PVR INOX Limited (PVRINOX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PVR Limited Q3 FY '20 Earnings Conference Call hosted by Kotak Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jaykumar Doshi from Kotak Securities Limited. Thank you, and over to you, Mr. Doshi.

Thanks, Nirav. Good afternoon, everyone. On behalf of Kotak Institutional Equities, I welcome you all to PVR's 3Q FY '20 Earnings Call. We have with us Mr. Gautam Dutta, CEO; Mr. Nitin Sood, CFO; Mr. Kamal Gianchandani, Chief Business Planning and Strategy Officer and CEO of PVR Pictures; and Mr. Rahul Gautam, SVP, Finance. Over to you, Nitin.

Yes. Thanks, Jay. Good evening, everyone, and thank you for taking out time to join our earnings call for the third quarter. I hope all of you've got a copy of our investor's update, which we've circulated. It's also available on our website, www.pvrcinemas.com, under the Investor Relations section. I'll give you a brief snapshot of the quarterly numbers and then we can jump straight away to Q&A. Consolidated revenues for the quarter were INR 924 crores, which were up by 8% as compared to last year Q3. These numbers are Ind-AS adjusted, which I'm kind of mentioning. Consolidated EBITDA for the quarter with Ind-AS was INR 315 crores, but excluding the impact of Ind-AS was INR 188 crores which was up by almost 5% over last year. And EBITDA margin for the quarter was 20.4%. The key highlights for the quarter were, while the box office revenue was up by 6%, INR 425 crores to INR 453 crore, F&B revenues were up 13%, which was driven by a very strong growth in average spending per person of almost 12%. And despite the tough business environment, our advertising revenues still grew by 8%. And we were able to sustain that piece of revenue. We've added a total of 67 screens during the first 10 months of this financial year. We have almost a pipeline of 30 to 40 screens which is almost ready for opening, expected to open in the next 2 months. So we seem to be on track to deliver anything between 90 to 100 screens this year. These are the broad, I think, numbers. One thing I want to talk about more on the box office performance side in this quarter, while the Hollywood and Bollywood industry have done exceedingly well, and the circuit has done really well. The southern film industry, both Tamil and Telugu films, this year have been lower as compared to what was last year. And because we have a large concentration or a decent concentration of cinemas in Southern India, that negative growth in that circuit has really impacted the overall footfall growth. Otherwise, it would have been much higher. I think it's a great strategy which we think for our business because diversification of our geographical mix across multiple geographies, has helped us to sustain and reduce the volatility in the business. We are no longer dependent on one language industry alone which impacts our overall box office revenues. And in spite of a slower footfall growth, we've managed to sustain our operating margins. We can now throw the floor open for Q&A, and I'll be happy to answer any questions that you may have.

[Operator Instructions] The first question is from the line of Ankur Periwal from Axis Capital.

Nitin, one question on the [ advertisement ] rate. Now while the overall macro is what it is and we are seeing decline in ad spends across the ad revenue streams, multiple modes. But strategically what thoughts or what strategies are we undertaking going ahead, because we have been talking of increasing yield-focused growth in ad revenues overall, which also includes your on-screen as well as off-screen advertisements. So if you can share some thoughts there?

Yes. So you're right. I think the advertising piece of the business has been under pressure this year, given what's happening overall in the business environment, corporates have been cutting down on spending. Our key focus is to build long-term partnerships with clients. We are doing a lot of stuff in creating newer branding opportunities, including unique initiatives like cobranding of some of our premium formats. We've also renewed our partnership with Kotak and relaunched a Kotak PVR cobranded credit card in a new Avatar. So -- and also focusing on monetizing the advertising fees by increasing yields, it's been a tough year to be able to do that in a difficult business environment. But due to the new screen additions and the portfolio of screens that we are adding, which are at quite prime locations, and utilization of some of our assets, which are still not at their full potential, like the SPI circuit which we had the advantage of ramping up, we've been able to achieve a decent advertising growth in this tough environment. Same-store, if you look at the number, it is definitely slowing down because there is pressure, corporates are definitely cutting ad spends. So the near-term outlook is not great, but we are reasonably confident that we'll be able to deliver some growth in advertising revenue until the time the business environment really improves.

Sure. Because if I look at the SPI segment as a performance overall, while south because the content was not as great, the performance is subpar, but ad growth over there is still decent. But if I look at the company at the overall level, ad revenue on a per screen basis, there has been steady decline over the last 2 quarters. So is this the case that probably ex SPI, the degrowth in the industry or for us has been significantly higher, which has led to this consolidated number being further lower?

