PVR INOX Limited (PVRINOX) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the PVR INOX Limited Q2 FY '24 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.

Yes. Thank you, Anjup, and good afternoon, everyone, and welcome to PVR INOX Limited's Q2 FY '24 Post Results Earnings Call. The call will be starting with a brief management discussion on the quarterly performance, followed by an interactive Q&A session. PVR INOX management will be represented by Mr. Ajay Bijli, Managing Director; Mr. Sanjeev Kumar, Executive Director; Mr. Nitin Sood, Group CFO; and other senior management personnel, including Mr. Alok Tandon, Co-CEO, Central, West and East; and Mr. Gautam Dutta, Co-CEO, North and South. Over to you, Mr. Bijli, for the initial comments.

Thank you very much. Good afternoon, everyone. I'd like to welcome you all to discuss the unaudited results for the quarter and half year ended September 30, 2023. I hope you've had the opportunity to review our presentation and results, which were uploaded earlier today on our company's website as well as the stock exchange's website. I'm delighted to share that quarter ended September 30, 2023, was a record-breaking quarter in company's history with the highest ever admits, ATP and SPH leading to highest ever quarterly revenue, EBITDA and PAT. In Q2 of FY '24, we welcomed 4.8 crores guests and delivered an ATP of INR 276 and SPH of INR 136, which represents a year-on-year growth of 64%, 25% and 15%, respectively, over pro forma PVR + INOX numbers in Q2 FY '23. Coming to the financial results for the quarter. The following numbers are after adjusting for the impact of Ind AS 11 leases, relating accounting. Total revenue for the quarter was INR 2,020 crores. EBITDA was INR 447 crores, and PAT was INR 207 crores. Pro forma financials of PVR and INOX combined for the same period last year were revenue of INR 1,082 crores, EBITDA of INR 16 crores and PAT loss of INR 78 crores. The biggest highlight of the quarter was the historic performance of the Hindi Box Office. Jawan and Gadar 2 released during the quarter emerged as 2 of the biggest grossing Hindi films of all times, recording over INR 750 crores and INR 620 crores at the box office, respectively. In addition, mid-scale movies like Rocky Aur Rani Kii Prem Kahaani and Oh My God 2 each grossed over INR 150 crores, while Dream Girl 2 and Fukrey 3 comfortably exceeded the INR 100 crore mark. Volatility in Hindi films' performance has reduced considerably with a marked improvement in the average collection of Hindi films, particularly in the case of mid-scale movies, which have been making a strong impact at the box office. Hollywood films helped the quarter start on a fantastic note, blockbusters like Oppenheimer and Mission: Impossible - Dead Reckoning Part One grossed over INR 150 crores and INR 130 crores. Barbie and Nun II also performed well and crossed the INR 50 crores mark at the box office. Regional movies across languages continue to demonstrate stable performance, Jailer, which is Tamil, was the highest grossing regional movie with INR 390-plus-crores of box office collections. Baipan Bhari Deva became the second highest grossing Marathi movie with box office of INR 90-crores-plus. The growing acceptance and attraction of regional content is demonstrated by the success of these movies. We are confident that reginal films will continue to do well in the upcoming months. We're quite optimistic about the robust content lineup we have across all languages over the next few months from Hindi, we have Ganapath and Tejas in October, Tiger 3 in November and Animal, Sam Bahadur, Merry Christmas, Yodha, Dunki and Salaar in December. From Hollywood, we have Killers of the Flower Moon, in October, The Marvels, Taylor Swift, the tour movie, Napoleon in November, Wonka and Aquaman and the Lost Kingdom in December. From regional genre, we have Leo, Maujaan Hi Maujaan, and Tiger Nageswara Rao in October, Naal 2 and Japan in November, Captain Miller and Hi Nanna in December. In the first half of FY '24, we have also reduced our net debt by INR 328 crores. This firmly places us on the path to attain a free cash flow positive status by the end of FY '24. On the integration front of PVR and INOX, it is progressing seamlessly and is yielding substantial operational efficiencies, as outlined in our investor presentation. PVR INOX continues its strong growth momentum adding 68 new screens in the first half of this fiscal, while strategically exiting 33 underperforming screens. We are on course to open 150 to 160 new screens in FY '24, and expect to exit a total of 60 screens in the current fiscal. Our screen portfolio stands at 1,702 screens across 358 cinemas in 115 cities in India and Sri Lanka. I now open the platform for any Q&A. Thanks once again.

