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‘Hope is a good thing, maybe the best of things, and no good thing ever dies’ -- Andy Dufresne, The Shawshank Redemption.

When the protagonist of the 1994 movie wrote those memorable lines to his friend, PVR Ltd was yet to open its first multiplex. Twenty-eight years later, investors of India’s largest multiplex operator would agree. After a September quarter (Q2FY23) pockmarked with box office bombs, low occupancies and weak revenues, all hopes now rest on the third quarter.

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The third quarter results would also indicate if over-the-top (OTT) platforms are eating into theatre revenues in a big way. Some Bollywood movies released in Q2 failed to fetch audiences, though they saw a good response on Netflix. Therefore, it remains to be seen if this trend continues in Q3 and beyond that.

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“Aamir Khan starrer Laal Singh Chaddha is faring well on Netflix despite having had a disastrous box office run, tying with our view that the benchmark for content quality for box office success has gone up," said analysts from IIFL Securities Ltd in a report on 17 October.

It helps that big budget movies are lined up during this festive season, which should lead to improving footfalls. Movies such as Ponniyin Selvan: I, Vikram Vedha and Kantara have performed well so far. Further, the pipeline of movies is strong in Q3 and includes Ram Setu, Drishyam 2, and Black Panther: Wakanda Forever.

“Prima facie, Q3 is set to be relatively better than Q2. However, if the big releases fare poorly, it’s a very worrying sign," said an analyst, requesting anonymity. This could lead to a de-rating for the stock, he said.

In view of the large number of box office duds seen in Q2, investors would do well to track PVR’s other offerings. The company screened the India versus Pakistan T20’s from the Asia Cup and saw this as a success in the absence of good content, pointed out Nirmal Bang Institutional Equities. PVR is also open to screening FIFA matches and comedy shows. Such initiatives show the management’s creativity and adaptability to the environment of poor content, said Nirmal Bang analysts.

In Q2, PVR’s Ebitda (Ind-AS adjusted) swung to a loss of 2 crore from a profit of nearly 190 crore in the stellar first quarter of FY23. However, investors were well prepared, even as big budget Bollywood movies such as Laal Singh Chaddha, Raksha Bandhan and Liger failed to attract audiences. Brahmastra: Part One Shiva fared well, but that was not enough to compensate for the box office disasters of the last quarter.

As a result, occupancies fell by 960 basis points (bps) sequentially to 24%. One basis point is 0.01%. The 10.4% sequential drop in the average ticket price (ATP) to 224 added to the woes. Collectively, these factors meant revenues at 687 crore were 30% lower than Q1. While National Cinema Day saw 79% occupancy in PVR, it weighed on overall pricing, as ATP on the day stood at 91. Footfalls are paramount and they are languishing at nearly 39% below pre-covid levels (Q2FY20). Another concern is the weak recovery in advertisement revenue. Against this backdrop, a few analysts have cut their Ebitda/earnings per share estimates for FY23 and FY24.

Meanwhile, the merger with Inox Leisure Ltd is on track. PVR said that it will take three-four months for the National Company Law Tribunal process to complete. The synergies arising from this merger could aid investor sentiments for the PVR stock, which is down by 28% from its 52-week high seen in August. PVR’s investors may hope for brighter days ahead, but in the long run, it is imperative that occupancies improve meaningfully.

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ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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