Q4FY23 Review: PVR INOX: Tightening belt as content drought extends

17 May 2023 , 11:22 AM

PVR-Inox’s Q4FY23 Ebitda was better than our modest estimates. The extended drought of good content in Bollywood meant that PVR’s FY23 footfalls were 16% below FY20, despite 14% more screens. This consequently led to 37% lower pre-Ind AS 116 Ebitda and higher net debt. On the earnings call, management was positive on the content slate for the rest of 2023, but would adopt a more calibrated approach on screen additions until footfalls revive. Analysts of IIFL Capital Services prune FY24/25 Ebitda estimates by 13%/5% on lower occupancy assumption. The stock could remain range-bound unless there’s a string of 2-3 quarters of strong Bollywood box office (BO) performance. 

Q4 numbers not as bad; H2 saw increase in net debt: 

Q4 performance was not as bad as feared, due to higher-than-expected average ticket price (ATP). There were multiple one-off charges that resulted in reported PAT loss of Rs3.33bn. PVR-Inox has seen a sharp increase in net debt (ex-lease liabilities) to Rs14.3bn (2.8x net debt-to-TTM Ebitda) as of end-FY23 vs Rs9.9bn as of end-H1FY23.

More calibrated screen-addition strategy: 

Key takeaways from the earnings call: 1) Content performance is looking up after a weak 3-month period (February-April); the pipeline for the rest of 2023 looks strong. 3) 150-175 gross screen addition guidance is lower vs 180-200 mentioned earlier; as the company takes a calibrated growth approach focusing on return ratios since content volatility has risen. 3) PVR-Inox will shut down 50 screens in the next 6 months in properties, which have reached the end of their lives. 4) PVR-Inox targets Rs60-70bn revenue in FY24 (Rs53bn in FY23) with 18-20% pre-Ind AS 116 Ebitda margin.

Sharp FY24 cuts, as Bollywood BO performance continues to underwhelm: 

Bollywood movies such as Ajay Devgn-starrer Bholaa and Salman Khan-starrer Kisi Ka Bhai Kisi Ki Jaan have seen lukewarm response. Analysts of IIFL Securites now build in 27%/28.5% occupancy ratio in FY24/25 (well below ~32% in FY20 but higher than ~25% in FY23). Every 100bps change in occupancy ratio swings ex-Ind AS 116 Ebitda/PAT by 9%/14%. EPS cut comes to 46%/3% for FY24/25. They build in Rs1.5bn/Rs1.9bn Ebitda synergy in FY24/25. Their TP is based on 11.5x EV/Ebitda multiple (~10% lower than 2014-19 average).