pvr ltd Management discussions

Global Economic Review

In 2022, the global economy encountered a new set of challenges following its impressive recovery from the pandemic-induced recession in 2021. These challenges included supply chain disruptions, the ongoing Ukraine-Russia conflict, which exacerbated the food and energy crisis, and global inflation resulting from years of monetary easing.

Presently, it appears that the global economic situation is once again characterised by increased uncertainty. In mid-April 2023, both the IMF and World Bank issued concerning statements regarding the state of the world economy. The IMF projected a challenging road ahead with global growth hitting a bottom in 2023, while the World Bank warned of a lost decade due to an aging workforce, reduced investment, and slower productivity that are affecting the worlds potential growth (defined as the maximum rate of economic expansion without causing inflation).

In its World Economic Outlook released in April 2023, the IMF projected global growth to decline to 2.8% in 2023 from 3.4% in 2022, before settling at 3% during 2024-28.

The global economy is being burdened by various factors such as the recent financial sector instability in the US and Europe, the persistence in global inflation, the spillover effects of the ongoing conflict in Ukraine, and the persistent impact of the pandemic, which includes new waves of infections. These issues are hindering global growth. The IMF has also brought attention to an alternate scenario in which severe stress in the financial sector could lead to a decline in global growth to 2.5% in 2023.

In the base case scenario, global headline inflation is anticipated to decrease from 8.7% in 2022 to 7% in 2023. However, underlying core inflation may persist at elevated levels for an extended period. Although consumer price inflation has decreased from its recent peaks in many economies due to lower energy costs and a reduction in supply chain disruptions, core inflation has proven to be resilient. Despite the recent easing of inflation, headline inflation remains significantly above the target rate in most advanced and emerging market economies.

Over the past few months, the global financial markets have experienced significant fluctuations due to concerns about financial stability. The collapse of the Silicon Valley Bank and Signature Bank in the US (2 of the largest banks to fail since the great depression) and Credit Suisse in Europe has led to sharp corrections in equity and bond valuations, contributing to the markets volatility. Central banks have responded by pausing or reducing the magnitude of interest rate hikes as the increased instability in the financial markets has added an additional layer of uncertainty to the economic outlook.

Indian Economy: A Global Outlier

Historically, Indian economy has grown at a rapid pace with a consistent increase in per capita income and discretionary spending. It is noteworthy that India ranks fifth in terms of both GDP size and market capitalisation.

According to the IMF, the Indian economy is expected to continue its outperformance in 2023 and 2024, surpassing all other economies by a significant margin and is likely to account for 15% of global growth, which is the second-largest contribution, higher than that of the US and EU combined.

Monetary Policy Committee of the RBI expects India to deliver a real GDP growth of 6.5% in 2023-24.

Source: IMF, Bloomberg

Economic Megatrends

$2,450 per capita income	~1.4 billion population
(CY22; China = $12,970)	(overtook China this year; median age
	of 28 vs Chinas 38)
6.8% headline inflation rate	$900 Bn Retail Sector
(Apr Dec 22) vs World 8.8% (IMF)	(45% of Pvt Consumption)
(Domestic) Credit is 55% of GDP	Equity market cap is $3.5 Tn is 2022
(World Average is 148%)	(Presently 5th highest)

Source: NRF, OECD, Morgan Stanley, Indus Valley report from Blume ventures

There are several key trends that are expected to propel the growth of the Indian economy in the future:

1. Digital Transformation: India is undergoing a rapid digital transformation, with increasing internet penetration, adoption of digital payments, and the governments push for digitalisation. This is expected to boost productivity and efficiency in various sectors, including e-commerce, fintech, and healthcare.

2. Demographic Dividend: India has a young population, with over 65% of the population below the age of 35. This is expected to boost the workforce and consumer demand and contribute to economic growth.

3. Increased Discretionary Spending: Rising consumer incomes have led to a rise in the consumption of discretionary items, whose share in the overall spending has increased from 27% in FY 2010-11 to 36% in FY 2019-20.

4. Rising Per Capita Income: Factors supporting the growth of GDP such as controlled inflation and improving fiscal conditions are also contributing to the increase in per capita incomes at a CAGR of 6% over 2015 to 2022. A positive macroeconomic outlook, coupled with growth across key sectors such as real estate and infrastructure, are expected to have a positive effect on the overall per capita incomes of the population.

5. Infrastructure Development: The Indian government has launched several initiatives such as the Bharatmala project, the Sagarmala project, development of smart cities and the National Infrastructure Pipeline, which aim to improve the countrys infrastructure, including roads, railways, ports, and airports. This is expected to boost trade and investment and create job opportunities.

6. Start-up Ecosystem: India has a thriving start-up ecosystem, with over 50,000 start-ups across various sectors. The government has launched several initiatives to support start-ups, including the Startup India program and the Atal Innovation Mission. This is expected to drive innovation, entrepreneurship, and job creation.

7. Atmanirbhar Bharat: The Indian governments initiative to promote self-reliance and reduce dependence on imports is expected to drive growth in the manufacturing sector. The government has announced several measures, including the production-linked incentive (PLI) scheme to boost domestic manufacturing.

8. Renewable Energy: India has set ambitious targets for renewable energy, with a target of achieving 450 GW of renewable energy capacity by 2030. This is expected to reduce the dependence on fossil fuels, mitigate climate change, and create job opportunities in the green energy sector.

9. Urbanisation: India is urbanising at a rapid pace, with more and more people moving to cities in search of better opportunities. This is expected to create demand for infrastructure, housing, transportation, and other urban services.