No. I think the main reason for this is the cut down that operates on ad spending, and that's the primary reason ad spends are under pressure. SPI was an underutilized asset and the premium screens that they possess clearly had an opportunity for a better monetization. So that is reflective of SPI's own financial performance where in spite of lower box office, strong advertising and F&B growth and correction in the expenses, getting synergies there, has helped us to deliver good margins there. It's not a reflection on existing screens, it's just that the advertising environment is tough. You cannot -- you don't have the ability to raise pricing in this environment by too much. So we have to do out of box. And as the environment improves, the growth will come back.

Sure. And just last one follow-up on this. Now incrementally, is there any further data sharing or slicing and dicing of data that we have across the screen, given that we are pretty well spread across, whether it is north or west or south side. Barring east we are pretty well spread across pan India basis. So therein either we are pushing further to the advertiser for regional specific advertisement sharing some more data points or some data around the footfalls? Or the other way around, that the advertiser is asking more data points from you to push more advertisements?

No. So we do custom-fit solutions for each brand depending upon what their requirement is. And we have always shared that data with the specific client based on what his campaign needs are. And we propose campaigns to clients based on what they ultimately want to achieve. So all of that really happens, both at a region level, both at a national brand level. It really boils down to what the client wants to achieve. And we suggest him the best advertising options to be able to achieve that, which will include events, activations, on-screen media, partnerships in premiers, et cetera, depends on the specific objective of that client.

The next question is from the line of Swagato Ghosh from Franklin Templeton.

So firstly, I want to understand, in the third quarter, was there any movie distributed by PVR pictures? Any like large box office picture?

We did Pagalpanti in Q3. We -- yes, Pagalpanti with John Abraham and Anil Kapoor, that was the big one that we released in Q3. And there were other Tamil films but since your question is -- I'm assuming your question is about Hindi films, so Pagalpanti is the big one.

Right, right. Okay, okay. And the ad growth we have seen in SPI, so is it -- so like we had talked about how we can improve that part. So I just want to understand, so the current rate, should we take that as the run rate going forward? Or is there scope for further improvement?

No, there is scope for further improvement. As I said, we are still realizing synergies from the circuit, and it is still work-in-progress in lot of areas, and we are finding ways to apply synergies both ways using some of the best practices to bring synergies to PVR circuit and so on as well. And looking at the combination creating greater value for us. So yes, there will be more improvement I think, as we go along.

Right. Okay, okay. And can you just help us with ex of Tamil and Telugu films? What has been our say market share, like have we gained, lost on the other movie box office collections, what's our share? How have we done on that?

I'm not sure if I follow your question. Could you repeat?

Yes. So you have given top 5 movies. So what's your share from those few movies? I'm saying ex of Tamil and Telugu, the whole lot of other movies, some of which you have already mentioned. What has our share been? And how has the trend been? Like have we lost share? Or have we gained share versus, say, last year?

So this question is for the cinemas. And like Nitin mentioned earlier, in terms of -- if you were to look at the language mix of films that we released in Q3, the Hollywood films have in fact contributed more admissions in Q3 this year as compared to Q3 last year. This trend applies for Hindi films as well, it's contributed more in this quarter as compared to last quarter, Q3 in the last financial year. As far as Tamil, Telugu and other regional films are concerned, there has been a decline in Q3 this year as compared to Q3 last year.

Yes, as a result of it, if you look at the overall box office contribution from regional content actually has dropped from 34% to 23%. So big drop because we had 2.0 last year and some of the other regional language films released did not do as well as what last year was. So big decline of regional content. So Hollywood and Bollywood both have grown.

No. Yes, that is our mix. What I meant to ask was that the total business done by the industry, say, Bollywood plus Hollywood and maybe say Punjabi, Bengali, et cetera, ex of the South Indian films, what -- like what percentage of that total pie we have captured? And how has that number trended versus last year?

So the fact of the matter is that we don't have credible industry data available with which we can compare as to how much is PVR's share in that all-India box office vis-à-vis last year. We don't have credible data. So this is -- what I'm sharing with you is our understanding basis of being in the market and getting dynamic information on ongoing basis from distributors and other exhibitors. Our share has grown simply because the number of screens which we've added is much more than what other exhibitors have added in the last 12 months. As a result of that, our share, our contribution to the all-India Hindi or Hollywood film segment has actually grown in this quarter as compared to Q3 last year. And I think somewhere you are alluding to the fact whether we've lost market share as compared to our competitors? Answer is no. Like I mentioned, Hindi and English, this quarter has done better than last quarter. And we also believe, like I mentioned, we don't have credible information, we will not be able to comment on our colleagues in exhibition business. But our understanding is our market share has improved.

[Operator Instructions] The next question is from the line of Prateek Barsagade from Edelweiss.