[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.

Congrats on very good set of numbers. My first question is on your debt levels coming down by INR 327 crores. Wanted to understand, given now you are much more confident on the Hindi movie business, which was suffering for the industry, what will be the plan from a 1 to 2 years' perspective on the overall debt levels? You had rationalized the store openings, the cinema screen openings also earlier. Would that change because of now free cash flow turning on the favorable side?

You're saying that will our opening of screens get impacted?

Yes. Yes, will that accelerate?

No, because we are -- we still have a pipeline, as I said, of 100 to 150-odd screens that we will be opening. And I think the accruals will be enough to take care of both. And every screen that we are opening is going to be value accretive, we are obviously very conscious of now how to invest capital, where to invest capital, which mall, which development, which catchment [Technical Difficulty] South India as well. And keeping everything in mind, we should be able to maintain our growth trajectory as well as pare down.

So just to understand, INR 1,100 crore net debt which is there currently, what will be the long-term goal on this? Do you have any aim to make it almost negligible over the next 2 years, will that be your vision?

I'll let Nitin answer this question. Nitin, would you like to answer it, please?

Yes. So Abneesh, you're right. I think as you've seen our report. So I think reduction in net debt will not come at the cost of growth. Our operating earnings and cash flows will continue to grow, and they will be sufficient to take care of our growth and the surpluses will be used to reduce the net debt levels in the balance sheet. Our focus this year obviously is to get down to a 1:1 net debt-to-EBITDA. But over the next couple of years, reduce that from existing levels.

Sure. My second question was on your promotions in F&B. So essentially, this INR 99 Monday to Thursday kind of pricing, which you have introduced. I think it's a great initiative. And on the other hand, you have this unlimited refill offer for the weekend. So how is the response here, especially in the Monday to Thursday kind of a lean period when footfalls are low. But within those footfalls, are you seeing much stronger conversion than earlier? So some insights into that.

So largely INR 99 promotion was done to: one, correct the price perception of cinema food being expensive; number two, we wanted to drive higher conversion at the concession. Both the objectives were completely met, and this is something that we plan to keep the promotions on for a long time. We are not going to sort of get off the promotion. So this is something, which is going to be there because we've realized that consumers today are looking at movie experience, which is bundled in with F&B. Everyone who gets to the cinema would ideally want to eat. So from that perspective, a great successful program is there, and we are trending well on both the parameters.

Sir, and last quick question on advertising revenue. Quarter-on-quarter, very good scale up. And now that you are quite confident on the movie industry revival, which I think will be also true for the advertisers, and overall, GDP is doing also quite well. So in that context, where do you see pre-COVID level getting breached in the outlook -- from an outlook perspective, when do you see pre-COVID level on advertising getting breached?

That will be next year. Largely, we will come within the hitting range this year. Quarter 3 and quarter 4 are looking very good and positive. But in terms of breaching the pre-COVID PVR INOX combined revenue, it will be next year. We'll go ahead of that number next year.

The next question is from the line of Harit Kapoor from Investec.

I had a question on the synergy bit. You mentioned in your release that the number is already INR 120 crores to INR 140 crores for the first half. So if you could just give us a guidance of...

Hello, Mr. Kapoor.

Yes?

I'm sorry to interrupt you, sir, but your voice is echoing. Can you please come to a place where you could get a good reception?

Sure, just give me a second. Is this better? Hello, I will just try to reconnect. Thanks. [Technical Difficulty]

The next question is from line of Jinesh Joshi from Prabhudas Lilladher Pvt Ltd.

I was just trying to think through how the footfall count will be maintained for the subscription plan that we have just launched? Basically, the customer here is paying us a fixed fee to buy the subscription. So irrespective of how many times he visits us, basically we have our money. So will every visit be considered as a separate count? Or how will it be basically?

Please repeat your question because there was a lot of echo, we couldn't sort of understand.

Okay. I mean is this better now? Or is it echoing?

Yes, much better. Much better now.