Overall, Indias economic growth is expected to be driven by a combination of government initiatives, demographic factors, and technological advancements.

Indian Economy Outlook

Despite facing multiple challenges, corporate revenues and profits in India remained healthy in the FY 2022-23, following a strong recovery in FY 2021-22 from the contraction observed in FY 2020-21. Although the growth rate of revenues and profits have moderated, they still hold promise for a much-awaited revival in the corporate capex cycle in the upcoming FY 2023-24. The cement, steel, oil and gas, textiles, and data centres industries have already shown early signs of upturn. Moreover, industries such as pharmaceuticals, semi-conductors, and renewables will benefit from supply chain realignments. A durable reduction in inflation will drive stronger consumer discretionary spending, leading to revenue growth, and a decrease in interest expenses. Additionally, input costs are expected to decrease as international commodity prices ease.

India stands out as its aggregate demand conditions have remained strong, buoyed by the resurgence of contact-intensive services like hospitality, travel, beauty, wellness, aviation, and shared mobility. Moreover, urban consumption demand has increased significantly, and rural demand indicators are gradually improving, fuelled by the anticipation of a bumper Rabi harvest.

Considering this, several economic and high frequency indicators suggest that the Indian economy is poised for a good year ahead amidst the prevailing uncertainty across the globe.

• E-way bill volumes and toll collections achieved record levels in March 2023.

• The daily average fuel consumption reached a new peak in March 2023.

• In March, two-wheeler sales increased by 7.7% y-o-y, while the electric vehicle (EV) segment reported its highest-ever sales of 140,000 units.

• The tourism industry witnessed a surge in hotel occupancy rates, which exceeded 70% for the first time since the pandemic began, reaching a ten-year high. Moreover, average room rates rose considerably in February 2023 compared to the previous year, contributing to the growth of revenue per available room.

• Numerous airlines are reporting all-time high occupancies, and the daily domestic air traffic has already surpassed 400,000 passengers.

• In March 2023, the GST collections increased by 12.7% y-o-y. The gross monthly GST collection in FY 2022-23 was nearly 1.51 lakh crores, compared to 1.24 lakh crores in the previous year. April 2023 recorded the highest ever GST collection of 1.87 lakh crores.

• According to the Reserve Banks consumer confidence survey (CCS), households evaluation of economic conditions has continued to improve steadily since hitting a historic low in mid-2021, indicating a rise in consumer confidence.

• Overall, the merchandise exports of India surged to a historic high of US$447.5 billion in the FY 2022-23, exhibiting a growth of 6% from the previous year.

• India witnessed a significant increase in defence goods exports, which grew ten-fold within a span of seven years, setting a record in the FY 2022-23.

Inflation Outlook The Monetary Policy Committee of the Reserve Bank of India has acknowledged that future inflation prospects will be influenced by both domestic and global factors, having both positive and negative implications. The Committee has forecasted that inflation is expected to decline to 5.2% in the FY 2023-24, compared to 6.7% in the previous year. Thanks to the timely interventions of the RBI, headline CPI inflation has steadily decreased from its peak of 7.8% in April 2022 to 5.7% in March 2023 and is expected to further ease to 5.2% by January to March 2024. However, it is important to note that the long-term inflation target remains fixed at 4%.

Global Film Exhibition Industry

For more than 100 years, the cinema industry has continued to produce compelling and engaging films that capture the imagination of audiences around the world. After the Lumi?re brothers invention of the Cin?matographe in 1895, cinema quickly spread through Europe and North America, with each region developing its own distinctive styles and techniques. Today, cinema continues to be a powerful and influential cultural force globally, with films from countries like India, China, and South Korea gaining increasing recognition and popularity on the global stage.

Global Market Outlook and its Recovery in 2022 vs 2019

Despite all the technologies and out of home entertainment options, globally cinema was always growing (refer to the graph above). Pre-covid global box office had exceeded US$40 billion for 3 consecutive years. While were not near the pre-covid level, were heading in the right direction - with an 81% y-o-y increase in Global box office in 2021 and a 22% y-o-y increase in 2022.

Start of 2023 has been fantastic from a global perspective. We recorded the best first quarter since 2019 and ended up with US$8_billion globally within the first three months. But a lot more needs to be_done.

Noticeable Trends in the Global Film Exhibition Market

• Hollywood is expected to bounce back this year. The number of movie releases after seeing a marked decline of 46% in 2022 vs 2019 is expected to go up significantly this year.

• Increased demand for premium experiences as IMAX reports best first quarter in its history.

• The big is getting bigger. Big blockbusters are continuing to dominate with new records being set at the box office.

Indian Film Exhibition Industry

Unique characteristics of the Indian film exhibition industry

When compared to its global peers, the Indian film exhibition industry is uniquely placed.

• India has the lowest per capita screen density when compared to other developing and developed nations.

Source: State of the Cinema Industry March 2023

Number of Screens per mn of Population in 2022

• The number of screens has not changed materially over the past ~14 years and has remained constant at the 9k – 10k mark.

• The mix of screens has constantly evolved. While multiplex screens used to constitute about 9% of screens back in 2009, they contribute about 42% of screens as of 2022. India remains one of the few markets which continues to add screens every year.

YoY Split Between Single screens and Multiplex Screens in India

Source: M&E FICCI report & Company estimates

• The affinity for watching movies is significantly higher in South India as compared to the rest of India. It is evident by the fact that almost 46% of all screens are in South India. It is also unique because almost 61% of single screens in India are in the Southern states.