Congratulations on the numbers. So my questions are largely on the new things the management is trying out. So firstly, I just wanted to understand, so now you're on Swiggy and Zomato, so I just wanted to know how is the traction you're getting on that particular platform? And also, one more thing. So I have read that PVR is planning to open a property near the Chennai Airport. So I just wanted to know the thought process behind it and how this property would be similar or different to the existing properties?

So one -- we will not like to comment on specific locations because we're signing lot of locations and we have a strategy around that. So it will not be fair for us to comment on one specific location, which has got published, but we believe Chennai is a great market, there is lot of undersupply of screens in that market and there is lot of potential to add significant amount of multiplex screens in that market. I'll leave it at that. On your first question on Swiggy and Zomato. Yes, I think we are running a lot of pilots in a few cities. We started with South as a region. It's trending well. We need to do -- on a lot of work around new -- our menu offerings. So I think we are barely scratching the surface. But in next 6 to 12 months, we will scale this up in a big way. And this is an additional revenue stream that we're creating for delivery of products for our customers. And we are planning a lot of new product launches as well as part of our F&B offering. Some of them, especially customized for delivery, et cetera. So I think we have a strategy and a plan around this, but still early days before we would like to give a full perspective or a picture on the same.

Sure. And sir, just one last question. So can you just tell us how has the same screen ad growth on a year-on-year basis?

That number is there. I think this quarter has been a 2% same-store growth on ad revenues.

Ad revenue is 2%, yes. Yes. It's on Slide 13, Prateek.

The next question is from the line of Urmil Shah from IDBI Capital.

Sir, just a follow-up on the ad growth. Two parts to it. One is if we could now share as to what would be the proportion of the platforms other than the on-screen advertisement, basically the cobranding and with the screens at the lobby, et cetera. And secondly, you alluded a muted environment in the near term as well. So should we expect it to be challenging to push the new capacity which we are having because of the screen addition?

Yes. So answering your...

First question was on on-screen, off-screen?

Yes, so answering your first question on on-screen versus off-screen ratio, it really varies between 10% to 15% as off-screen. Some quarters are higher, some quarters are lower. But I think it's in that range, 80%, 85% of the revenue comes from on-screen advertising. On the second question about the ad environment, yes, I think it's a tough environment. And we are seeing a lot of pressure where corporates are actually cutting down spends. We've been able to sustain because of the prime locations that we possess and the quality of customer that we attract. We've been able to retain a lot of brands. And this environment is very tough to achieve any kind of a pricing growth. So we expect ad revenues will continue to remain under pressure. You will not see very high growth rates at least in the near term. So -- but we still expect to deliver growth, maybe single digits in the ad revenue in the near term. And as and when I think the box office outlook improves and we see some bit of improvement in the economy, this will also move up.

Sure. Sir, on the footfalls, especially in the southern region. So during Pongal, there was quite a bit of the releases that happened, I guess the, if I'm not wrong, across all the languages. So should we expect some sort of revival going into Q4? Or we will have to see how the content actually pans out in next year?

Answer to your question is, yes, we should look at [ survival ] in the South Indian box office. For the reason that you mentioned, we've started off this calendar year, this quarter with a bang. All Pongal films are not just Tamil but also Telugu and also Malayalam have done exceedingly well in the box office, which clearly shows that Q3's underperformance is a cycle and we've always encouraged analysts and other people who monitor our stock and our business to look at the box office on a full-year basis rather than on quarter-to-quarter basis. Because of this cyclical nature of our business and release dates changing and often one quarter being different -- I mean, Q3 being very different in terms of number and the quality of releases as compared to last year, growth, degrowth in admissions over quarter can sometimes be misleading. Coming back to your question, yes, South Indian box office is firing on all cylinders. Pongal has done exceedingly well this period for us. And looking at the films which are releasing in February and March, we are confident this will turn out to be an extremely strong quarter for us.

Sure. Sir, last bit of thing. You alluded to new platforms for F&B that is Swiggy and Zomato. Is the small decline in the gross margin for F&B attributed to that in this quarter? And secondly, as we scale up, how should we look at the gross margin from FY '21 point of view?

No, I don't see any decline in the gross margin. The food cost will keep changing. [indiscernible] change in food cost is very normal depending upon what's selling that quarter, which cinema mix is high or low. So we don't consider. It's got nothing to do with any impact on our gross margins. And actually our cost of goods sold, even if you look at it, has actually gone down.

Yes. Urmil, if you see on a -- last year, year-on-year basis, there is a reduction of almost 200 basis points. And even on a 9-month basis, it has reduced marginally, again it's irrelevant. So as Nitin mentioned, between 50 to 100 basis points will keep changing, but some of the new initiatives are quite small at the moment and haven't impacted the margins at all.

