Broker’s Call: PVR (Reduce)

Target: INR 1,510

CMP: INR 1465.00

Concerns about the global box office in the post-Covid era persist as it rebounded to 66 percent of pre-Covid levels in March, and the same goes for the Indian box office. We believe that the Indian film industry needs to build franchise-based content to get back to pre-Covid levels.

The post-Covid era has seen structural disruption in the Indian box office sector (largest share within PVR’s box office revenue), due to the increasing contribution of big budget films; change in talent preferences; and films that go straight to OTT, which in turn has led to a sharp decline of about 30 percent in Indian box office revenues versus pre-Covid. Regional content remains a savior in the medium term, given acceptance in Hindi-speaking territories (dubbed films accounted for 21 percent of the Indian box office in FY23).

ATP (average ticket price) and SPH (spending per capita) for PVRL/INOL are higher by 16 per cent / 29 per cent (average PVR/INOL) respectively, versus pre-Covid and post-Covid growth drivers were; However, we believe that a 3-4 percent increase in ticket and food prices is sustainable in the medium term. Hence, the recovery of visitor counts remains a key component to watch to drive double-digit revenue growth.

We assume a base case scenario in our estimates where we expect occupancy levels of 24 percent over the medium term for the combined entity. The risk of a lower EBITDA CAGR of 11 per cent during FY20-25 (pre-Covid shutdown) versus a pre-Covid (FY 2017-20) CAGR of 25 per cent remains a burden. Significantly, this is due to: inconsistent performance of Indian content; lower ad revenue vs. pre-Covid; and a higher fixed cost structure (rentals including CAM make up about 30 percent of revenue in 9 months of FY23). A sharper recovery in Indian content, which in turn will drive footfall, ad revenue and food to pre-Covid levels, is a key thing to watch as well as an upside risk to our call.