA and lower depreciation.
Occupancy steady in 3Q; ATP and SPH at all-time highs
* Admits and occupancy: PVRL’s admits declined 4% QoQ (up 2% YoY) to 37.3m, while the occupancy rate remained flat at 25.7% QoQ (25.2% YoY).
* ATP: PVR’s ATP improved 9% QoQ to INR281 (+4% YoY).
* SPH: PVR’s SPH improved 6% YoY to INR140 (up 3% QoQ).
* Ad revenue: Grew 36% QoQ (+6% YoY) to reach the highest level since the pandemic
Highlights from the management commentary
* Demand trends: 3QFY25 saw the highest box office collections of 2024 and the highest ever quarterly ATP and SPH, led by the massive success of Pushpa 2. The quarter also saw the highest advertisement revenue since the pandemic. October collections were boosted by regional movies, while the Hindi box office remained muted. However, Singham and Bhul Bhulaiya-3 led to a recovery in Nov’24, which was followed by the massive success of Pushpa 2, which accounted for ~36% of Indian box office in 3Q and ~12% of 2024 box-office collections.
* Content pipeline: The content pipeline during 2024 was subdued as there was no superstar movie release. Further, the Hollywood strike also hit the box-office performance in 2024. Hollywood started to pick up momentum with the release of Mufasa in 3Q. The upcoming content pipeline, both in Hindi (Sikander, Chhava, Sitare Zameen Par, etc.) and Hollywood (several franchise movies, F1), is strong and should drive higher footfalls. Further, management also expects some boost from the recent tax cuts.
* Screen additions: PVR added 77 screens to date and closed 67 screens. The management has guided for 100-110 gross screen additions and ~30-40 net screen additions. PVR expects to add another ~100 screens next year, with 35- 40% of the screens to be opened in the South.
* Capital-light model: The company has signed 100 screens in the capital-light model with 31 screens on the management contract and 69 screens in the assetlight model. The management aims to ramp up screen additions through the capital-light model going forward and use the cashflows to further deleverage the balance sheet.
Valuation and view
* Despite the release of the all-time blockbuster, Pushpa 2, PVR’s footfall remained stable QoQ at 25.7%, due to weaker performance from Hindi language movies. PVR is looking to improve occupancy through re-releases and alternative content such as sports and concert streaming.
* However, PVR’s business remains highly sensitive to occupancy trends, which are dependent on the quality of content (not in PVR’s control). Although the management sounded upbeat about the FY26 content pipeline, we note that even a 200-300bp blip in occupancy could derail the company’s screen economics.
* Improvement in occupancy, continued recovery in advertising revenue, and ramp-up of F&B business through ventures such as PVR Café and food courts remain the key growth drivers for PVR. ? We cut our FY25-26E revenue estimates by 2-5% and EBITDA by ~10-15% primarily on lower footfall assumptions. Reiterate Neutral with a TP of INR1,250 (based on ~14x pre-Ind-AS 116 FY27E EBITDA).
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