Sure. I was more looking Q-o-Q. But sir, secondly, as we scale up, what should be the outlook on the gross margin? Or it will not have a significant impact at least FY '21 point of view?

Yes -- no, I think the margins will remain stable at where we are at the moment with a band of about 100 basis points up and down.

The next question is from the line of Jaykumar Doshi.

Nitin, this quarter, operating cost structure is fairly sort of on a sequential basis and I look at your other expenses, it has come off by 9% on a Q-o-Q basis. And if I were to sort of look at, you added about 15 screens in the previous quarter and you've added about 21 screens in this quarter. So I don't see any big difference there. So what is the right number that we should sort of look at? And when I meant other expenses, essentially all operating expenses, other than distribution cost -- sorry, film hire cost, F&B, COGS, employee and rent. So everything, electricity, common area maintenance and other items. And I also noticed that you started advertising, so I'm assuming you would be spending more on advertising -- you will have spent more on advertising in this quarter.

So you're doing -- we're doing a mix of various things. So we're cutting down on traditional advertising and going national media because now we are present all over the country. And the idea is to kind of make the brand reach out to a larger set of consumers rather than advertising for films than products. So yes, we are doing a lot of experimental stuff. On your question on expenses, other expenses specifically look significantly down. But part of the other expenses reduction is because we had film distribution expenses as part of other expenses last year. And if you notice, our other income has also gone down. So what we've done is we've moved the entire distribution piece of the business which SPI Cinemas used to do last year into PVR Pictures. And as a result of this, both other income and other expenses are down. Even if you exclude that, yes, other expenses are down by 8% to 10% over last year. We've actually reduced some expenses. We've reduced some expenses which we had incurred last year. So that is one big reason it has come down. Our outlook on costs is really that costs will continue to grow lower than revenue. We don't anticipate more than 5% to 6% annual growth on costs in terms of same stores. And averages will vary and employee cost on an annual basis vary -- grow by 7% to 8%. And rental changes year-on-year but average growth is about 5-odd percent. So we expect our other expenses, maintenance expecting, electricity, et cetera, to remain stable and grow at 4 -- 3%, 4% range. And as we grow larger, because these are -- some of these are initiative-driven expenses, they are not directly correlatable to the new cinemas that we open. So as the scale becomes larger, the growth will become lesser in some of these costs.

Right. So this quarter, there is no -- this is a representative number for what your cost structure is?

Yes. Leaving aside this distribution revenue and expense [ the same ].

Got it. Second is, you've seen from other building material companies, there has been acute slowdown in your construction over the past 1 or 2 quarters. With that backdrop -- given that backdrop, what is your expectation of screen additions in the next fiscal? I mean, if you can give us some guidance right now or maybe if you're not ready to give a guidance, should we expect a deceleration from what you've added this year?

Yes. So I think current year guidance remains intact of between 95 to 100 screens. I think we should be between 90 to 100 screens definitely this year. We have lot of screens ready to open. And which we think will open between February and March end. So we are completely on track. In addition to that, we are already fitting out a lot of screens. And we have a lot of handovers which are coming up for beginning of fit out. So my sense is we'll be in a much better position to give that guidance at the beginning of the year. But I think we are reasonably confident that outlook will remain between 75 to 100. Which end would it look like will be slightly difficult to comment on, but we are reasonably confident to add these kind of screens.

Got it. Could you sort of throw some light on what has been your experience both in terms of rewards, loyalty program that you launched? And the option of -- that you gave to consumers to cancel the tickets with some cancellation fee. So by now I'm assuming you would have some data or you have done some analysis to understand what the -- if you can share a few insights?

The cancellation as the feature was launched for -- really for the consumers to basically get into a habit of booking a bit early. And also, as the online trend is kind of prevalent where you can shop without the fear of return, that was really the insight on starting on with the cancellation and exactly as per what we had planned. There's hardly been too much of variation from what we had envisaged, about 2% of the overall tickets, 1.5% to 2% of the overall tickets have -- get canceled. And this is being seen as a big delight factor for the consumer. So this was never done really from a revenue point of view, it was from a consumer delight point of view and getting them into the habit of being able to prebook tickets. And from that perspective, I think it's doing really well.

We're able to retain those customers because those customers come back at our cinemas. It's just that it is far more convenient now for a customer to think about going out to movies and the fear of losing out...

Bad reviews are not hurting you in terms of more cancellations.

