PVR INOX Limited (PVRINOX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PVR Limited Q1 FY '23 Earnings Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Periwal. Thank you, and over to you, sir.

Thank you, Peter. Good evening, friends, and welcome to PVR Limited's Q1 FY '23 Post Results Earnings Call. The call will be initiated with a brief management discussion on the earnings performance, followed by an interactive Q&A session. Management team will be represented by Mr. Ajay Bijli, Chairman and Managing Director, PVR Limited; Mr. Sanjeev Kumar, Joint Managing Director, PVR Limited; Mr. Gautam Dutta, CEO, PVR Limited; Mr. Kamal Gianchandani, Chief of Business Planning and Strategy, and CEO, PVR Pictures; and Mr. Nitin Sood, CFO, PVR Limited. Over to you, Mr. Bijli for the initial comments.

Thank you. I'd like to welcome you all to the earnings call to discuss the unaudited results of quarter 1 FY '23. I hope you've had an opportunity to review our presentation and results, which have been uploaded on our -- as well as on the stock exchange website. I'm happy to share the quarter ended June 30, 2022, for the best quarter in PVR's history with the highest ever revenue EBITDA impact. Please note that the above numbers are after adjusting for the impact of Ind AS 116 relating to lease accounting and are different from the reported numbers, which we submitted today to the stock exchange. This robust performance was driven by the strong bounce back in theatrical admissions with 25 million patrons visiting our cinema during the quarter. This is further bolstered by a strong growth of 23% in average ticket prices compared to Q1 of 2019 and '20, which is a prepandemic period to INR 250 and a 32% growth in average food and beverage spend per head as compared to Q1 of 2019 to INR 134, with the SPH. The quarter was marked by the release of some of the biggest domestic hits like KGF 2, which went on to become a second highest grossing domestic movie of all times. Net box office for the KGF 2 alone contributed 23% to PVR's overall box office collection for the quarter, which is the highest ever movie collection by PVR. RRR, which was released in the last week of March, had significant spillover revenue in the last quarter. Bhool Bhulaiyaa 2, Vikram, Dr. Strange from Marvel, Top Gun: Maverick, and Jurassic World, The Minions were the other big movies that did well during this quarter. The content pipeline in the months ahead looks promising. Over the next few months, we have several big-budget Bollywood movies lined up for release like Shamshera, Laal Singh Chaddha, Brahmastra and Vikram Vedha. From Hollywood, we have Bullet Train, Paws of Fury, DC's League of Super Pets amongst others. From the regional genres, we have Vikrant Rona, Liger, Godfather and Ponniyin Selvan. On the F&B front, the company recorded the highest monthly average F&B revenue, INR 100-plus crores during the quarter with strong underlying growth in SPH. The robust growth was a result of our team's focused efforts on F&B initiatives. The company has opened 14 screens across 3 properties in the last quarter and is fast ramping up its CapEx plan to open a total of 125 screens by the end of the current fiscal. About 1/3 of our new screen addition will be in Tier 2 and Tier 3 cities, and we will be entering into 9 new cities during the year. The entire CapEx will be funded through internal accruals and liquidity available with the company. Our screen portfolio currently stands at 854 screens across 173 cinemas in 75 cities in India and Sri Lanka. Gross debt during the quarter has reduced sequentially by INR 91 crores and was INR 1,400 crores as of the end of quarter 1 FY '23 as compared to the end of the Q4 while FY '22, net debt was INR 844 crores. A quick update on the progress of the proposed merger of INOX Leisure Limited with the company. Both the companies have received no objection certificates from the 2 stock exchanges, that is BSE and NSE on the proposed scheme of the merger and in the process of filing our application for the approval of the scheme of merger with NCLT in the next couple of weeks. I'm told that NCLT process typically takes anywhere between 5 to 7 months, so we seem to be on track. Given the excellent performance of the movies in the last few months and a very promising lineup of content that is up for release during the rest of the year, we are expecting full recovery in admissions and advertising income over the next couple of quarters. I believe that this year will be a great year for the company. With these opening remarks, I open the platform for any Q&A. Thank you very much.

[Operator Instructions] Our first question is from Abneesh Roy from Edelweiss.

Congrats on a very good set of numbers. My first question is on your Slide #16. So essentially SPH to ATP ratio, if I see almost every year, you have managed to improve it. So from 28%, it has now become 54%. And versus pre-COVID also, there is 500 bps jump. So where do you see this number settling? Because now would you go for a better occupancy and slightly lower ATP? So could this number keep going up in the medium term in the next 2 to 3 years? SPH to ATP?

