Target: ₹1,510
CMP: ₹1465.00
Concerns persist for the global box office in the post-Covid era as it has recovered to 66 per cent of pre-Covid levels in March, and the same holds true for Hindi box office. We believe the Hindi film industry needs to build franchise-based content to revert to pre-Covid levels.
The post-Covid era saw structural disruption in the Hindi box-office segment (the largest share within PVR’s box-office revenue), given growing contribution of large budget films; change in talent preferences; and films going direct OTT, which, in turn, led to a sharp decline of about 30 per cent in Hindi box-office revenue vs pre-Covid. Regional content remains saviour in the medium term, due to acceptance in Hindi-speaking zones (dubbed films account for 21 per cent of Hindi box office in FY23).
ATP (Average Ticket Price) and SPH (Spend per head) for PVRL/INOL are higher by 16 per cent/29 per cent (average of PVR/INOL) respectively, vs pre-Covid and have been growth drivers post Covid; however, we believe a 3-4 per cent hike in ticket and food prices is sustainable in the medium term. Hence, footfall recovery remains a key monitorable for driving double-digit revenue growth.
We assume a base-case scenario in our estimates wherein we expect occupancy levels of 24 per cent in the medium term for the merged entity. The risk of lower EBITDA CAGR of 11 per cent over FY20-25 (ex-Covid shutdown) vs pre-Covid CAGR (FY17-20) of 25 per cent remains an overhang, due to: inconsistent performance of Hindi content; lower ad revenue vs pre-Covid; and a higher fixed cost structure (rentals including CAM are about 30 per cent of revenue in 9MFY23). Sharper recovery in Hindi content, which, in turn, would drive footfalls and ad and food revenue to pre-Covid levels is a key monitorable as well as an upside risk to our call.