Source: Company estimates

• India also produces the highest number of movies globally. Regional movie industries and Bollywood put together had released ~1800 movies in 2017, 2018 and 2019.

• On the back of the domestic film industry, India was the only market which recovered to almost pre-pandemic levels of gross box office collections in 2022 vs 2019 (pre-pandemic) while other markets managed to recover between 50% and 70%. This global recovery was largely led by increase in average ticket prices globally, while the admissions continued to remain significantly below the pre-pandemic levels.

• Even in terms of admissions, the admission recovery was amongst the highest in the world.

• To catch up with inflation, increase in ticket prices was witnessed in all the markets globally. Still the average ticket prices in India are amongst the lowest globally.

Indian Film Industrys Performance in FY 2022-23

• 2022 became only the second year when the film exhibition industry surpassed the 10,000 crores mark at the India box office. Gross box office collections for CY 2022 and FY 2022-23 are almost similar. The industry grossed 10,637 crores in CY 2022 and 10,655 crores in FY 2022-23.

(Source: Ormax Media)

• The recovery in box office was largely led by increase in ticket prices. The admissions at the industry level were lower by 13% in 2022 when compared to the pre-pandemic period.

(Source: Ormax Media)

• The 2 best months of FY 2022-23 in terms of gross box office collections were April 2022 and January 2023. Both the months saw the release of the 2 biggest movies of the year. ‘KGF 2 released in Apr 2022 went on to become the highest grossing Kannada movie and the second highest grossing Indian movie of all time. ‘Pathaan which was released in January 2023 went on to becoming the highest grossing Hindi movie ever.

(Source: Ormax Media)

• The highest grossing movies from all genres (Regional, Bollywood, Hollywood) were released in FY 2022-23. The top 10 movies from FY 2022-23 are:

(Source: Ormax Media)

• Of the top 5 movies of FY 2022-23, 3 are from Regional, 1 is from Bollywood and 1 is from Hollywood. Of the top 10, 5 are Regional movies, 4 are from Bollywood and 1 is from Hollywood.

Noticeable Trends at the Indian Box Office

• Change in Consumer Tastes: As consumers turned to OTT during the ~2-year period when cinemas were not allowed to operate fully, they were exposed to a wide variety of content in both their native and foreign languages from different countries. This eventually led to the bar for content acceptability amongst audiences getting raised. People are now indifferent to who the superstar is, what the native language of the content is, if the content is good, they are willing to watch it in dubbed format in a theatre.

• The year gone by will also be remembered as the year when the regional cinema took centre stage. For the first-time box office collections of regional movies exceeded the collection of Hindi movies by a huge margin.

• A negative outcome from this was the adverse performance of movies that were conceptualised pre-pandemic. A lot of big budget movies especially from Bollywood that were written, shot or edited pre-pandemic or where the release was held back due to the pandemic failed to do well at the box office. Notably, Shamshera, Laal Singh Chaddha, Raksha Bandhan, Ram Setu, Samrat Prithviraj, Phone Bhoot, Jersey, Thank God, Heropanti 2, An Action Hero, Runway 34, Jayeshbhai Jordaar, Dhaakad failed to entice audiences back to theatres.

• The ‘Big keeps on getting bigger or in other words ‘Content Polarisation is extreme. If a content is doing well, has good reviews, it is performing extremely well at the box office. On the other hand, if the content is not doing well, it is absolutely crashing at the box office. This trend is also getting amplified by the social media.

• The year was marked by some of the biggest movies ever released performing exceptionally well at the box office. We witnessed the highest collecting movies across major languages all releasing in the same year. KGF 2 (Kannada), RRR (Telugu), Pathaan (Hindi), and Avatar: The way of water (English) led the box office recovery in post-pandemic.

Factors that will Propel the Growth of the Multiplex Industry over the Foreseeable Future

1. GDP Growth & Per Capita Consumption: India is the fastest growing economy currently and is expected to grow at the fastest pace for the next few years. By 2030, India could become worlds third-largest economy.

2. Higher Disposable Income: People have greater discretionary money when their per capita income rises, which raises their standard of living. Indias per capita income has doubled from 86,647 in FY 2014-15 to 1,72,000 in FY 2022-23.

3. Lack of Out of Home Entertainment Options in India: Multiplexes continue to remain the cheapest form of out of home leisure activity in India as compared to theme park visits, dining out and vacations.

4. Improving Lifestyle: Footfall at multiplexes has increased as the lifestyle choices of a youthful and vast working population have improved. The lack of out-of-home entertainment options in India, combined with excellent audio and visual experiences, a pleasant atmosphere, and comfortable seating, are some of the elements fueling this need.

5. Increasing Focus on Customer Experience: Multiplexes are increasingly focused on providing a high-quality customer experience, with comfortable seating, high-quality sound and picture, and a range of food and beverage options. This focus on customer experience is likely to drive demand for multiplexes in the coming years.

6. Technological Advancements: Technological advancements such as 3D and 4D screenings, as well as virtual and augmented reality experiences, are likely to drive demand for multiplexes as customers seek out new and immersive entertainment experiences.

7. Increasing Number of Malls: Over the last decade, the number of malls has increased dramatically. Previously only found in Metros and Tier-I cities, they are now finding their way into Tier-II cities as well. The expansion of multiplexes will also be aided by this deepening footprint.

(Source: JLL research)

8. Diversification of Content: Multiplexes are no longer limited to screening mainstream films but are also showing independent and foreign language films, as well as live events such as concerts and sporting events. This diversification of content is likely to appeal to a broader range of customers and drive demand for multiplexes.

