Q3FY24 Review: PVR INOX: Higher peaks and lower troughs post Covid

2 Feb 2024 , 02:49 PM

PVR-Inox sported a weak quarter as expected. A strong December could not offset the weakness in the first half of Q3, which saw fewer movie releases due to Cricket World Cup. PAT was negligible. Management stated that while content line-up looks promising, volatility in content supply is expected to persist in the near term. Analysts of IIFL Capital Services note that in the post-pandemic world, the peaks have been higher and the troughs lower. Considering the near-term weak supply from Hollywood and seemingly modest Bollywood pipeline, analysts of IIFL Capital Services prune FY25 occupancy ratio from 28% to 26% (32% in FY20 for reference). This results in 24% pre-Ind-AS Ebitda cut. Reported PAT cut gets amplified to 42% considering single-digit PAT margin. Analysts of IIFL Capital Services maintain FY26 occupancy at 28% and their estimates. They also cut their target EV/Ebitda multiple to 11x, which yields ₹1657 TP. 

Weak Q3: 

PVR-Inox’s pre-Ind AS 116 Ebitda declined 17% YoY to Rs1.67bn, worse than expected. While revenue was expectedly weak due to fewer movie releases on account of Cricket World Cup, increase in cost was higher than est. Reported PAT of Rs128mn was boosted by Rs353mn one-off gain. PVR-Inox saw Rs1bn QoQ increase in net debt (ex lease liabilities) to Rs12bn (1.8x net debt-to-TTM Ebitda) as of end-Q3FY24. 

Cautiously optimistic management commentary: 

Key takeaways from the earnings call: 1) December was the strongest month in 2023 but was insufficient to offset the weakness during the World Cup; 2) while content line-up looks promising, volatility in content supply is expected to persist in the near term; 3) signing of long-term deals with advertisers will reduce the volatility in ad revenue but ad revenue recovery to pre-pandemic levels will take longer; 4) FY24 and FY25 should each see ~160 gross screen additions despite 9MFY24 adds being at 97; and 5) PVR-Inox intends to shut down 77 underperforming screens in FY24 (62 in YTDFY24). 

Analysts of IIFL Capital Services cut pre-Ind-AS FY25 Ebitda by 24% on lower occupancy: 

Box office collections of movies have tended to swing to extremes post Covid. In the post-pandemic world, the peaks have been higher and the troughs lower. Considering weakness in Hollywood content supply in the wake of strikes and the absence of Bollywood movies starring the Khans in the nearterm, analysts of IIFL Capital Services prune their FY25 occupancy ratio from 28% to 26%. They also trim their ad revenue estimate considering near-term volatility in content.