No let up in action for PVR Inox with Jawan

In a much-needed respite, the September quarter is turning out to be a blockbuster one for PVR Inox Ltd. Movie content performance has had a good run in July and August. In fact, the multiplex operator has said it achieved the feat of highest-ever monthly admissions and box office month of all time in August. The heroes that aided this are movies such as Gadar 2, Jailer, OMG 2, Dream Girl 2, Rocky aur Rani kii Prem Kahani, and Oppenheimer.

In September, Shahrukh Khan-starrer Jawan is expected to work its magic on the box-office collections. Expectations are high and it helps that the initial news flow on Jawan’s collections has been upbeat. In this backdrop, investors in the PVR Inox stock will keep an eye on the September quarter (Q2FY24) to see if it proves to be better than Q1FY23, the best post-covid quarter.

Graphic: Mint

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Graphic: Mint

“On a consolidated basis, PVR + Inox did 30-33% occupancy pre-covid, we expect them to surpass it in Q2FY24,” said Shobit Singhal, analyst at Anand Rathi Shares and Stock Brokers. Q2FY24 is likely to be better than Q1FY23, according to him.

Further, the movie pipeline for the December quarter looks decent, though not as exciting as the ongoing quarter, but promising nonetheless backed by the festival season. However, to some extent, the 2023 ICC Men’s Cricket World Cup matches may adversely impact footfalls.

For the financial year, this means PVR Inox is on course to surpass the combined revenues seen before the pandemic (FY19 and FY20). JM Financial Institutional Securities expects PVR Inox’s occupancy rates in FY24 to be lower than pre-pandemic levels of FY19-FY20 (based on pro-forma numbers). Still, the broking firm expects FY24 revenues to surpass pre-pandemic levels on the back of ongoing screen additions, higher average ticket prices and healthy spends per head.

The company is on track to open 150-165 screens in FY24. Currently, it has slightly over 1,700 screens. In Q1FY24, PVR Inox opened 31 screens and closed 14 underperforming screens, in keeping with its guided plan to close 50 screens this year as part of its strategy to focus on profitable growth and improve unit-level economics. Nirmal Bang Institutional Equities believes PVR Inox’s decision to cut the guidance for screen addition in FY24 (at the beginning of the year) and to expand screens beyond FY24 only with internally accrued cash flows was a major positive shift in stance. “This ensures PVR Inox does not walk into an existential debt trap when demand is uncertain,” said the Nirmal Bang report on 9 September.

Going ahead, occupancy rates would be paramount. Better-than-expected occupancy would also aid the recovery in advertising revenues, a segment that enjoys relatively high margins.

In this backdrop, unsurprisingly, shares of PVR Inox have risen 38% from their 52-week low seen in May. But further re-rating would be gradual. For sustained earnings growth, along with big budget blockbusters, it is crucial that the smaller budget movies keep doing well, too. Much also depends on the movie pipeline scheduled in the upcoming quarters. In the near term, a key risk would be if the ongoing strike of actors and writers in the US impacts the release of Hollywood movies.

To be sure, the recent performance of movies should bring comfort to investors that audiences can be pulled into the theatres if content is compelling. This comes amid doubts on whether movie consumption patterns have changed significantly post covid with over-the-top (OTT) platforms being preferred more. PVR Inox would benefit if both theatres and OTT, thrive. For this to happen, the show (read: the good run of movies seen lately) must go on.

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