Yes, yes, definitely. I'll -- Abneesh, you're the first person to ask -- always the first person to ask the first question, so that's something that intrigues me. But in the meantime, I'll ask Gautam to answer this question, because he's been the force behind taking the percentage of F&B to ticket prices. He's been working relentlessly. So Gautam, would you like to answer this question, please?

Yes. Yes. So typically, we've been at about 50%, 55% now. And we believe that there is still huge room for this to grow. And we are gradually going up every year as you rightly pointed out. So we believe that this is really about the glass ceiling. There are still certain cinemas where we could be 80% of the ATP. So this trend has to just now keep growing. We seem to have a great strategy in place where both the quality of food, hospitality and certain promotions, which are run around F&B seem to be working very well. And in a couple of years, we can clearly see that the SPH could be matching our ATP. And to your question of saying, does ATP need to be blended down? No, ATP will continue its path and growth and so would SPH. This proportion of SPH to ATP has to keep getting better. That's the endeavor and that's the focus and that's the vision. And we believe that every year, we will only notch up a few percentage as we go forward.

Sure. My second question is on ad revenue on an overall basis and on per screen basis. How do you see the normalcy coming back in terms of ad revenue per screen versus pre-COVID? Why I'm asking this is currently still, Q1, Q2, we expect huge cutback by advertisers because of the inflation pressure, which they are seeing. On the other hand, we are also seeing discretionary sectors come back. So if you could discuss a bit on the mix of advertisers also versus pre-COVID, has that changed anything dramatically? And in terms of normalcy versus pre-COVID ad revenue per screen, when do you see that happening?

So there's lots of questions that you've asked, but let me give you a macro trend here. We believe that quarter 2, we should be getting our averages a lot better than the pre-COVID numbers of the Q1 as against Q1 of last year. So currently, we are in a gap of about 38%. This should be reduced to about 20-odd percent in Q2. By Q3, which is really a festive period and a lot of advertisers begin to advertise, we believe that we'll be within the pre-COVID levels of maybe 5% or 7% lower. And I'm very certain that by Q4, we will end up sort of exceeding the pre-COVID numbers. So that's going to be the trajectory. Having said that, yes, there's also been a big churn in the advertisers, those used to come earlier to now. We are seeing a lot of traction with new age advertisers who've come in. Some of the FMCG and the multinational brands are taking a little more time. And we hope that by quarter 3, they would possibly be back at the cinemas. So that's largely what it is. Retail, the clients are showing a weaker turnaround. And we are seeing that while the -- our [ row ] size is small, but they are kind of coming back to cinemas much faster. So overall, I think quarter 2 is going to be a little under pressure, but the average will get better than what we have achieved in Q1. But Q3 is really where I believe that we'll be largely in the hitting range of pre-COVID numbers.

Just to get clarity, if I see your ad revenue in Q3 FY '20, it was almost double of what you have done in Q1. So you're saying you'll be ending up pretty close to that. So you think in 2 quarters, you can kind of double this number around INR 120, INR 115 crores, INR 110...

Yes, when it begins to ramp up, these numbers can really jump up. And with some of the big releases which are going to be there around the quarter 3, which I said was the most -- a quarter where the maximum footfall also gets in. I believe that we will be in around a very good range of what we had done pre-COVID, so that's where I feel we will be. In quarter 3, we'll be able to get there.

Sure. One last question. So one concern I think a lot of investors are having is on the performance of the main Hindi movies, which is extremely important for you in terms of box office. So when do you see it fully reviving? What is the issue here? I understand the usual answer of content. But we are definitely seeing South Indian movies doing consistently well. And while Indian movies are not doing well. So it can't be only content. Is there some other issue also?

No, there is no issue. This is Ajay Bijli. I think it's too early only -- it's only been 3, 4 months since the movies have started coming. And basically, I'm not going to write off Hindi movies so soon. There are some big movies lined up. So people just want to watch whatever appeals to them. And it just so happens that these 2 big films did exceedingly well and they have overshadowed other releases. But we've got Shamshera coming tomorrow. We have Laal Singh Chaddha, Raksha Bandhan on a very big weekend in August, which is a 5-day weekend from 11th August all the way to 15th August. And then we have Brahmastra, coming. We have Vikram Vedha coming. So there are some big movies coming and these are the big names. And then you have smaller movies, which have always traditionally become sweeper hits in the past. So there is no -- just 1 quarter is too short a time frame to draw any conclusions that only [ reserve-centered ] dominate and Hindis will not do well anymore. We have to let the whole year, pan out. And I don't see any problem whatsoever because there are some prolific filmmakers and directors and actors even -- in the film industry who are also seeing this happening, And they'll bounce back. No problem whatsoever.

Our next question is from Aaron Armstrong with Ashmore Group.

