Q2 starts off on a good note for PVR Inox

In Q1, PVR Inox reported a net loss of Rs82 crore.
In Q1, PVR Inox reported a net loss of Rs82 crore.

Summary

For a while now, there have been doubts on whether movie consumption patterns have altered significantly, partly driven by competition from over-the-top platforms. Amid this, it helps that the September quarter has begun with a bang: Enter Mission Impossible 7 (MI7), Barbie and Oppenheimer.

That PVR Inox Ltd’s June quarter (Q1FY24) results would be weak was a foregone conclusion. For one, there were not many blockbuster movies that were able to pull audiences in large numbers to the multiplexes. The upshot is that PVR Inox’s occupancy took a beating last quarter, coming in 910 basis points (bps) lower year-on-year at 22.3%. Of course, the year-on-year comparison is a bit skewed as Q1FY23 had movies such as KGF: Chapter 2 and RRR, which had excellent runs.

For a while now, there have been doubts on whether movie consumption patterns have altered significantly, partly driven by competition from over-the-top platforms. Amid this, it helps that the September quarter has begun with a bang: Enter Mission Impossible 7 (MI7), Barbie and Oppenheimer. Thanks to the success of these movies, and the line-up for the next few months, the outlook for FY24 suddenly seems a bit more promising than earlier envisaged. In Hollywood, the movie pipeline includes The Meg 2, Blue Beetle and Expendables 4.

Graphic: Mint
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Graphic: Mint

What’s more, the management has said, “Volatility in Hindi films’ performance has reduced, and we have seen a quarter-on-quarter improvement in the average collection of Hindi films as well, with mid-scale movies like Zara Hatke Zara Bachke and Satyaprem Ki Katha performing well at the box office."

Investors are taking note. In the past one month, shares of PVR Inox have gained by 17%. “At least, this shows if the content is good, then the audiences will go to the theatres," an analyst said, requesting anonymity. “If August and September can sustain the momentum seen in the month of July, then Q2FY24 can turn out like Q1FY23," he added.

In this backdrop, the extent of increase in admits or footfalls remains to be seen. In Q1, admits were down by 22% year-on-year to 33.9 million, but rose sequentially. Improvement here would also augur well for advertising revenues. The company expects ad revenues to pick up in Q2 and reach fairly normal levels by Q3, which is a festive period. Besides movies, PVR Inox would also be screening India matches during the upcoming ICC Cricket World Cup.

But ultimately, how occupancy pans out is paramount. As analysts from IIFL Securities point out, “The most important variable influencing PVR-Inox’s numbers is occupancy ratio." Recall that PVR-Inox’s pro-forma occupancy in FY20 stood at almost 32%. This measure fell to 25.2% in FY23. “Every 100 basis points change in occupancy ratio swings ex-Ind AS 116 Ebitda/profit after tax by 9%/14%," said IIFL’s analysts.

In Q1, PVR Inox reported a net loss of 82 crore. On the synergies from the PVR-Inox merger, the company noted that there have been benefits specifically in the food and beverage (F&B) segment. F&B spend per head was up by 9% sequentially in Q1, whereas average ticket price was higher by only 3%. The company said bulk of its ticket price synergy is expected to flow in the rest of FY24. Overall, net debt increased by 5% sequentially to 1,507 crore, but the company maintains that while there could be quarterly volatility, debt should remain constant annually.

To be sure, shares of PVR Inox are down by 27% from their 52-week highs of 2,214.85 seen in August 2022. For now, the outlook appears better and that should support the stock in the near term. “Now that ‘movie-going’ has gathered momentum among premium viewers aided by MI7, Oppenheimer and Barbie, we believe Q2 and Q3 could be breakthrough quarters for PVR Inox, given its strong content line-up (OMG 2, Gadar 2, Jawan)," said analysts from ICICI Securities Ltd in a report on 2 August.

In this backdrop, the extent of increase in admits or footfalls remains to be seen. In Q1, admits were down by 22% year-on-year to 33.9 million, but rose sequentially. Improvement here would also augur well for advertisement revenues. The company expects ad revenues to pick up in Q2 and reach fairly normal levels by Q3, which is a festive period. Besides movies, PVR Inox would also be screening India matches in the upcoming ICC Cricket World Cup.

But ultimately, how occupancy pans out is paramount. As analysts from IIFL Securities point out, “The most important variable influencing PVR-Inox’s numbers is occupancy ratio." Recall that PVR-Inox’s pro-forma occupancy in FY20 stood at almost 32%. This measure fell to 25.2% in FY23. “Every 100 basis points change in occupancy ratio swings ex-Ind AS 116 Ebitda/profit after tax by 9%/14%," said IIFL’s analysts.

In Q1, PVR Inox reported a net loss of Rs82 crore. On the synergies from the PVR-Inox merger, the company noted that there have been benefits specifically in the foods & beverages (F&B) segment. F&B spend per head was up by 9% sequentially in Q1 whereas average ticket price was higher by only 3%. The company said bulk of its ticket price synergy is expected to flow in the rest of FY24.

Overall, net debt inched up by 5% sequentially to Rs1507 crore, but the company maintains that while there could be quarterly volatility but annually, debt should remain constant.

To be sure, shares of PVR Inox are down by 27.5% from their 52-week highs of Rs2214.85 seen in August 2022. For now, the outlook appears better and that should support the stock in the near-term. “Now that ‘movie-going’ has gathered momentum among premium viewers aided by ‘MI7’, ‘Oppenheimer’ and ‘Barbie’, we believe Q2 and Q3 could be breakthrough quarters for PVR Inox, given its strong content line-up (OMG 2, Gadar 2, Jawan)," said analysts from ICICI Securities Ltd in a report on 2 August.

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