Yes, yes. So I was just trying to think through how will the footfall count be maintained for the subscription plan that we have just launched. So if I understand this right, the customer here is paying us a fixed fee to buy the subscription so to say. And irrespective of how many times he visits us, we have got our money upfront. So how will the footfall count be actually be maintained? Will every visit be considered as a separate footfall? Or how will it be?

See, this is like a subscription voucher, which has been sold to our customer. Every time he comes to the cinema, ticket will get issued to him and that is how the subscription count will be captured.

And the INR 699 is largely in advance that the company we are holding.

Got that. And how will the revenue recognition happen? Will it be on the sale of the pass? Or will it be amortized over the term of the plan?

Sorry, I did not understand your question, again?

The revenue recognition, how will it happen? Because this is a minimum 3-month plan, if I'm not mistaken. So will we recognize the revenue right at the sale of the pass itself? Or will it be amortized over the term of the plan?

Yes. So it's not a long-term pass. It's a monthly pass so it will be recognized at the end of every month.

It has a validity of 30 days. So INR 699 expires within 30 days. And within the 30 days, you get 10 movie vouchers. So if you do not sort of end up using those 10 vouchers, there is an expiry and then you move into the next month.

Got that. Got that. One last question from my side. I mean if I look at our screen portfolio down south, I think the screen mix for us is about 32%. But if I look at our box office share in the Jailer's collection, I think it is a bit low at about 17% odd. So is there any specific reason to look into it because our screen concentration down south is pretty decent, but our share in Jailer is a bit low if I compare it with our screen mix.

No, so that's an incorrect comparison. South is a very large market, which comprises of Karnataka, Kerala, Telangana, Andhra and Tamil Nadu. Tamil Nadu is a subset of South India. Jailer as a film is a Tamil film, which was primarily released in Tamil Nadu and did exceedingly well in Tamil Nadu. So you have to look at it in that context. And while the total -- while we have about more than 500 screens in South India, the total screen count in South India, if you include single screen cinemas as well is in excess of 4,000 screens. So obviously, our market share in South India is much lower. And that's the reason we've been mentioning in all our calls and conversations as more retail development happens in that part of the market, we want to add more and more multiplex screens because we think that part of the market is underscreened in terms of multiplex screen capacity.

The next question is from the line of Arun Prasath from Avendus Spark.

My first question is on the advertisement revenue. I think, on a per screen basis, we are still at least 30%, 40% lower than the pre-COVID levels. And I think this is the best quarter we had, even better than the June '22 quarter. Almost double the revenue, footfalls are also much higher. But obviously, on a per screen basis, the growth is very, very less. Is it a structural issue that advertisers are not coming into the cinema because this is something which is happening for the last 3, 4 quarters, despite of the strong footfalls, we are not translating into the advertising revenue on a per screen basis?

Advertising technically works on big blockbuster films doing well. We've spoken about this in our earlier calls as well, and we were very positive that Q2 would have some big titles and on basis which advertising will go up, which is exactly what has happened. Even now as we move forward, advertisers are coming back, there is absolutely no issues there. It's just that we need certain momentum to be able to get the monies, which advertisers earlier used to flow back into cinemas, which had gone into other media sources. So it takes time. And as I just mentioned, by next year, we should definitely be reaching our 2019, '20 numbers and moving ahead. So it seems to be on the right path.

Sorry, just a clarification. When you say that advertisers have moved to other sources, what is the competition for you in these sources? Is it -- obviously, it cannot be -- it has to be more hyper local.

Yes. No, no. It's not that. It's -- the fact of the matter is that when you rate a cinema media, it used to come in the fifth or the sixth preference for a media planner and buyer. So technically when we were out of action during the COVID time, they started to put that money, which was available for promotions in media into digital, into TV, into radio, into outdoor, mall activation. So now we have to go back and start getting all of those advertisers back. The good news is that most of the brands are back, and it's about now when you would see that a bigger traction begins to play out as we move forward into some big blockbuster films releasing over the next 2 quarters.

No, I understand. Just I'm trying -- what I'm trying to get clarity on is that, what is your competition when it comes to this kind of an advertising? Is it like an outdoor, digital? Or is it like newspapers or what is it you will term it as a...