First question would be around box office, please and kind of relates to some of the earlier points made. But can you talk about the box office growth and the revenue growth that we've seen this quarter and whether that reflects pent-up demand and a very good slate of movie content? Or does it more reflect PVR gaining market share and consolidation of the industry? Just kind of where you'll place the emphasis on those 2.

Kamal, would you like to take that?

Sure. Firstly, I think the performance of Q1 and if I was to also include March 2022, the performance in these 4 months reflects partly the pent-up demand. It also reflects and it also puts the debate that whether people would come back to theaters, whether the consumer appeal of movie theaters have gone down. Streaming has taken away a lot of eyeballs. That debate has been put to rest, and that's reflecting in these 4 months admission. It's also the quality of films. Some of these films came out are exceptional films. Marvel came out with Dr. Strange. Warner came out with Batman in March. Mr. Sanjay Leela Bhansali came out with another addition to his ever-growing list of successful films. And of course, we had KGF and RRR, which surprised everyone on the positive side. So it is a mix of pent-up demand. It was a mix of the fact that this whole debate came to an end, the consumer appeal for movie creators is very much intact, and it's also the quality of content. I would also like to add another point to the earlier question from the panelists where there is a concern about some of the Hindi films underperforming and Mr. Bijli summed it up and answer it comprehensively. I would only add 1 point to it that Hindi films have done well. Gangubai, Kashmir Files, Bhool Bhulaiyaa, even Jugjugg Jeeyo, which came out recently, they have all done well. And also, we have to keep in mind that KGF and RRR actually performed a lot better in the Hindi version. And whether you would categorize them as a Hindi film or would you consider them as [ Kannada ] or a Telugu film is a matter of debate, depends on which angle you're looking at it from. But we think of them as Hindi films. And the way we look at it is that if RRR, KGF, which are films essentially dubbed in Hindi, can do so well. Imagine when a Hindi film, Hindi original version with a popular actor or with multiple popular actors, the film which will connect to audience, imagine the limit, the upper limit for those films. Imagine the potential for those films. We see it as a big positive. And those were the 3 elements why we think content has done well. These 4 months have done so well for us.

And perhaps on the market share side of things, would you say that your market share is now higher than it was pre-COVID? Any kind of consolidation signs or smaller operators exiting the market?

That's a good point. And thanks for adding that question. Definitely, the market share of, I would say, larger chains, which have more credibility with the consumers, definitely the market share of such chains has gone up as compared to the pre-COVID period. I won't comment on consolidation at this point because we are in the midst of a merger, but your question on whether smaller teams are exiting, well, I mean, to be honest, at a very macro level, at a very high level, the number of people who have exited the business is a fairly small number. It's a moderate part of the overall screen count in India. We recognized less than 10%, and it's mostly those cinemas which were underperforming or which were not contributing with any meaningful box office even at -- even during pre-COVID. Those are the ones who have exited. So from an industry point of view, at a high level, there hasn't been a lot of exit.

Perhaps to tag on 1 final point, if I may, please, would be just around the sustainability of the excellent numbers that we've seen this quarter. We spoke about pent-up demand. We've spoken about a very strong slate of film content. Does that kind of feed into an expectation that we could see some softer quarters later in the year?

Well, subsequent quarters would have certain quarters, which will exceed expectations, and there is a possibility that certain quarters could underwhelm in terms of admissions. But to be honest, the way we see it, the way we look at the lineup that we have in the third quarter and the fourth quarter of this current financial year, we feel fairly confident that this could turn out to be a year which will end up with admissions, aggregate admissions, which are a lot better than what we did in 2019, '20. We feel extremely buoyant looking at the lineup and the response that we've got from the audiences. That said, our business is of hits and misses. And I think it's best to look at it on an annual basis rather than on a quarter-to-quarter basis in terms of admissions. There are segments like Hollywood films, which had depressed number in terms of quantity. Quality is fantastic, Dr. Strange, Spider-Man, Top Gun, all of these films have exceeded the expectation, Jurassic World. But as far as the quantity goes, studios are still ramping up the production. Same is the case with Hindi films. Producers are still ramping up the production. There has been a lot of disruption in terms of shooting over the last 2 years. So we could have some surprises as we move forward. But I think at an annual level for the entire financial year, we're looking at very strong set of numbers in terms of expectations.

Our next question is from Jinesh Joshi from Prabhudas Lilladher Private Limited.

Yes. Sir, I have a question on the windowing gap which I suppose was expected to revert to April at the end of July. So has that already happened? That is question number one. And secondly, if I'm not mistaken, we recently piloted one program which allows subscribers to watch movies on weekdays by paying some monthly subscription fee. So if you can shed some light on this plan, how has been the response to it, that would be really helpful.