Absolutely. It is not impacting. So the little uptake that we start seeing is for at least the big blockbuster. People are now willing to start prebooking on a Friday, Saturday, Sunday. And that's a very encouraging step because at least at the back of their minds, they have no fear of the fact that in case they want to opt out, PVR now gives them an option to move out. So having said that, that's one piece. The second question you asked was on the privilege. We touched the INR 1 crore mark on the privilege. We are doing a huge amount of data mining on this entire database that we have. We run close to about 50-odd campaigns a month to be able to run various pilots to see how we can drive footfalls and other consumptions at the cinema. These are early days for any loyalty program to stabilize. It normally takes about 2 to 2.5 years for loyalty program to not only churn data, but for us to understand deeper layers of how the consumer is behaving and working on then the personalization campaign around these learnings from the consumer. So we believe that in the next 2 or 3 quarters, we'll begin to sort of use this data a lot more prudently and sharply to be able to make impact for sales, both in terms of ticket and F&B at our cinemas.

Right. And final one, a couple of observations on the top 5 grossers that you've shared. Now I am surprised that Dabangg 3 is missing in this list of top 5 in this quarter. And if I were to believe that this movie has done about INR 150 crores, and it still doesn't feature in your top 5 for the quarter. So does it mean that your share in a movie like Dabangg 3 would have been sub-15%? Was that a nonmultiplex movie, more or less like? Or am I...

You are making a very good observation. But the reality is that the INR 150 crores is a number which has been thrown in media. And we would not like to comment either ways. We have tremendous respect for Salman Khan films. But it is what it is. These are our 5 top films and Dabangg is not in it.

And it could also be the fact that Salman films work outside the multiplex a lot. So it could have got that kind of traction in business, but at least in our circuit, it wasn't as big.

True. And second observation again from the same set of data is that if I were to look at average ATP for the top 5 movies of last year versus this year, there's a 14%, 15% increase, whereas your net box office collections, they're up about 6%. So is it right to understand or read that you've been able to take higher price increases for blockbuster or let's say, on a Y-o-Y basis in this quarter, your blockbuster pricing for select movies, you've taken a steep price increase or inflation there versus maybe rest of the portfolio?

It's -- your question is -- you have to appreciate that the way you're calculating net ATP is a function of whether a film was front loaded or back loaded. Our ticket prices are fairly standardized. We increase ticket prices usually at the rate of inflation. And this year, as you know, government had taken a view to reduce GST, and we were extremely mindful of the fact that we had to be -- I mean, not just mindful, we actually acted on it and every single percentage of GST reduction was passed on to the consumers. But basically, the reason you see this sort of a growth is because most of these films are front loaded. I think the best way to consider ATP would be to look at the ATP that we have shown for the entire Q3 and not just for these prices-- that's the best way...

I was not alluding to GST. What I was trying to understand is, do you see more price inelasticity in the blockbuster films? And when you take your pricing decision, do you believe that your ability to sort of monetize these blockbuster films is far better than an average film?

Which is correct, and I would say, this is how it works.

Yes, absolutely.

Understood.

We have 3 bands of pricing: blockbuster, popular and normal. So technically, you're right. Any film that gets slotted in a blockbuster band does enjoy a higher price band. And you're absolutely correct, any blockbuster film we do sort of tend to take the pricing up a little.

[Operator Instructions] The next question is from the line of Manish Adukia from Goldman Sachs.

I have just one question. You mentioned that the ad environment has generally been tough. But last quarter, you had mentioned that at least box office is pretty resilient and not particularly got an impact due to underlying economic slowdown. Now is there any reason to believe that this might have changed this quarter as the slowdown in December was probably a bit more pronounced? And I appreciate you mentioned that footfall decline was a function of regional cinemas, but any trends you can highlight in your overall footprint that could suggest there might be some impact of the underlying slowdown?

Underlying slowdown on the box office, you mean, on the admissions?

Yes. So what I mean to ask is, the economy is undergoing a slowdown. So is there any reason to believe that, that might have had an impact on your box office footfalls and growth this quarter?

No. We firmly believe that film business is holding on really well in spite of tough situation, economic situation that we keep reading about. You have to appreciate we are not economists and we don't really have a firm grip on the pulse of economy in the country. But what we know for sure is that our business is holding on very, very strongly. South Indian films, the up and down, which you have noticed, Q3 reduction this year vis-à-vis last year, we've answered that point earlier that we've always encouraged our partners and people who look at our business to look at the box office on 12 months' basis instead of quarter-to-quarter basis. But really, the answer to your question is that no, box office is holding very strong. And if the economy is struggling, if we were to believe what's coming in papers and what we have been told by many analysts and economists, then I guess the answer is that film business is turning out to be recession proof or downtrend proof and which augurs well for our business on the whole is something that we would like to tell you.

In addition to that, if that was the case, we would not have seen an average 12% growth in F&B spending at the cinemas by consumers. So clearly, we see no signs of consumption spending really having any kind of impact on our business.

Next question is from the line of [ Raghav Akkar ], an individual investor.