I won't be able to comment on this because the fact of the matter is, if you look at the total advertising pie, cinema advertising is only about 1% of the total pie. So it's very difficult for me to ascertain where that 1% is getting allocated in terms of any alternate media choices. Media planners have different choices available. And we are also a brand-building media eventually. So that money could be being spent on digital, on radio, on any media that works best for that product category. So difficult for me to put a finger to say the monies, which were coming to me has now gone to outdoor or mall activations, difficult for me to have an answer around this. Different clients have decided in different strategies. But to get back our share, we are already on it. We've shown a great growth this quarter, and we believe that we are on the right path.

Understood, understood. My second question is on your -- the INR 99 subscription plan. I think it is still not extended to the South. Given that our -- less share we have on the South, is there any reason why the South is excluded? Or we are -- we don't want to cannibalize the existing revenues? What is the thought process behind this?

So I have -- as we have all said in media that we've opened Passport for a big trial program. We are wanting to enroll only 20,000 Passport users in the first phase. We want to close the subscription after that and study the consumption pattern. Down south, the consumption is anyway very high. And this program is largely to propel more consumption. A market which is already fairly fertile and also has price restrictions, we felt that in the first phase, we needed a better clarity on how it changes consumer consumption pattern. So in the next phase, after we've studied the consumer a little more closely and deeply, we may come out with the product for down south as well in Phase 2.

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

Sure. First, on the synergy benefits overall, your -- the presentation does highlight benefits coming from F&B as well as advertisement -- sorry F&B box office as well as overall cost synergies. Just trying to understand, is the ATP improvement because of price disparity and now everything is in sync in terms of pricing across INOX as well as PVR theaters? And secondly, on the F&B side, where are we in terms of updating the menu as well as veg, non-veg options, et cetera, across the INOX screens?

So Ankur, we are answering your first question first, where ATP is concerned, yes, we've seen a significant growth in ATP and that's because of a regular inflation increase as well as the contribution of the entire synergy, which has taken place across the 2 companies. That's one. Where F&B is concerned, yes, we have changed a lot of menu. Both companies have incorporated the best of menu of either. And whether it was the erstwhile PVR or these erstwhile INOX menus have been now -- are available in most of the cinema halls across the country. So a lot of work and synergy has been done, as you see from the slide also, whether it's ATP, which has gone up by about 13% year-on-year, which normally due to inflation used to be only 3.5% to 4.5%, as well as F&B SPH has again witnessed a 13% growth, which used to be in the range of 7.5% to 8.5%. So whether it's a menu tweaking, menu mix, all that has contributed to SPH. And the ATP is concerned, yes, proper programming. If they are more cinemas in a cluster, they've been treated as one, so that a patron whenever he comes, he watches a movie in a gap of 10 to 15 minutes. So this is what the result of synergies has been over the last 6 months.

Sure. So just to clarify. So Slide #19, wherein we are highlighting the ATP growth, organic growth as well as the implied synergy-led growth. Will it be fair to say that on a pro forma number, there will be a INR 20 higher ATP on an average on an annual basis henceforth as a base case?

Yes. So Ankur, the way to look at it is this year like we had guided, we will see much higher ticket pricing as lot of this stuff will get rationalized and synchronized between both the PVR and INOX properties. And we will see a significantly higher average ticket size growth than the normal averages that we have seen. It may marginally keep on varying quarter-on-quarter because it's partly also linked to content.

Content yes, correct.

But we are reasonably confident. Yes, it will be it will be a decent number. Whether that number will be INR 20 or INR 15 is difficult to comment at this stage because part of it will be linked to movie by movie performance as well.

Sure. Fair enough. And on the SPH side, the full benefits, presumably the launch across as well as the acceptance of all the new menu may take maybe a quarter or so. The full benefit, will you expect it, let's say, by the end of this year, which is Q4, or probably we should look at FY '25 for that number?

FY '25 first quarter, I think, we should have largely everything rolled out. It would take about 3 more quarters for the entire synergy in terms of the back-end work and menu synchronization to happen. To your question on non-veg about -- already about 74 sites have been rolled out and a few more are in the pipeline. So the work is happening. And by end of March, that piece will be largely out of the way.