Your first question on windows, answer is yes. On first August, we will revert back to the erstwhile 6-week window, which is what is what used to prevail -- be prevalent pre-COVID. So we will revert to 8-week window on 1st, August 2022. On your second question with respect to subscription program, I would request my colleague Gautam to share some comments.

Actually, on the subscription, we had to go a bit slow simply because the regulatory authority had some issues regarding payments, recurring payments for over 3 months. So there were certain negotiations and certain clarity required from the regulator. We are planning to go and launch this in a big way. We've already sort of piloted this project. However, on the recurring payment plan, there was a certain amount of as I said, regulatory concern, which has been managed now, and we'll be now going full steam with the Phase 2 of the launch.

Sure, sir. And secondly, I have one question on the bookkeeping side. If I look at our electricity and utility charges, they are lower by about 4% when I compare it with the prepandemic days. Now this is despite the fact that we are operating with a higher number of films in 1Q. So if you can highlight the reason behind this. And secondly, in the opening remarks, we mentioned that our debt is down by about INR 90 crores-odd sequentially. So where exactly do we expect to end the year with on the debt side? So that's the second question.

I think the reason for lower electricity cost is because of the tight control that we've kept at our operating level on some of the unit consumption. Also, some of the states, we've got reliefs from the government, which are temporary in nature. So I think both those things coupled helped us as to keep the cost -- the unit consumption under check. But these costs will gradually rise as there is an increase in power costs all over, but we will try and keep them under a tight control as much as possible. Also, on your second question around leverage. I think the operating cash flows of the business continue to remain strong. And since we will be opening a lot of screens this fiscal year. The focus during the next 9 months will be to use some of the operating cash flow to fund most of the growth. So it's difficult to say what our net debt numbers will look like. We want to sustain those numbers because we want to reinvest all the operating cash flows into growth, and that will be the focus for us this year.

So basically, if we are funding our CapEx needs via operating cash flow, essentially, the debt levels should not rise from here on. So is that an...

No, they will not rise from here. They will not rise from here.

Our next question is from the line of Harit Kapoor from Investec Capital Services India.

Just had 2 questions. The first one on the rent side. So if you take the rental numbers INR 2.1 million first one, INR 0.5 million second, INR 2.6 million per screen, we've seen a roughly 26% kind of increase in rental cost as well as 18% in CAM. I think over a 3-year CAGR, you're about 4.5% of competitive property. Just wanted to get your sense about whether this INR 2.6 million is something that we have to now expect on a going-forward basis because this is the kind of pent-up increase, which you've seen over a 3-year period, which will imply that rental revenue was a little higher than what your pre-COVID number was. So how do we think about this?

Yes. First of all, our rentals will continue to grow with on a contracted basis, roughly 4% to 4.5% CAGR, but our revenue growth is much stronger than that. So I don't know when you say that our rent-to-revenue ratio will keep rising. I'm not able to get that because the rent-to-revenue ratio should actually either remain same or be a little lower because the revenue growth is stronger than the rental growth right now.

No, I meant for this year. So this year, so far, I mean, if you look at FY -- if you look at quarter 1 here at 23%, which is compared to quarter 1 '20, I think you're at 20%, 21%. Yes. So that number is higher. And I think from -- is this like a rebasing and then from there, it starts to come off in '24 revenue? Is that the way to look at it?

No. I think that's not the correct way of reviewing this because Q1, the revenue still does not reflect full recovery and admission still does not reflect full recovery in advertising revenue. So in that respect, I think you should look at the rental number on an annual basis. Even in for Q1, on a INR 1,000 crore revenue, our rent is about INR 180 crores, which is about 18%. So there is -- from a rent-to-revenue ratio perspective, there is no material change.

Okay. Okay. Maybe I'll take that offline. The second question was on the personnel cost side. Also, you mentioned that there is an expected move up on account of incremental wave inflation. This quarter, you kind of managed it at similar levels. It is down 2%. I think you had made a comment that you're trying to keep it in a similar ballpark as pre-COVID. So just wondering, any changes in that thought process given the recent kind of, as I said, wage inflation as well as the incremental changes in the number?

Yes, I think our personnel cost per screen will move up by about 9% to 10% from existing levels on account of wage inflation, which is minimum wage increase and increments for people over the existing levels. But on an absolute level, if you look at the amount of headcount reduction that we've managed to squeeze in, we intend to sustain that. There will be very limited increases in the headcount savings that we've managed to achieve. But if you look at a 3-year period and then compare and factor in the inflation for 3 years, it is significantly lower as compared to the revenue growth that we are seeing.