Company Overview & Performance in FY 2022-23

PVR INOX Limited (PVR INOX) is Indias largest multiplex player in India operating 1,697 screens across 360 properties in 114 cities in India and Sri Lanka as on 30th June 23.

	Cinemas	Screens	Seats	Cities	States
PVR	187	943	~193k	79	19
INOX	173	754	~166k	72	19
PVR INOX Ltd	360	1,697	~359k	114	20

PVR offers a diversified and premium cinema viewing experience through its formats, including ‘PVR Directors Cut, ‘ICE, ‘PVR LUXE, ‘PVR IMAX, ‘PVR P[XL], ‘PVR Playhouse, ‘PVR 4DX, ‘PVR Onyx, ‘PVR Cinemas, and pursuant to the merger with INOX Leisure ltd ‘Insignia, ‘Kiddles, ‘Club, ‘MX4D, ‘BIGPIX and ‘ScreenX. The Company exhibits a variety of content to cater to the various customer segments in India.

Apart from box office revenues, PVR also generates revenue from non-box office sources such as food and beverage sales, advertisement revenue, convenience fees, and income from movie production/ distribution.

FY 2022-23 was a recovery year for the business. The revenue in FY 2022-23 almost recovered to the pre-pandemic levels of FY 2019-20, but the admissions in FY 2022-23 were lower than the pre-pandemic admissions by almost 16%. Although the South Indian and regional content posted a strong recovery, the performance of mainstream Hindi language content and Hollywood films continued to lag significantly behind pre-pandemic levels thereby impacting theatrical admissions. This was despite a net addition of 200+ screens over the past 3 years between PVR and INOX.

The recovery witnessed in revenue was primarily because of higher ticket prices. The Company increased ticket prices last year after a gap of almost 3 years. The full impact of this increase was witnessed in FY 2022-23, which was the first full year of operations post-pandemic. There was significant volatility in the q-o-q performance of the Company in FY 2022-23. The first quarter of FY 2022-23 recorded the highest-ever quarterly revenue, EBITDA, and PAT in PVRs history with 25 million patrons visiting our cinemas. The quarter saw the release of KGF 2 which went on to become the second highest-grossing domestic movie of all time with gross collections of 970 crores. The second quarter turned out to be a breakeven quarter operationally with the much-anticipated blockbusters like ‘Laal Singh Chaddha, Raksha_Bandhan, and ‘Liger bombing at the box office. The third quarter was significantly better than the second quarter but lower than the first quarter on the back of superlative performance of regional movies like Ponniyin Selvan 1 & Kantara, Drishyam 2 from Bollywood and ‘Avatar 2: The Way of Water and ‘Wakanda forever from Hollywood. Avatar 2 went on to become the highest-grossing English movie in India. The fourth quarter started on a high with the release of ‘Pathaan which went on to become the highest-grossing Bollywood movie ever. Except for the spillover collections of Avatar 2, no other English movie did well which resulted in the quarter again being a breakeven quarter operationally for the Company.

One of the major initiatives that the industry undertook to bring people back to theatres was ‘National Cinema Day. The multiplex exhibition industry celebrated it on September 23, 2022. This was envisaged as an industry-wide initiative to welcome moviegoers back to theatres. More than 11 multiplex chains with 4000+ screens across India participated in this initiative. Customers were offered movie tickets at 75 and significant discounts on F&B products. PVR welcomed 6.5 lakhs guests on this day, which proved to be the busiest day for us in FY 2022-23 and the second highest attended day to date with occupancy of ~80%. In addition, INOX entertained 5.57 lacs patrons during the day. It was also one of the highest admissions recorded in a single day for them.

Merger with INOX Leisure Limited

The year gone by marks one of the most important milestones in our history. On March 27, 2022, the Board of Directors of PVR Limited and INOX Leisure Limited approved an all-stock amalgamation of INOX with PVR. In January 2023, the NCLT Mumbai Bench approved the proposed scheme of amalgamation of INOX with PVR, and the merger was made effective from February 6, 2023. The ‘Appointed date for the merger was fixed as January 1, 2023, and the consolidation of accounts for both PVR and INOX is effective from this date. As per the scheme of amalgamation, the entity was renamed PVR INOX Limited with effect from April 20, 2023.

PVR INOX is the largest multiplex chain in India with a presence in 114 cities across the country and a collective screen count of 1,697 across 360 cinemas as of 30th June23. The combined entity has a market share of 18%, based on the number of screens (43% share in multiplexes), and will account for around 30% of total box office collections in India.

As a first step post-merger, the board of the merged company was reconstituted. The Company has an extremely well-qualified and experienced board. As per the terms of the merger, Mr. Ajay Bijli and Mr. Sanjeev Kumar have been appointed as the Managing Director and the Executive Director respectively for 5 years. Mr. Pavan Jain and Mr. Siddharth Jain have been appointed as the Non-Executive Chairman and Non-Executive Director. Other members of the board are:

• Ms. Renuka Ramnath: Non-Executive Director

– She is also the founder, Managing Director and CEO of Multiples Alternate Asset Management

• Ms. Pallavi Shardul Shroff: Independent Director

– She is also the Managing Partner of Shardul Amarchand Mangaldas & Co.

• Mr. Sanjai Vohra: Independent Director

– Ex Managing Director at UBS and JP Morgan

• Mr. Haigreve Khaitan: Independent Director

– He is also a Partner and heads the Corporate/M&A and Private Equity practice at Khaitan & Co.

