Pathaan alone can’t save PVR’s fortunes

PVR-Inox plans to add 180-200 screens per year over the next two years, out of which about 40% will be in south India  (Photo: Reuters)
PVR-Inox plans to add 180-200 screens per year over the next two years, out of which about 40% will be in south India (Photo: Reuters)

Summary

The merged entity accounts for 30% share of the box office collections and 18% of the total number of screens.

The merger of PVR and Inox Leisure has created a multiplex behemoth in the country that has over 1,600 screens. The merged entity accounts for 30% share of the box office collections and 18% of the total number of screens.

In a PVR-Inox post-merger call with analysts and investors on Tuesday, the management said it has successfully completed all the formalities related to the merger. The focus now shifts to the synergy benefits. The management highlighted that in terms of revenue synergies, F&B (food & beverage) will be a key focus area, along with advertising revenues. Further, the spend per head to average ticket price ratio is below global average and thus there is potential to grow here. On costs front, it will focus on supply chain synergies and overhead rationalization. The management has guided for potential annual Ebitda synergy benefit of 225 crore over the next 12-24 months. PVR-Inox plans to add 180-200 screens per year over the next two years, out of which about 40% will be in south India.

Graphic: Mint
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Graphic: Mint

But beyond synergies, the recovery in footfalls and improvement in occupancy rates is paramount. “The stock performance of PVR-INOX is dependent on where occupancy settles (FY2019/23E: 32.5%/25.5%)—a 150-250 basis points (bps) drop in occupancy versus pre-pandemic levels is manageable, but 400 bps+ drop would weigh on return ratios and valuation," said analysts from Kotak Institutional Equities in a report on 10 March.

Better content performance would be an important driver of occupancies and a factor that investors will closely watch. After a long period of lull, the Shah Rukh Khan and Deepika Padukone starrer, Pathaan, has set the ball rolling for box office collections. This is heartening given the acute pressure multiplexes have faced in their business post-covid.

The problem, however, is that performance of other movies during the March quarter has remained dull. “In the current quarter (Q4FY23), apart from Pathaan that clocked over 500 crore, most Bollywood movies have not done well," said Jinesh Joshi, analyst at Prabhudas Lilladher. “There were many duds such as Shehzada and Selfiee. But surprisingly Tu Jhoothi Main Makkaar has been getting a good response and may breach 100 crore in collections," he added.

In this backdrop, given that occupancies are crucial for profitability, the merged company would need more movies that fare like Pathaan. To be sure, the movie pipeline content for 2023 appears promising. Bollywood movies with big star casts such as Jawan, Dunki, Bholaa and Kisi Ka Bhai Kisi Ki Jaan are slated to be released this year.

“Seemingly strong content pipeline for 2023 makes us build in a healthy recovery in footfalls for FY24 and beyond," said analysts from IIFL Securities. Even so, predicting consumer behaviour has become a challenge. Over-the-top platforms are said to have raised the bar for the quality of content. “While we are positive on the exhibition industry, changing content preferences have resulted in higher volatility in box office performance," added IIFL analysts. To that extent, this has made it difficult to predict earnings in the foreseeable future.

No doubt, the merger strengthens the position of the company as a dominant multiplex with no solid competition. “Given their size and scale, and with dwindling of single screens, the pricing power for PVR will get better. But so far, weak performance of Bollywood movies is a concern," said Joshi. IIFL believes that a string of two-to-three quarters of strong Bollywood box office performance could drive re-rating. All eyes will now be on footfall recovery.

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