Congratulations on your numbers. My question is regarding the HP and PVR partnership for the VR set which was opened in Noida. There was a report that you guys were going to open 10 such platforms. So why hasn't that, do you know?

So what's your question sorry, about HP VR? Actually, that experiment didn't sort of take off so well. We were very excited about the VR and -- but we realized that the content pipeline on VR was a bit strained. And the technology still is grappling and sort of moving so fast that by the time we set up the lounge and kind of got started, the technology had already moved on. So maybe there are a few technology partners who are really sort of following this trend very, very smartly. And hopefully, we should also come up with a VR solution soon. But currently, nothing in the pipeline.

Do you guys have that Noida store still open or that has been also closed?

That got closed about a year, 1.5 years back, about 18 months back. That was an experiment we ran for about a year. HP was our partner. They were the ones who give us all the technology solutions, but they themselves felt that the technology needed a more ramp up. And on the commercial basis, it wasn't really ready for giving consumer the kind of experience that we wanted to.

And another question on the south region decline on the numbers. Is it because less superstar movies coming there? Or is it because the OTT platforms have taken a much more gripping area in the south that the numbers for PVR and SPI are going down in the south?

It's a very good question, and I'm glad you raised this point. Firstly, first part of your question, the decline in number is because of one big film releasing last year Q3, which was Robot, with Rajinikanth, 2.0, which was a massive, massive success. This Q3, we had a few big films, but unfortunately, none of those big films performed at the same level as 2.0. And that we believe is the reason why this Q3 has underperformed as compared to last year's Q3. The second part of your question, OTT having an impact on cinema, whether in south, and this, sort of, point will also apply to the country on the whole, no, we don't believe so. Because if that was the case, the South Indian films would have done a lot better in smaller towns where OTT is yet to penetrate well as compared to bigger cities. If you look at the performance of entire Tamil Nadu, entire Andhra, entire Telangana, entire Kerala, entire Karnataka, the entire state has done poorly this year as compared to last year, purely because the performance of films, expectations, [ curiosity ] around films has not been able to match the performance of films in the previous year's same quarter. OTT, on the contrary, and I'm extending your point and trying to give you our perspective, the way we look at it, OTT is, in fact, creating a positive cycle between film business and streaming. You have to appreciate OTT has become a very credible, large revenue source for producers. And as you know, the health of our producers is very critical to theatrical business as a result of this additional incremental revenue source. What we have noticed is that producers are, in fact, making better, bigger and more number of films, and which is actually having a positive impact on the box office.

There I would like to [ elaborate ] on that. Kaithi makers were -- in the south, was released on Diwali, I guess. Did we move the movie early from the theaters to release it on OTT platforms? So doesn't that create a threat to the business?

Can you repeat the question?

There were 2 releases in the South, which were [ a hit ], during Diwali, one was Bigil and one was Kaithi.

Bigil, Asuran, Kaithi, all of these films released between 5 to 6 weeks on OTT platform. And by the time they released on OTT platform, they had finished their run at the box office. I would go back to my earlier explanation, OTT has not penetrated that well in the smaller towns of Tamil Nadu, Kerala, Andhra Pradesh, Telangana. What I mean to say is that a place like Madurai or Pondicherry or Coimbatore, these are larger towns, you would find the penetration of OTT being quite substantial. But as soon as you go to smaller towns, Tirupur, and many other smaller towns, the penetration of OTT is not so much. So if OTT was having an impact on the box office footfalls, then it would have impacted cities and these tier 2 cities, like Coimbatore and Madurai, a lot more than the smaller centers. But what we find, when we talk to producers and distributors, is that films, South Indian films, have struggled across the entire state. So if OTT was the reason why films have maybe not performed as per expectation, then the impact of OTT would have been the same -- not same but more in cities and less in smaller towns. But what we observe is that is the same. The performance of films is the same, which is where we believe that OTT is not the reason for this underperformance.

[Operator Instructions] The next question is from the line of Abhishek Joshi from CGS-CIMB.

Sir, I would like to know what was the cash flow from operations for the quarter and the CapEx for the quarter?

We don't disclose the specific numbers of CapEx in quarterly cash flows. So we won't be able to specifically give those data out.

Okay. Sir, my next question is, how many screens -- percentage of screens would be there of ours in Tier 2, Tier 3 cities, like other than Tier 1 cities?

Our Tier 1 cities and metro cities, which we basically top 8, top 10 cities have bunch of our -- majority of our screens are in those sort of cities. The Tier 1, Tier 2 or Tier 2, Tier 3 would be about 30%, 35% of our screens.

Sir, so what is our strategy going ahead? Are we more focused on these top 10 cities itself? Or we are also focusing to add screens as rapidly as we are adding the screens in these top 10 cities? I just wanted your view on this.

