Independence Day Holiday creates storm at Box Office
Hindi content is showing early signs of some comeback, as films perform consistently writes Taurani
In our view, cinema/multiplex occupancy has moved up sharply towards 55%-60% this weekend (avg weekend occupancy of 35%-40% in post covid era), helped by Gadar 2, which has reported a healthy opening and shows signs of sustenance; the film may collect INR 2.5-3 bn (net Box Office), much ahead of our estimate of INR 1.3-1.5bn.
Apart from this, response from OMG 2 has been mixed, whereas RRKPK has also picked up in terms of occupancy levels with lesser screens, which too will surpass our estimates by a mild margin. Regional film Jailer too will surpass our estimates as lifetime collections can breach INR 2.5bn (net Box Office).
Hindi films surpassing/beating our estimates consistently is a pleasant positive surprise and signs of an improved environment. As per our earlier report, occupancy levels in the month of July’23 had improved towards 27-28%; if the momentum continues in Aug- high likelihood, there is a potential for MoM improvement in occupancy by 100-200bps.
We believe Hindi content is showing early signs of some comeback, as films perform consistently - RRKPK will surpass our estimates and this month Gadar 2 surpassing expectations.
Q2FY24 may turn out to be one of the best quarters in post covid era, helped by a low base YoY (Hindi Box Office declined 48% YoY vs pre covid levels in Q2FY23) and QoQ (Q1FY24 occupancy was mere 22.3% for the merged co).
As per our detailed note on PVRINOX consistent improvement in occupancy led by Hindi content will help drive better profitability, which in turn will move our TP towards the bull case scenario (INR 2,050) factoring 1) better occupancy 2) ad revenue and 3) valuation multiples ; as per our assessment Q2FY24 could report occupancy levels of 80%-85% of pre covid levels (32% occupancy pre COVID), if this momentum continues in Sep’23 (SRK starrer Jawan slated to release).
Ticket and food prices too have improved QoQ in Q2FY24, which too shows resilience and proves that growth has not come at the cost of profitability.
The only overhang is that ad. revenue recovery, remains to be at mere 70% of pre covid levels and will only show signs of improvement once this consistency in Hindi content sustains for 2-3 months more; concerns also persist as dependence on large budget films has increased, however with multiple large budget films doing well, it will change advertiser sentiment too over near to medium term.
EBITDA margins for PVRINOX remains very low (11.5% - ex IndAS in FY23 - vs pre COVID margin of 17.9%); Q1FY24 was again muted with ex IndAS EBITDA margin of 7.6%, however Q2FY24 May see EBITDA margin moving towards 16-18% (Ex IND-AS), basis this momentum which will largely offset negative impact of a poor Q1FY24 performance. Our annual EBITDA margin estimates (Ex IndAS is 13% for FY24).
Signs of sustenance of these margins in H2FY24, will lead to an upgrade on our estimates; we foresee a healthy upside over the near term, backed by better occupancy in this quarter, which in turn will drive profitability and valuation multiples. The stock price could breach towards the midpoint of our base and bull case scenario over near term (INR 1,800); the stock has moved up mere 10% over the last four months since our downgrade. We await performance in the month of Sep’23, which will provide us more confidence to upgrade towards our bull case scenario (TP of INR 2,050).
