Good content boosts PVR growth, drives profitability in movie market

Market leader in the multiplex space, PVR delivered decent Q3 results with a consolidated net profit of Rs 55.38 crore as against a net profit of Rs 29.16 crore during the same period in the previous fiscal.

“Content played a significant role in boosting box office revenues; we witnessed good response from the audience for a few small budget films like Badhaai Ho and Andhadhun. In line with the company’s expansion plans, PVR added 55 screens pan India in Q3, which led to an increase in footfalls at the theatres and added to the overall box office collections,” said Nitin Sood, Chief Financial Officer, PVR Ltd.

“Consolidated footfalls (including SPI properties) increased by 48 percent in Q3 that fueled the business performance in this quarter. Additionally, revenue growth through F&B sales was double-digit despite a reduction in the prices, as the footfalls remained strong,” added Sood.

“Good content can be attributed for PVR’s strong performance in the third quarter of FY19. The success of films like Badhai Ho, Andhadhun, Kedarnath along with a modest performance by supposed ‘blockbusters’ – Thugs of Hindostan and Zero resulted in a high occupancy rate (despite having 9 percent more seats to fill year-on-year),” a Nirmal Bang report said.

Standalone, the company’s net box office and F&B income were driven by a robust growth of 23 percent (occupancy up at 33 percent), the report added.

Ranveer Singh-starrer Simmba, the last Bollywood release of 2018, delivered four days of good revenue.

Along with Bollywood, Hollywood titles like Aquaman and Bohemian Rhapsody performed well.

Industry experts say that the shift in focus in the film market from star-driven blockbusters to highly content-driven films will boost profitability. This development will lead to better predictability of revenue streams.

For PVR, the average ticket price (ATP) and advertisement revenue growth were low due to the lackluster performance of big-ticket films like Thugs of Hindostan and Zero. On a standalone basis, the ATP was up 3 percent.

Films with strong content run in theatres for a longer period due to word-of-mouth publicity. This reduces the share of the net box-office revenues of the producer/distributor which helps exhibition margins, as per the report.

The multiplex chain operator reported a total income of Rs 857.37 crore during the period while in the third quarter of last fiscal the firm’s total income stood at Rs 560.46 crore.

Sleeper hits that ran for longer spans resulted in lower-than-expected film exhibition costs, and better-than-expected margins in SPI Cinemas boosted the consolidated margins.

PVR has added 123 screens across 27 properties (including screens added through the acquisition of SPI Cinemas), during the current financial year, said Sood. The firm now operates a network of 748 screens spread over 161 properties in 64 cities across the country as on January 30, 2019.

On a standalone basis, PVR reported strong revenue growth at 27 percent YoY. This was driven by net box office that grew 26 percent, F&B at 24 percent, convenience at 145 percent and advertising revenues at 16 percent, respectively.

The F&B SPH (spend per head) saw a decline (on a standalone basis F&B SPH was down 3 percent). However, the brokerage firm said that it is a conscious decision by PVR to improve the price-value equation and focus on volume growth.

The report further said that it expects SPH growth to pick up after a few quarters.

Stocks of the company appreciated 32 percent in FY19. PVR stocks at Rs 1,643 on January 10 were trading near an all-time high of Rs 1,660 which was recorded on April 28, 2017. The company’s stocks had also surged 41 percent from its recent low of Rs 1,165.

According to the Nirmal Bang report, the fourth quarter this financial year also shows promise for PVR as the content pipeline looks good.

What are PVR’s expectations for FY20?

“The recent reduction of GST rate on movie tickets signals at positive growth opportunities and we are certainly looking at making movie watching a more affordable and accessible experience,” Sood said.

“PVR is ardently enhancing and making movie-watching a holistic and best out-of-home entertainment experience through advanced in-theatre technological solutions, a wide range of F&B options, etc. In this quarter, we rolled out the first phase of ‘Accessible Cinema Program’ that focuses on making movie-watching inclusive and accessible for differently- abled movie patrons,” Sood added.

For the next fiscal, PVR plans to make more properties equipped with assistive equipment to cater to a wider audience group. “In FY20, SPI Cinemas will be merged with PVR Cinemas and we will be able to see the full year performance of SPI cinemas,” Sood said.

According to Nirmal Bang, the content pipeline looks good for Q4FY19. Advertisement revenues will also see a pick-up in Q4FY19 going by the management’s guidance of 15 percent for FY19.

The big picture

According to Nirmal Bang, a stranglehold over retail real estate (and the slow pace of its expansion) will be the key driver of positive industry dynamics. This will lead to a steady increase in its capacity, solid pricing power and a high occupancy rate.

The success of content will remain a key risk to sector earnings as what works remains highly unpredictable. However, increasing contributions from Hollywood and regional cinema is lowering the content risk. Films from these two segments command a greater share of gross box office collection (GBOC) both in their original and dubbed versions.

A structural change indicated in the industry with content being less star-driven and based on more compelling storylines will be better for the sector, the report elucidated.

Also, the reduced goods and services tax (GST) prices are likely to drive demand and give more pricing power to multiplexes. This, in turn, will result in more penetration in small towns.

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