• Mr. Vishesh Chander Chandiok: Independent Director

– He is also the Chief Executive Officer of Grant Thornton Bharat

• Mr. Amit Jatia: Independent Director

– He is also the Vice Chairman at Westlife Foodworld Ltd., formerly known as Westlife Development, the master franchisee of McDonalds? restaurants in West & South India.

As a next step, the Company announced a day 1 organisation structure and provided clarity on everyones roles and responsibilities. We hired a leading global HR consulting firm to assist with this process. The new management team supporting Mr. Ajay Bijli as the Managing Director and Mr. Sanjeev Kumar as the Executive Director is as follows:

• Mr. Alok Tandon: Co-CEO (Central, East and West regions)

• Mr. Gautam Dutta: Co-CEO (North & South regions)

• Mr. Nitin Sood: CFO

• Mr. Kailash Gupta: Deputy CFO, PVR INOX Limited and CFO, PVR INOX Pictures

• Mr. Kamal Gianchandani: Chief Business Planning & Strategy Officer, PVR INOX Limited & CEO of PVR INOX Pictures

• Mr. Pramod Arora: Group Chief of Growth & Business Development

• Mr. Jitender Verma: Chief Information Officer

• Mr. Rajender Singh Jyala: Chief Programming Officer

• Mr. Sunil Kumar: Chief Human Resource Officer

• Mr. Mukesh Kumar: Company Secretary and Compliance Officer

The immediate focus of the Company is human resource integration, integration of IT & ERP systems and processes, and operations integration which includes integration of the supply chain. From a medium to long-term perspective the Companys priorities are realising merger synergies and accelerating screen rollout across key markets. Synergies are expected to emanate both from revenue and the rationalisation of costs. Revenue synergies are expected to accrue from the Box office, food and beverage, and advertisement line items. F&B will be a large focus area where synergies will get generated primarily by plugging product gaps in both portfolios.

Cost synergies will come from both operational and capital expenditures through supply chain integration, leveraging scale for volume discounts, standardisation of pack sizes and packaging specifications, and removal of duplicate costs. The Company intends to realise synergies to the tune of 225 crores over the next 12-24 months. A part of these will accrue from FY 2023-24 onwards and the remaining from FY 2024-25 onwards.

SCOT Analysis

Strengths

• Movie exhibition industry leader in India

• Diversified products and services offerings for superior customer experience

• Guest experience

• Strategically located cinemas

• Strong relationships with developers

• Leadership position across key operating metrics

• Experienced promoters and senior management team with in-depth industry know-how

• Usage of superior technology and global cinema formats

Challenges

• Absence of stringent piracy laws

• Sluggish real estate developments

• Long and tedious regulatory processes

• Evolving consumer behaviour

• Lack of good quality content

Opportunities

• Low screens per capita, indicating headroom for growth

• Young demographics driving the entertainment industry

• Private screenings

• Recent box office success of dubbed regional content

• Growing disposable incomes

• Screening of Alternative content options such as online gaming events, musical concerts, sporting events, etc.

Threats

• Any further pandemic-led disruption in operations

• Rising popularity for live events and performances

• Bans, restrictions from the Central Board of Film Certification

• Delays in film production or releases

• The proliferation of content distribution platforms e.g., OTTs, social media, etc.

Financial Performance & Analysis

The revenue in FY 2022-23 recovered to almost the pre-pandemic levels of FY 2019-20 but the admissions were lower by ~16% resulting in significantly lower operating profits when compared to the pre-pandemic numbers of FY 2019-20. This was because of an increase in fixed costs, primarily contributed by the increase in rent and CAM on account of annual contractual inflation and the incremental screens opened over the past 3 years.

The discussion in this section relates to the standalone financial results for the year ended March 31, 2023. The financial statements of the Company have been prepared under the Indian Accounting Standards (Referred to as Ind AS), prescribed under Section 133 of the Companies Act, 2013, read with the Companies (Indian Accounting Standards) Rules as amended from time to time. Significant accounting policies used in the preparation of the financial statements are disclosed in the notes to the standalone financial statements.

The table below gives an overview of the standalone financial and operating results for FY 2022-23 compared with FY 2021-22. Further comparative financials after adjusting for the impact of Ind AS 116 have also been reproduced below for both financial years. Please note that the numbers for FY 2022-23 and FY 2021-22 are not comparable. Given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX. Hence for full year FY23, the reported numbers consist of 3 quarters of PVRs financials and 1 quarter of PVR INOXs financials. The MD&A section below has been drafted basis of Ind AS 116 adjusted numbers for ease of understanding of the stakeholders.