My last question is on -- recently, you mentioned that admits are not yet back fully. This seems like a fairly normal quarter where you had some big hits as well. Obviously, you've had a very, very good overall revenue performance led by ATP and SPH as well. I understand that occupancies are a little lower. But wouldn't you think that this is as normalized as it could get from a from footfalls perspective? Anything I'm missing there?

No, I think it will be slightly premature for us to come to that. I think we've not had a full run of operations. There is still a large segment of people who have not shown up at the cinemas. Our sense is it will take a few months for the full recovery to play out as more films get released across theaters, as more genres are released across theaters. Whether it is mid- or big tentpoles like Avatar, which will draw consumers back to cinemas. So the full recovery will take another 6 months to play out. Our sense is by December of this year where you've had a big run of films. Effectively, recovery should take out shape fully because you must also understand that in a country like India, there is a very large segment of people who show up at the theaters only once or twice a year. So for that to play out, you have to give it time and see a full recovery. So our sense is by end of December, we should be -- hopefully be able to see some of that.

Our next question is from Prateek from Nippon India Mutual Fund.

Just wanted to check with this rebasing of rent which has happened plus the 5% rev share. How should I think about SPH and ATP, especially in quarters which are done or where there are more hits -- or more misses, sorry, other than hits?

SPH, there will be no change at all. And largely, we feel that a 30% growth can easily be maintained. On ATP is really a function of what kind of films get released. So if we do not have a mega blockbuster or a tentpole film, then ATP could be depressed by about INR 10, INR 12 but nothing very significant. But given the flow, whenever we will have big films, we'll be able to record similar ATP growth as well.

Okay. This is really helpful. And secondly, if you were to break down the admit recovery between metros, Tier 1, Tier 2, can you just give us a flavor of where is this lack or the degrowth coming from or which pocket is contributing to the high-yield degrowth?

Kamal, would you like to take that?

Sure. Given the recovery, the Tier 1, Tier 2 have had similar recovery, but there are pockets within Tier 1, which are undervalued in terms of admissions. You could attribute it to the kind of films which have done well, because these films were targeting the lowest denominator. They appeal to a certain sensibility. And as a result, certain profits, which tend to be affluent, have shown results which are inferior as compared to certain other pockets. That's one. Number two, like Nitin touched upon briefly in his commentary, there is a large number of people who come to our theaters once a year. There is also a sizable number of people who come only twice. We -- from various analytics that we do, we are observing that a lot of those people have not yet come back to theaters, which we -- cinemas which are more dependent, cinemas which are more frequent moviegoers in the catchments, they are showing superior recovery in catchments, which have less number of frequent cinema goers are showing slightly inferior recovery. But also, like Nitin mentioned, we are still early days, and we have to give it another 5 to 6 months to form a firm view on which are the areas which have underperformed and which are the areas which have done better. But yes, that's a very high level of sense of what's happening in the marketplace at this point.

And come, let's say, this continues after 6 months, what do you do to get the [ average ] back? In the sense, these continue to see negative or decline in footfalls, right, on a like-for-like basis, what do you do to get the footfalls back?

The way we see it and all possibilities are there on table. You're right. I mean there could be certain quarters which underperform. But the way we see it, at a very high level, we -- like I mentioned earlier, the consumer sentiment or the consumer preference for theater-going is very much intact. Producers who are experimenting a lot with different models, different distribution models, I mean, in some cases, they were going direct to streaming, in some cases -- at least in U.S. producers, distributors were releasing it simultaneously with theatrical, even on streaming. All of that has stopped now. Windows are back producers have come to a conclusion. And I think even streaming platforms recognize and respect this fact that the erstwhile model of following windows, being respectful to windows is the right way of creating value for the entire ecosystem. Also, when we look at the films which have been lined up and the kind of response that we've seen for KGF, Spider-man earlier in November last year, films like Pushpa, which released with pretty much no marketing, not a very known popular phase in the Hindi, where the kind of performances seen, even films like Rocketry, which picks up later. What we have seen is that the consumer sentiment is to escape. People want to escape some news. People want to escape from this constant war or inflation or other worries which we have in the economy. And they are finding cinema still as the best platform to get this is escapism. As the success of films that have performed, the quantum of and the scale of success is clearly showing that this possibility of this year underperforming is fairly remote. So your question, sorry, I gave an elaborate answer, but your question, what will we do? I mean I would not get into that because that is all sensitive strategic information. But frankly, from our prism, the way we look at the whole situation, we don't see that situation panning out this year. This year looks like we're going to have a V-shaped recovery, a very sharp bounce back at the end of the year. That's what we're going to finish with.

And lastly -- really helpful. And lastly, I just wanted to check, can you call out quarter 1 FY '23 industry box office collections? Is it possible?

Industry-wise, you're asking?

Yes.