So we are adding screens all over the country. We are not constrained by any city limit. I think if we find a location in any city which we believe is the right mix, has the right demand and supply metrics and has the right pricing power, we go and set up a cinema. We look at expanding our network within existing cities, and we look at adding new cities to the circuit. So we are not constrained by any logic. I think we look at the demand and supply metrics, good real estate availability, and we take a view on a location and then just move ahead.

So is there any substantial difference between the operational margins in these top 10 cities you operate your screens in and the other Tier 2, Tier 3 cities?

No, there is no difference in the return on capital employed metric that we typically use to evaluate our investment decision. There is no big difference between [ those things ].

Next question is from the line of Keshav Lahoti from Angel Broking Limited.

Sir, I do understand that you have [ less synergy left ] into come from SPI. But I want to understand how much synergy is yet left to come from SPI, and when all the synergy will be factored in, in PVR from SPI?

So in case of SPI, as we said, we are in the process of integration. We've now been running the circuit for 1 year. We've made big headways in the advertising fees and the F&B fees right now. Box office has been unfortunately slow this year. So we continue to sustain that growth and replicate some of the good practices within PVR as well. In addition to that, there are new properties as part of the SPI portfolio that we acquired, which are expected to open over the next couple of years. And addition of those locations will also give us greater strength in that market and will also add to our revenue and profitability. So I would say, it is a continuous process, but yes, there is still a long way to go from where we are.

Okay. And what is the box office collection mix of Hindi, English and south?

Yes. So I think Hindi, in terms of our box office for this quarter would be about 57%, 58%. Regionally, as we mentioned, it's 23% and rest is made up of Hollywood.

Sorry. Pardon?

For this quarter, in Q3, Bollywood or the Hindi film industry is about 57%, 58%. 23% is coming from regional, which is a bunch of all South Indian languages, those are the regional languages, and balance comes from Hollywood.

Okay. And do you have the number -- corresponding number, of Q3 FY '19?

No, I wouldn't have that immediately. We can discuss that separately.

If you look at Slide 16, you'll find the details.

Sir, I'm just trying to understand what is the growth in Bollywood and Hollywood quarter number? What would be the kind of number, including the regional films?

Can you come again?

What is the growth in Bollywood and Hollywood in Q3 FY '20 compared to corresponding Q3 FY '19?

Bollywood has increased by 13% in Q3 this year as compared to Q3 last year. Hollywood has increased by 47% this year, Q3 as compared to last year. There is a decline in Tamil by 23% this Q3. There is a decline in Telugu by 27% this Q3. And the other regional, the smaller regional films, their contribution has declined this Q3 by 32% as compared to last Q3.

Next question is from the line of Rohit Dokania from IDFC Securities.

Just 2 or 3 questions from my side. Firstly, [ player expectation ] has grown by about 11-odd percent for the first 9 months. Could you give us some indication of what kind of pricing and volume mix would be out there in this 11%?

This would be close to about 60% in terms of pricing change and about 40% on volume.

Sure, that's very helpful. The other question was, if I look at your depreciation expense for the quarter, consolidated, that's come off sequentially, though, just a bit, but it has still come off sequentially, whereas you've added properties both in this quarter and the previous quarter as well. So why should that happen?

I don't think there is any specific reason. I'll have to come back to you, Rohit, on why [indiscernible]. But I don't think there is any significant thing or importance.

Yes, sure, Rahul, because it has come [ off ] from 60 to 56 despite adding screens. So if -- probably we can circle back again, not a problem. And -- sure. Lastly, will you be able to disclose the net debt number closing for this quarter?

Yes. I think, net debt number, we would have closed December with about INR 825 crores of net debt.

INR 825 crores. And a related question, is it fair to say that it's peaking out at these levels? Or next year is when it could peak out?

Yes, I think it will peak out at about INR 800 crores to INR 900 crores. We don't expect that debt will move up. Our debt leverage has come down from 2.2, 2.3x debt to EBITDA last year to now about 1.2, 1.3x, which is like very low leverage for the business of our size. We don't expect the leverage number to go up. As we are funding bulk of our growth from internal accruals, all the CapEx is getting funded from the cash that we're generating from operations to fund the growth. So we don't expect the debt to change materially.

The next question is from the line of Rajinish (sic) [ Jinesh Joshi ] from Prabhudas Lilladher.

Jinesh here.

Sir, sorry to interrupt you. May I request you to speak a little louder?

Is this fine?

A little bit.

Yes. So if I understand correctly, we opened our first multiplex in Sri Lanka this quarter. So since this is our maiden overseas venture, it shall kind of help a bit if you can talk about the market dynamics of that particular geography and also the [ content ] consumption habits. And also, if there are any more plans to open properties out there?

