Stree 2 rescues PVR Inox in an otherwise dull quarter

PVR Inox Ltd has got a shot in the arm with the roaring success of Stree 2. The Hindi horror comedy, starring Shraddha Kapoor and Rajkummar Rao, has garnered ₹573 crore since its release on 15 August, according to Bollywood Hungama website. Thus, it is not surprising that PVR Inox’s shares have risen 10% during the past month, beating the Nifty 500 index's 3% returns.

Other Bollywood movies released in the September quarter (Q2FY25), such as Vedaa, Khel Khel Mein, Sarfira, and Auron Mein Kahan Dum Tha, have put up a dull show. As such, Nuvama Research expects Stree 2 to cross net India box office lifetime collections of over ₹600 crore versus initial expectations of ₹400 crore.

This means higher footfalls for PVR Inox. Remember, the June quarter (Q1FY25) was muted for the company due to a relatively lower number of new releases as the general elections adversely impacted the release calendar across languages. “We are pencilling in sequential revenue growth of 20%, Ebitda (earnings before interest, taxes, depreciation and amortization) margin is seen at 10-12%, and footfalls are seen rising 15-20% in Q2FY25,” said Shobit Singhal, analyst at Anand Rathi Institutional Equities. Plus, advertisement income, which has been lagging below pre-covid levels, should revive, he added. Advertisers usually prefer to capitalize on higher footfalls.

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That said, the Q2FY24 was a bumper quarter for PVR Inox, with record footfalls of 48.4 million. That quarter saw exceptional collections from Bollywood blockbusters Jawan and Gadar 2, and regional films also put up a strong show. Given the high base, PVR Inox may find it difficult to replicate a similar earnings performance on a year-on-year basis.

Great expectations

Nonetheless, the content pipeline for the December quarter (Q3FY25) is solid. Bhool Bhulaiyaa 3, Singham Again, Mufasa: The Lion King, The Lord of the Rings, and Pushpa 2 are among the mega-budget franchise movies slated for theatrical release in the third quarter, which also coincides with the festive season of Diwali and Christmas.

ICICI Securities Ltd’s analysts expect PVR Inox to post its strongest quarter yet in Q3FY25, surpassing Q2FY24. “We have believed that a weak content pipeline is to be blamed for the weak performance of the movie exhibition industry over the last year and not a structural shift in consumer behaviour towards OTTs, etc. We think Q3FY25E will likely resolve investors’ concern on the above issue,” added the ICICI report dated 13 September.

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Further, the absence of large events such as the World Cup is another positive. In the Q2FY25 earnings call, investors would want to know whether its passport programme—a prepaid movie voucher subscriber plan—is gaining the expected traction. PVR Inox re-released Rehna Hai Tere Dil Mein and Tumbbad, which is a good strategy to bridge the lull in the content pipeline, but the extent to which it can drive footfalls needs to be seen.

Meanwhile, so far in 2024, the stock has declined 1% versus 20% plus gain in the Nifty 500 index. The company’s earnings estimates were cut after disappointing Q1FY25. A meaningful re-rating hereon hinges on consistency in occupancies growth. PVR Inox needs to beat content volatility to successfully compete with OTT platforms. Scheduling of movies is an important parameter, as a clash/overlap in release dates usually hurts collections and footfalls.

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Moreover, PVR Inox is actively exploring monetization of non-core real estate assets in a bid to become net debt-free. It is shutting down underperforming screens to improve operational efficiency. Additionally, the adoption of an asset-light model to jointly develop new screens should moderate PVR Inox's capital expenditure intensity. These steps are in the right direction and would yield results gradually. However, investors would closely follow content performance, as it remains the most critical aspect in driving the earnings picture.