I can tell you that in the first 6 months, I don't have the breakout for Q1 and -- I mean, Q4 of last year and Q1 of this year. But the data that we have is that the gross box office of the industry, and I'm sharing gross box office, not the end [ vision ], is roughly INR 5,700 crores, which is slightly better than what the industry did in 2019. And this considering the backdrop that the whole of January got spoiled because of Omicron and then half of that review was impacted because of Omicron. So even with that constraint, finishing the first 6 months with INR 5,700 crores box office is a fairly aggressive achievement a lot of pent-up demand, a lot of credit goes to KGF, RRR, but those are the numbers. So first 6 months, about INR 5,700 crores better than 2019.

Our next question is from Anurag Dayal from HSBC.

First question basically is about seats per screen. So as per my calculation, I could see that screen -- seats per screen has been coming down. It used to be around 220-odd, which has come down to around 210 or below that in this quarter. So sir, the reason behind it? Is it because you are moving more into smaller towns and opening smaller properties? Some light into this? And how to see it going forward? We've also been wondering, yes.

Yes. I think the new properties that we've opened have averaged a lesser number of screens. Some of the premium properties that we've opened, like [ Maison ] or a new Director's Cut in Gurgaon, et cetera. They are more premium with a much smaller auditorium count, more premium in terms of facilities. So yes, our average seat count on the new screen portfolio is close to that number, about 200-odd screens per seat. Depending upon how the mix is evolving at that particular year, your averages reflect that way. Or also, we've shut down some cinemas which were old and dilapidated. We've also exited a few properties. So that's to some total operation.

And also to add what Nitin said, we are adding more premium screens in our circuit. And except for IMAX and P[XL], all the premium formats are largely operating a slightly smaller or these sizes. So whether it's the 4DX, whether it's the Playhouse, whether it's other formats as well, LUXE and Director's Cut, they all operate on slightly smaller audi sizes, which technically brings the average a little down.

Okay. Just a follow-up on this. As I understand, it's around 12% of screens are premium right now. So how do you see it going forward? How much [ channeling ], ballpark could go the next 5 years set?

Sorry, Anurag, can you repeat your question?

Yes. I'm talking about the share of premium screens is around 12% currently. So how you see it going forward over the next 5 years would be higher? How much -- something -- is there any target which you have in mind?

Yes, I think we are focused on creating more and more experiential cinema offerings. I think our sense is it'll keep inching up. So I think over a long period of time, say, next 5 years, this number could potentially look like 18% to 20% from 12% levels.

I have another question. It's basically, what I read is you are exploring franchisee route for screen additions, a kind of type model. So what is the thought process behind it? And if you can give some insight on how the mechanics of franchisees, cinema work for you guys. Anything, any 6:16 AM directional in terms of how much it is higher, lower in terms of CapEx and OpEx? Anything, insight will be very helpful for that.

No, I think it's slightly premature for us to talk about that. Once we launch a few screens and we open a few screens, we'd like to talk a little more about that. I think currently, we are focused on doing a lot of screens the way we are doing. Obviously, the focus is to reduce the CapEx per screen and that we are constantly working on, but we haven't launched a full-screen franchisee model as yet. So when we get there, I think -- and we've opened a few screens, we'd like to talk a little more about it. I think slightly premature for that.

Our next question is from Piyush Sharma from Minerva India.

First off, just wanted to better understand the IMAX formatting challenge for domestic content. Now IMAX typically requires content, I guess, 2 weeks before release, and I think becomes 3 weeks for international delivery. And domestic producers has struggle, at least historically with that. Do you see this changing going forward?

Piyush, this is Kamal. I'll take this question. I must say that you're quite clued-on because this is a constraint, which only people in the industry would know. Answer to your question is it has improved considerably, both the non-Hindi Indian film producers as well as Hindi film producers have become extremely proactive. They are preparing, they are finishing their films much in advance. They -- and not just in advance to be able to deliver it to IMAX and many other service providers who have taken, format it in that particular taping process and make it ready for that particular format. But also a lot of producers are doing screenings to get feedback on the film and then make changes in the film if they find the feedback relevant. So answer to your question is yes, things have improved a lot. And producers are finishing up, wrapping up in -- much in advance and then they're leaving enough time to do a lot of last-minute R&D before they go out and release. And of course, naturally formatting to certain -- to these formats is no problem anymore.

All right. Great. Then secondly, now while ticket receipts can be directly attributed to premium versus regular formats and that we will do. Would it be possible to get some sense of how concession revenues are broken down between premium versus nonpremium screens roughly?