Particulars (Rs. in lakhs)	FY 2022-23 Reported	IND AS 116 Adjustment	FY 2022-23 Adjusted	% of Revenue	FY 2021-22 Reported	IND AS 116 Adjustment	FY 2021-22 Adjusted	% of Revenue	Growth/ De-growth
Income
Revenue from operations	3,55,917		3,55,917	98%	1,21,331		1,21,331	95%	193%
Other income	7,686	(938)	6,748	2%	31,074	(24,430)	6,644	5%	2%
Total Income	3,63,603	(938)	3,62,665	100%	1,52,405	(24,430)	1,27,975	100%	183%
Expenses
Movie exhibition cost	87,287		87,287	24%	31,578		31,578	25%	176%
Consumption of food and beverages	29,176		29,176	8%	9,857		9,857	8%	196%
Employee benefits expense	41,925		41,925	12%	25,182		25,182	20%	66%
Other operating expenses	93,902	72,482	1,66,384	46%	44,132	33,748	77,880	61%	114%
Total expenses	2,52,290	72,482	3,24,772	90%	1,10,749	33,748	1,44,497	113%	125%
EBITDA	1,11,313	(73,420)	37,893		41,656	(58,178)	(16,522)		NM
EBITDA Margin (%)	31%		10%		27%		(13%)		NM
Finance costs	56,862	(41,027)	15,835	4%	49,361	(33,988)	15,373	12%	3%
Depreciation and amortisation expense	74,071	(44,757)	29,314	8%	59,442	(34,649)	24,793	19%	18%
Exceptional items	1,082		1,082
Profit before tax	(20,702)	12,364	(8,338)		(67,147)	10,459	(56,688)		NM
PBT Margin (%)	(6%)		(2%)		(44%)		(44%)		NM
Tax expense	12,596	3,112	15,708	4%	(19,312)	3,655	(15,657)	(12%)	NM
Profit after tax	(33,298)	9,252	(24,046)		(47,835)	6,804	(41,031)		NM
PAT Margin (%)	(9%)		(7%)		(31%)		(32%)		NM
Operating Numbers
Locations (Nos.)	358		358		180		180		99%
Screens (Nos.)	1,671		1,671		862		862		94%
Admits (lakhs)	944		944		333		333		184%
Gross ATP	239		239		234		234		2%
Gross SPH	128		128		124		124		3%
Occupancy %	26.3%		26.3%		22%		22%		19%

I. Revenue:

Total Revenue increased by 183% or 2,34,690 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022, on account of the business being fully operational during the year when compared to FY 2021-22 which was impacted by the second and the third COVID wave. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

Particulars (Rs. in lakhs)	FY 2022-23	FY 2021-22	% Change
Income from sale of movie tickets	1,87,828	66,380	183%
Sale of food and beverages	1,14,513	38,082	201%
Advertisement income	28,964	7,201	302%
Convenience fees	18,841	7,560	149%
Other operating revenue and Other Income	12,519	8,752	43%
Total	3,62,665	1,27,975	183%

A. Income from Sale of Movie tickets

Income from the sale of movie tickets increased by 183% or 1,21,448 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022. The increase was mainly due to the increase in Gross ATP by 2% and increase in admissions by 184%. This was the first year when cinemas were fully operational post pandemic. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX. There was some impact from the incremental admissions received from new screens opened during the year.

B. Income from Sale of Food & Beverages

Income from the sale of Food & Beverages increased by 201% or 76,431 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022. The increase was mainly due to the increase in SPH by 3% and increase in admissions by 184%. This was the first year when cinemas were fully operational post-pandemic. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX. There was some impact from the incremental admissions received from new screens opened during the year.

C. Advertising Revenue

Advertising revenue increased by 302% or 21,763 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022. This was primarily on account of increase in admissions by 184% due to unrestricted operations during the year and release of more movies theatrically as compared to the previous year. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

D. Convenience Fees

Convenience fees increased by 149% or 11,281 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022. The increase was on account of significantly

94 higher online admissions in FY 2022-23 as compared to FY 2021-22. The proportion of online admissions has increased significantly post-pandemic to almost 64% in FY 2022-23 for the PVR set of cinemas alone and ~63% for PVR INOX combined (reported). Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

E. Other Operating Revenue and Other Income

Other operating revenue including other income increased by 43% or 3,767 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022. It includes income from movie production and distribution, food court income, gaming income, management fees, interest income, and other non-operating Income.

II. Expenses

Total expenses increased by 101% or 1,86,340 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily on account of cinemas being operational for the full period during the year. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX. Total expense comprised of the following:

Particulars (Rs. in lakhs)	FY 2022-23	FY 2021-22	% Change
Variable Cost
Movie exhibition cost	87,287	31,578	176%
Consumption of food and beverages	29,176	9,857	196%
Total Variable Cost	1,16,463	41,435	181%
Fixed Cost
Employee benefits expense	41,925	25,182	66%
Rent and CAM	76,222	46,079	65%
Electricity and Water charges	23,180	10,013	131%
Other operating expenses	66,982	21,788	207%
Total Fixed Cost	2,08,309	1,03,062	102%
Finance Cost & Depreciation
Finance Cost	15,835	15,373	3%
Depreciation &	29,314	24,793	18%
Amortization Expense
Exceptional Cost	1,082	0
Total Cost	3,71,003	1,84,663	101%

A. Movie Exhibition Cost

Movie exhibition cost increased by 176% or 55,709 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to an increase in revenue from the sale of movie tickets. This cost is fully variable and linked to the sale of movie tickets. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

Particulars	FY 2022-23	FY 2021-22
Movie Exhibition cost	45.8%	47.0%
(as a % to Box office Revenue)

B. Consumption of Food and Beverages

Consumption of food and beverages increased 196% or 19,319 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to an increase in revenue from the sale of food and beverages. This cost is fully variable and is linked to the sale of food and beverages. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

Particulars	FY 2022-23	FY 2021-22
Cost of Goods sold (as a % to	25.5%	25.9%
Food & Beverages Revenue)

C. Employee Benefit Expenses

Employee benefit expenses increased by 66% or 16,743 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily on account of removal of temporary salary cuts instituted for a short period in FY 2021-22 and increments given in FY 2022-23. It has also increased on account of the new screens opened in FY 2022-23. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

D. Rent and Common Area Maintenance ("CAM")

Rent and CAM expenses increased 65% or 30,144 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to expiry of rental discounts/ waivers extended by the developers during the period when cinemas were shut in FY 2021-22. Rental escalations for 3 years became effective across all properties in FY 2022-23. It has also increased on account of the new screens opened in FY 2022-23. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