Great. And just continuing the synergy bit on the advertisement side, while I take your point in terms of the overall macro, et cetera. But how has been the industry's response to the negotiated joint sort of negotiation now on the advertisement as well as on the convenience fee bit?

It's been tough and -- to be very honest. And this year, we may not get too much synergies on the advertising front, while there will be growth. But the fact is, in terms of synergy, the major part of the synergy may roll out next year. We will look at a fairly decent growth this year in quarter 3 and 4.

Great, sir. And just last question from my side. On the windowing period, among the digital release and theatricals for Hindi and regional, where do we stand? Because as I understand, there were certain negotiations again, especially on the regional side to expand the window?

Kamal, would you like to answer that?

Yes, sir, the window on Hindi films is 8 weeks. Regional films varies from region to region, Punjabi films, for example, is 8 weeks, Bengali films is 8 weeks. Hollywood films, which are the international segment films, that's 8 weeks. Tamil, Telugu hover between 4 weeks and 6 weeks. We would not like to comment on any active negotiation. But suffice it to say that our endeavor is to sort of standardize windows as far as possible. Our aspiration is to take the windows to minimum 8 weeks. That's our current position on it.

The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.

Congratulations on a good set of numbers. Sir, I just wanted to understand the convenience fee in a little bit more detail. For the last few quarters, we are seeing a decline on a per admit level. So last quarter, when this question was asked, we mentioned that now both PVR and INOX are on a revenue base since the deal with BookMyShow has come to an end. I was curious why in the second quarter FY '24 on a per admit basis, we are down compared to first quarter FY '24?

Yes. I think, Arjun, we answered this question last quarter alone. Our previous contracts with online aggregators had a concept of a minimum guaranteed payment irrespective of what the footfall would be and subject to a revenue share. Because there is no minimum guaranteed payment under the existing contract and online aggregators underperformed in terms of what effective admissions were in cinemas. Our effective realization due to the minimum guarantee commitment in the previous contract was higher than the revenue share commitment, which is not the case under the current contract. And as a result of which, that is reflecting on a per admit basis lower fee.

Sir, but that's happened in the previous quarter since you did allude to that in the previous quarter. So if I look at the second quarter versus first quarter, since the impact is already in the base, we have declined on a quarter-on-quarter level on a per admit basis, while our ATP has moved up from INR 246 to INR 276. So I just wanted to understand is 14.15% the right number previous quarter, or 15.69% the right number?

So Arjun, at quarter 1 for the month of May there was the minimum guarantee under older contract...

Okay. Sure.

April and part of May. And therefore, on a per admit basis, the convenience fee in quarter 1 was higher. And then we moved directly to the new contract from May onwards. And that's why on a per admit basis this year dropped quarter-on-quarter.

Sure. So since this quarter is fully on revenue, so this would be the base going forward?

Right.

That's right. That's right.

Sure. Perfect. Very helpful. Secondly, in terms of the number of screens that you are planning on closing, we have increased from 50 to 60, obviously, given what the multiplex is, where they are situated. Just wanted to understand how do we look at our growth over this year, next year? And is the real estate availability, et cetera, largely on track for our growth path that we had earlier articulated?

Yes. The growth path is absolutely intact. We have lots of screens in the pipeline. And this year also, as Mr. Bijli said in his opening statement that we will be opening 160 screens and 68 we've already opened. Well, we are shutting down only those screens which have come to the end of their life cycle or are not profitable, or the mall is shutting down. So that's the way which we'll take going forward. And this year, as we said that 33 we have already closed and we will in totality close 60 this year. But the answer to your question is that our growth is absolutely intact and if we go by 160 screens per year. I think that's a very, very aggressive and a nice number for the industry.

Sure. For the next year, so this closure of screens, is it just a onetime event this year or potentially that could be repeated going forward in the future?

No, it will not be a onetime event. Now we have a fairly mature portfolio, every year we will continue to evaluate bottom 1% to 2% of our screens, which we believe would have come to an end of the life cycle and accordingly take decisions to move out. That's the constant part of any retail portfolio. Anyway, screens at the bottom end are not contributing to our profitability and margins. So closure of these screens should only help positively and are taking our operating margins higher and profitability higher.