So to answer your question, first and foremost, in terms of SPH to ATP ratios, this ratio is a lot more healthier when we talk about premium screens. Now we honestly do not have a way to figure out concession -- candy sales in a cinema where all formats feed out of the same concession. But I'm talking largely in context of the LUXE audis or the gold class auditoriums, which has a separate counter. There, our SPH to ATP ratios are about 70%. And even the actual SPH numbers over around INR 350, INR 400 per person. But overall, when you look at any property which does have a premium format, even if it feeds out of the same concession, the ratios are much healthier and premium auditoriums wherever a consumer is paying a little more as ATP or ticket pricing tends to even come and consume more food. So clearly, a premium format helps to build a better candy sales numbers.

Okay. That's helpful. And then listen, very quickly, looking at Slide 12. You've got box office ATP and admit stacked versus fiscal first quarter '20. Possible to share the ATP movement on comparable properties versus like this?

I think there is no big difference in the ATP movement in comparable properties. I think it's largely in the same ratio.

Okay. And very quickly, if I can slide just one more. Just next slide, on Slide 13. You've got language voice contribution. So this is clearly not original content contribution. But if you were to hypothetically recreate this on original content, fair to say that Hindi would have dropped not just from 47% to 46%, but much sharply lower?

That's correct because the Hindi language contribution of KGF and RRR and Vikram has been quite decent. And it's absolutely fair to say that if you were to remove that and count it as a regional content, then this ratio would be much lower.

Our next question is from the line of Arun Prasath from Spark Capital.

I joined a little bit late, so apologies if this is repetitive in nature. What I'm trying to understand, Kamal and Nitin, is that I'm looking at this quarter compared to the first quarter of FY '20, and if I see that the screens' growth 33 -- yes, it is close to 3, 3.5 percentage, whereas the rental expense in common area maintenance has grown by more than 8 to 12 percentage, is it because the developers were trying to charge higher rents to offset for the losses they had during the COVID? Or how should we read these numbers? That's my first question.

It has not changed. You have to factor in a 3-year inflation and cost. We've gone back to paying full contracted rentals. Our rental media growth on an annual basis about 4.5% per annum. And if you look at the slide -- Slide #18, we've given a breakup of how the rental cost has evolved. Our rental costs across comparable properties is up 18% to 19%. Out of which 14% is on account of a 3-year rental escalation, which has kicked in on a regular contracted rent. And the balance, 5% is revenue share rent. So because we've done great revenues, we've also shared, as per our contract, a percentage of that with the landlord. So that's primarily the reason. There is no clawback or any such thing.

So this run rate should continue. There is no one-off or anything like that. This should continue as we move forward?

Yes. Correct.

Understood. I also -- I'm not sure if anyone asked, there is a commentary on the ad revenues per screen, which looks like it is still to recover completely to the pre-COVID levels. What is your sense and outlook on this revenue front?

Yes. This, as I've just spoken, will take some time, and we hope that by quarter 3, we would be within the hitting range of the pre-COVID number. Currently, it's down. We should recover in terms of percentage in quarter 2. But the full recovery would technically be closer in quarter 3. Or one could safely say in quarter 4, we may end up exceeding the pre-COVID number. But quarter 2, we are still going to be lagging behind.

All right. Just reading across the commentary from others, especially FMCGs, what is the -- what used to be the contribution from FMCG to your ad revenues? Is it like -- are you seeing -- are you getting dragged down because of their spend is lower? Or some -- any other category, which is not back to the mark? Some category-wise commentary would be very helpful, your comment.

FMCG, of course, was contributing close to about 15% to 17% of our total revenue. That's 80x. And the second big category, which was contributing, which is telecom and handsets, which have also slowed down simply because of imports to India and the short of those chips, and they have lesser products to sell. So these are the 2 which have taken a bit of a dent. And we believe that the way -- and we've been really having a lot of communication with the brand managers there. And we believe that quarter 3, because that's the festive time, they're all kind of gearing up for making sure that India has enough and more supply is when these guys will come back into advertising a big way at the cinemas, so yes.

Our next question is from Abneesh Roy from Edelweiss.

I had few follow-up questions. First is on some of your new or smaller businesses like the cleaning service, which you had launched during COVID. Is it more of a marketing exercise? I understand you do have some level of core competence or maybe a lot of core competence. But are you seeing any traction from the B2C side of customers here? And similarly, on the popcorn and the V Café or your presence, say, on Swiggy, how does this scale up, if you could disclose that?