Sri Lanka is an interesting market. It is -- in terms of content, it is largely dependent on Hollywood films, followed by Tamil films, followed by Sinhala films, which is the local language used by majority of Sri Lankans, followed by Hindi films. There is a large number of Indian companies which are operating in Sri Lanka. The government is conducive, very receptive to investments, are dealing with Indian companies who are looking at investing into Sri Lanka. So it's a very friendly atmosphere. Market is in a very nascent stage at this point in time. The demographics are positive. The per capita income of Sri Lanka is in fact higher than India. And if you were to look at per capita income of Colombo, as a city, you would find it comparable or, in fact, higher than cities like Pune, Indore, and many other similar-sized cities. In terms of cinemas, we are the second multiplex to open in Colombo. Market has been extremely positive. The multiplex has been extremely well received. About our future plans, that is slightly sensitive at this point for us to speak about. But suffice it to say, the first one has been received very well, and we are very excited to be in Sri Lanka.

Okay. And secondly, one bookkeeping question. If I look at your P&L, the consolidated movie exhibition cost is roughly INR 192 crores. And this is higher than the stand-alone movie exhibition -- rather lower than the stand-alone movie exhibition cost of INR 204 crores. So if you can just explain the reason behind this?

Yes. So we have this distribution business under PVR Picture, which, as Kamal mentioned during the call, distributes various movies and a lot of it's through local content in the current year, and PVR is one of the exhibitors that they distribute to. So there is a knocking-off effect which happens when you consolidate.

Okay. Okay. And lastly, I mean, you also mentioned that we are present on Swiggy and Zomato? And -- so when we calculate this SPH to ATP ratio, any spends which happen via Swiggy and Zomato, do we take that into consideration while calculating the ratio?

Yes, they both get added. Yes, [indiscernible]

But then, in that case, that person is not purchasing the ticket to kind of watch the movie. So doesn't the ratio kind of be slightly off when it comes to comparison?

Not really. What we are essentially measuring is what is the food sales that we are generating from that property, overall. So overall, F&B revenues of that cinema really take into account that. And as I said, Swiggy and Zomato, we're just kind of...

These are early days.

We are scratching the surface. It's not material. Once it becomes material, we may think of classifying it separately if it is meaningful. But right now, it's insignificant. So there is a complete merit because the initiative is taken by that local property to manage and make the products popular for the circuit.

The next question is from the line of Swagato Ghosh from Franklin Templeton.

Yes. I'll quickly squeeze in 2 questions. Sir, one is on the 23% contribution from regional, what was south specifically? And what was the other key regional languages like Panjabi, Bengali? If you can help us with that break up?

I'll just tell you. One second. Yes. So Tamil and Telugu put together would be about 70% of the regional, and rest will be all other regions put together.

Okay. And this -- like this mix within the regional would be similar last year also?

No. I mean -- I think because there has been a little bit of a slowdown in south, it will be lesser, [ but quarterly sales don't really matter ] but it's not materially different.

Right. Got it. Got it. And the second question is just a clarification that this quarter also there where, like you also said, the movies like Bigil were there, and the occupancy levels, if I look at for SPI, was actually 51%. So although Y-o-Y because of 2.0, it was lower, but can we assume that even like the general sentiment towards movie watching was still strong in South India I'm asking?

Yes. So the fact that it's a very strong movie consumption culture there, there is [ no change ]. The fact that the circuit operates at close to 50% occupancy demonstrates the fact that people love to go out for films. It is just that you did not have the same quality of films this year as what you saw last year. As a result, relative attendance was marginally lower than last year, but there is no change otherwise.

Right. So can we then, like, think of it in this way that going forward also, if we do not have another exception, like 2.0, this occupancy number would be close to the current third quarter levels?

It could be higher or lower depending upon the movie flow. Could be even higher. We added Rajinikanth's film to begin this year and Pongal is in Jan for south and there are some big films slated. See, every film which gets released a day prior, those are supposed to be blockbusters and big films. It's only when the films gets released that the verdict gets passed. The way you got to see it is, are big films getting released? And the answer is yes, perhaps even more. They may not be doing well at the box office, but that's a concern for us as well as the content producer. So they get back and they will make better content to believe that a set of poor performances has dragged the performance for the certain quarter down, but that doesn't mean that it's there to stay. They will, in fact, bounce back and bounce back sharply going forward and give us some great content. So that's really what it is.

Thank you very much. Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing comments.

Thank you for -- I would just want to thank everyone for taking out time for the call. In case you have any follow-up questions and or if we've not been able to answer some of you, then you can reach out to my colleague, Rahul Gautam, or myself, and we'll be happy to speak to you on a one-on-one basis. Thank you very much.

Thank you very much. On behalf of Kotak Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

Thank you.