E. Electricity & Water Charges

Electricity & Water expenses increased 131% or 13,167 lakhs during the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily due to properties being operational for a longer period during the year as compared to last year. It has also increased on account of the new screens opened in FY 2022-23. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

F. Other Operating Expenses

Other operating expenses primarily include repairs and maintenance, marketing expenses, rates and taxes, security service charges, travelling and conveyance, legal and professional fees, and other expenses. The expense increased by 207% or 45,194 lakhs for the year ended March 31, 2023, as compared to March 31, 2022. Increase was on account of merger related expenses and incremental impact from new properties that were opened in FY 2022-23. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

G. Finance Cost

Finance cost includes interest on debentures, term loan, banks, and other financial charges. Finance cost increased by 3% or 462 lakhs for the year ended March 31, 2023, as compared to March 31, 2022. Also, given the appointed date of the merger with INOX being January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

H. Depreciation and Amortisation Expense

Depreciation and amortisation expense increased by 18% or 4,521 lakhs, during the year ended March 31, 2023, as compared to the year ended March 31, 2022, primarily because of the merger with INOX, harmonizing depreciation recognition policies between INOX and PVR, and accelerated depreciation on screens that are loss making and will be shut down. As the appointed date for the merger was January 1, 2023, the numbers for Q4 FY2023 are consolidated for both PVR and INOX.

Balance Sheet

The following table set forth selected items from the standalone Balance sheet:

Particulars (Rs. in lakhs)	March 31, 2023 Ind AS 116 Adjusted	March 31, 2022 Ind AS 116 Adjusted	Growth/ De-growth
Assets
Non-current assets	10,33,472	3,58,537	188%
Current assets	71,103	81,105	(12%)
Total	11,04,575	4,39,642	151%
Equity and liabilities
Equity	8,20,300	2,14,784	282%
Non-current liabilities	1,30,848	1,10,681	18%
Current liabilities	1,53,427	1,14,177	34%
Total	11,04,575	4,39,642	151%

I. Non-Current Assets

Non-Current Assets includes Property, Plant and Equipment, Goodwill, Intangible Assets, Capital work-in-progress, Interest in Joint ventures, Security deposits to mall developers, Deferred tax assets, and other non-current assets.

II. Current Assets

Current Assets include Inventories, Trade Receivables, Cash and cash equivalents, and other current assets. Primarily the increase is on account of increase in cash and equivalents held by the Company.

III. Equity

Equity comprises of Equity share capital and Reserves and surplus.

IV. Non-current Liability

Non-Current liability includes Borrowings, the non-current portion of Gratuity and leave encashment liability, deferred tax liability, and other non-current liabilities.

V. Current Liability

Current liability includes short term Borrowings, Trade payables, other financial liabilities, current portion of Gratuity and leave encashment, and other current liabilities. Primarily the decrease is on account of payments of Trade payables.

Ratios

Particulars	Formula	Units	FY 2022-23	FY 2021-22
Current Ratio	Total Current Assets / Total Current Liabilities	times	0.35	0.57
Debt - Equity Ratio	Total Debt / Total Equity	times	0.24	1.08
Debt Service Coverage Ratio	[Loss Before Tax + Dep & Amort. + Finance costs - Other Income] / [Finance Costs*+Principal Repay. of LT Debt]	times	1.86	0.23
Return on Equity	Loss For The Year / Average Total Equity	%	(8%)	(30%)
Inventory Turnover Ratio	Consumption of F&B / Average Inventory (F&B)	times	9.61	5.87
Trade Receivables Turnover	Revenue From Operations / Average Trade Receivables	times	31.08	26.71
Trade Payables Turnover	[Exhibition Cost + COGS + Other Operating Expenses] / Average Trade Payables	times	5.41	3.56
Net Capital Turnover	Total Income / [Total Current Assets -Total Current Liabilities ]	times	(2.81)	(2.51)
Net Profit Ratio	Loss For The Year / Total Income	%	(9%)	(31%)
Return on Capital Employed	EBIT = [Loss Before Tax + Finance Costs] / Capital Employed**	%	11%	(10%)
Return on Investments	Income Generated From Investments / Average Investments	%	5%	5%

Notes:

1) For computing above ratios reported standalone numbers are considered.

2) Ratios include impact of Ind AS 116 ‘Leases.

* Interest on debentures, term loans and bank and others

**Total Equity +Total Borrowings-Other Intangible Assets - Goodwill

Governance

PVRs unwavering commitment to corporate governance excellence is evident in the value it has generated for all stakeholders throughout its 25-year history. The Company adheres to a set of policies and procedures established by the Board in consultation with external experts to fulfil its legal and ethical obligations. Its core objective is to achieve sustained business excellence and maximise long-term shareholder value through ethical business practices. Transparency is of utmost importance to PVR, and it places significant emphasis on business ethics in all its operations.

The Company operates with the highest levels of transparency, accountability, and fairness in all its activities and relationships with stakeholders including shareholders, employees, the government, and lenders. Our focus is on increasing the overall value of the Company and maintaining shareholder trust through all our actions and operations.

Internal Control Systems and their Adequacy

We have implemented sufficient controls, procedures, and policies to ensure that our business operates in an orderly and efficient manner. These measures include compliance with policies, protection of assets, prevention and detection of fraud and errors, accuracy and completeness of accounting records, and timely preparation of dependable financial information. Our internal control system is appropriate for the size, scope, and complexity of our operations. Additionally, the Audit Committee collaborates with the statutory auditors, internal auditors, and management to address issues within its scope of responsibilities.