Sorry, your first question, I couldn't get it. So V Pristine is actually showing us some very encouraging numbers. And we are -- while the numbers relatively could be small, but it's very consistent and growing. We do about 30,00,000-odd revenue every month. So that's growing and very, very encouraging. Even on [ M-Pop ], which is our microwave popcorn, this has been one big, I think, boom of the COVID time. And some of the SPH that you see is because of the volume of [ M-Pop ] which is being sold at this cinema, and this is a wonderful product because consumers buy. We add it in our SPH, but these popcorns are not consumed at the cinema. So at one end, we are kind of servicing their hunger by selling them more product. We are also beginning to supply them food, which they can take home. So on both ends, it's kind of doing a brilliant job. So [ M-Pop ] is doing very, very well. And this is Pan-India. It's not just a region-specific thing. Overall, it's contributing to every cinema and every region in a very positive way. Our initiative around Zomato and Swiggy is, I would say, not so encouraging. We are kind of learning a lot as we move forward. This is a different ball game, and we are also realizing that it needs a different mindset to be able to come out winners within this program. We are not giving up. We are still working with our partners, Zomato and Swiggy, to see how we can make this bigger. But we've realized one thing that this business will, at best, contribute positively in some locations and deliver a certain SPH contribution towards cinema. But if you look at it as a stand-alone business, it may not be very sizable ever.

So in Swiggy and Zomato -- yes.

Go ahead. Go ahead.

So in Swiggy and Zomato part of business, any plans for setting up, say, a cloud kitchen? Because I think that is a bit more relevant. And would you have any number in mind as to how much of say, initial investments or, say, losses in this part of the business? Because I do understand it does get cross-subsidized by your current infra. But if you evaluate on a stand-alone business, are you looking at any investment? Or this is just more of a pilot project?

Yes. I think we have to rethink the whole piece because we also realize you need a larger network. And I think we will have to reimagine this post the merger as well as our network of cinemas will go up significantly in a lot of markets. So -- and you're right, I think it will just not be about adding cloud kitchens. I think we'll have to rethink the whole business plan of how to make it relevant, which may require some investments. That's not the concern. But I think we'll have to rethink the whole piece, how to make it relevant. I think next year would potentially be the right time to do it as we have a much larger network of cinemas across cities.

And globally, do multiplexes in any country do this kind of business, delivery?

Not at all. Not even one. I think across the board, I would say, we took this charge. No one else has ever tried this before..

Sure. And last question was on essentially closure of some of the tough properties or properties which have lived their life. So any more color you can give in terms of say, next 1 year, 2 years, how many properties you see undergoing this kind of evaluation? Because in retail, this is quite common, right? That always -- churn keeps happening and malls also become dead. And so could you discuss any numbers next 1 year, 2 year, how many such properties can happen?

No. So if you look at it, we have typically long leases. And when these leases come to an end, typically, we continuously evaluate this on an ongoing basis. And during the last 2 years, 3 years from June 19 till now, we shut down 39 screens, out of which, 23, the leases expire. We did not renew with Cineline and the balance 16 screens we shut down. We believe, as of now, bulk of our portfolio, I would say 95%, 96% of our portfolio is absolutely prime and doing exceedingly well. I think there will be 2% to 3% of the portfolio, which is in malls, which probably have outrun their life, but they still -- cinemas continue to still do well. And over a life cycle, we continue to evaluate this on an ongoing basis. If I am getting into a new market into brand-new shopping malls and building my market presence and the existing cinema has lost steam or that mall has become irrelevant, we take those calls to move out and shut down those locations and properties. But I don't think that number is, quite honestly, any significant number. It will be not more than 1% or 2% of the portfolio, and that's part of our annual exercise.

One follow-up on Cineline. So I understand it was just 2%, 3% of your impact on numbers. But in those markets, are you able to get some part of the demand back? Because now your partner is kind of competing against you. And of course, they'll have some, obviously, expansion plan also. So if you could address both parts, are you getting some part of the demand back because now it's not part of network? And second, do you see them as a competition in terms of longer term because of expansion?

No, I think it's good for the industry that we have more and more operators, because there will be cinema-opening opportunities all over the country. Some we will find viable to do, some we may not find viable to do, but it is good that the country adds more and more screens. And it's good to have somebody who's willing to put capital to add more cinema screens apart from us. On Cineline, like we said, it is -- it was not a very big portion of our portfolio, less than 2% of our overall revenues. And our cinemas in West have actually done quite well this quarter. In fact, only 50% of those screens that we were operating in Cineline properties were relevant screens. Some of them have -- had outlived their lives and had got replaced by new cinemas. So we believe that this churn, this is like any other regular churn that will keep happening in our portfolio every year. We'll keep shutting down 1 or 2 properties, which will stay not relevant and keep replacing them with new screens that we will end up opening in those markets. So we don't see that to be any major concern.

Thank you. Ladies and gentlemen, that was the last question for today. And now I would like to hand the conference over to Mr. Nitin Sood for closing comments.

I'd just like to thank everyone for taking your time for our earnings call. And if you have any follow-up questions, feel free to write to me. Thank you.

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.