96

We assessed our controls during the year and determined that there were no significant weaknesses in their design or operation that needed to be reported.

We engaged KPMG to oversee our internal audit activities, which are based on a yearly audit plan that is reviewed in collaboration with the Audit Committee. Our internal audit focuses on reviewing internal controls and risks in areas such as operations, accounting and finance, procurement, advertising, marketing, employee engagement, customer relationship management and other relevant matters. The Audit Committee reviews reports provided by both internal and statutory auditors, and suggestions for improvement are evaluated and followed up with corrective action. The committee also meets with the statutory auditors to obtain their input on the adequacy of our internal control system and periodically updates the Board of Directors on significant observations. In addition to the above, the Company engaged services of Protiviti India to conduct periodic cinema level audits for its properties during the year.

Following an evaluation as defined in Section 177 of the Companies Act, 2013 and Clause 18 of SEBI Regulations 2015, the Audit Committee of the Company has determined that its internal financial controls were sufficient and functioning effectively as of March 31, 2023. This conclusion is also supported by the auditors report on Internal Financial Control.

Risk Management

Considering the adverse effects of the pandemic, risk management has become a top priority for the Board of the Company. Throughout the review period, the Board of Directors continued to prioritise risk management by overseeing significant business decisions and providing guidance to management on how to mitigate risks associated with the pandemic.

Political and Economic Risk

The profitability of our Company depends on both customer satisfaction and discretionary spending. Any political or economic unrest could have a detrimental effect on these factors, resulting in decreased spending and limiting our potential for revenue growth.

Mitigation: To address these risks, we are closely monitoring the political and economic climate. Additionally, we are implementing strategies such as promotions, deals, and other value propositions to mitigate these risks and maintain customer spending levels.

Reputation Risk

The industry in which we operate is highly focused on the needs and preferences of our customers. Any negative experiences they may have could result in adverse publicity, boycotts, and ultimately lower revenues.

Mitigation: To mitigate these risks, our business model is centred around providing exceptional customer service. We have implemented stringent policies to ensure that our customers always receive the best service possible. For instance, we offer an F&B menu, introduce cutting-edge cinema technology such as IMAX and 4DX to our Indian clients, employ qualified personnel at our theatres, and provide attractive incentives. All these initiatives demonstrate our commitment to maintaining our reputation and prioritising the needs of our customers.

Business Model Change Risk

The rapid emergence of new technologies is altering the way in which consumers consume media and entertainment, which could expose our Company to new competitors. As a result, we must remain flexible and adaptable to stay competitive.

Mitigation: To mitigate these risks, we have invested in modern advancements such as Onyx, 4DX, Playhouse, IMAX screens, Playhouse, ticket cancellation, loyalty program, among others. Additionally, we regularly conduct market studies to keep up with changing industry trends and remain competitive in the market. By embracing innovation and staying attuned to consumer preferences, we aim to maintain our competitive edge in the market.

Litigation Risk

The Companys vast operations may result in legal risks arising from various sources such as commercial disputes, employee-related issues, and tax disputes, among others. These risks not only lead to legal expenses and consume management resources but can also attract negative media attention and harm the Companys reputation. Mitigation: To mitigate these risks, the Company has implemented internal processes and controls that ensure adherence to contractual obligations and safeguarding of intellectual property. Any potential disputes are promptly reported to the management and dealt with accordingly. Additionally, the Company has a dedicated team of in-house counsels and engages the services of reputable law firms to advise on legal matters. There is also an efficient mechanism to monitor and respond to all notices and defend the Companys position in claims and litigations.

Property Risk

The Company may incur losses due to account risks like earthquakes, fires, floods, terrorism, etc.

Mitigation: To mitigate these risks, we have taken appropriate measures such as obtaining insurance coverage against natural disasters.

Non-compliance Risk

Compliance with laws is crucial for us as each state in India has its own distinct set of regulations on taxation, clearances, approvals, health and safety, environmental concerns, anti-corruption, data privacy and other aspects. Non-compliance can lead to penalties and damage our reputation.

Mitigation: Therefore, we have implemented internal processes and necessary controls to ensure adherence to all applicable regulations and laws.

Interest Rate Risk

The fluctuation in market interest rates can impact the fair value or future cash flows of our financial instruments. As we have long-term debt obligations with variable interest rates, changes in market interest rates are of particular concern.

Mitigation: To mitigate this risk, we maintain a well-balanced portfolio of both fixed and variable rate loans and borrowings.

Currency Risk

Currency fluctuations may have an impact on our earnings.

Mitigation: We earn and spend most of our money in Indian rupees. We do not hedge our currency risk because we believe it is low.

Credit Risk

Credit risk is the possibility of financial loss to the Company in case a client or counterparty fails to fulfil its contractual obligations.

Mitigation: To manage credit risk, we employ a predicted credit loss model to estimate impairment loss or gain. We use a provision matrix that considers our historical experience with customers and other internal credit risk factors, such as the period of default or delay in recovery to calculate the expected credit loss allowance for trade receivables. We create provisions accordingly.

Liquidity Risk

This is the risk we face if we are unable to fulfil our financial obligations. Mitigation: To address this risk, we utilise a liquidity planning tool to monitor our liquidity position. Our objective is to balance the dependability of bank overdrafts with the flexibility of utilising bank loans, debentures, financing leases, and advance payment arrangements. As a result of the pandemic, the Board has made a conscious decision to always maintain sufficient liquidity.