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Consistent content performance needed, Hollywood strike could be a key risk

Shares of PVR INOX rallied 2.62 per cent to Rs 1,607 apiece on the BSE on Wednesday (August 2), a day after the company released its June quarter numbers (Q1FY24).

The leading cinema exhibitor reported a consolidated net loss of Rs 81.6 crore for the June quarter. The company, earlier known as PVR Ltd, posted a net profit of Rs 53.4 crore in the year-ago period. Its revenue from operations stood at Rs 1,304.9 crore in the first quarter of the current fiscal.

”As the appointed date for the PVR INOX merger was January 1, 2023, Q4 2022–23 and Q1 2023–24 results for the company are reported on a merged basis for PVR and INOX and are not comparable with Q1 2022–23,” PVR INOX said in an earnings statement.

PVR INOX: What the company said about Q1 performance
The quarter witnessed a muted start in April, with limited movie releases in Hindi. The box office picked up pace in the month of May with the release of, ‘The Kerala Story, which turned out to be the biggest release of this quarter, along with other superhits like ‘Fast X’ and ‘Guardians of the Galaxy Vol. 3’ from Hollywood and ‘2018’ from Malayalam. The momentum continued in June with the release of ‘Adipurush’, which recorded the highest weekend admissions in 2023. Unfortunately, the movie did not do well after its first weekend, the press release said.

Other movies that delivered reasonable performances were ‘Spiderman: Across the Spiderverse’, ‘The Flash’, and ‘Transformers: Rise of the Beasts’ from Hollywood. Regional movies like ‘Carry on Jatta 3’ in Punjabi and ‘Baipan Bhari Deva’ in Marathi, which were released towards the end of the quarter, have achieved remarkable record-breaking success, it added.

PVR INOX Q1 review: Hope and concerns
PVR Inox’s numbers were subdued during the June quarter; however, the outlook holds promise given a series of mega-content in the pipeline, both from Bollywood and Hollywood. That apart, the synergy benefits due to the merger with Inox will start playing out from Q2 onwards. On the other hand, the combined strike by Hollywood actors and screenwriters could turn out to be a key risk, note analysts.

Devang Bhatt and Dhawal Doshi, research analysts with IDBI Capital, note that improving spend per head (SPH) and average ticket prices (ATP), better content, premium screen occupancy, and cost rationalisation benefits of the COVID era will help the company improve its margins. Hence, they expect the company to register EBITDA margins of 16.5 per cent and 18 per cent in FY24E and FY25E, respectively. The brokerage has a ‘Buy’ call on the stock with a target price of Rs 1,805.

Prabhudas Lilladher says that though there are concerns over persistent high volatility in the Bollywood genre, sustenance in key performance indicators (KPIs) (ATP/SPH up 2%/10% YoY on a pro forma basis), expected back-ended recovery in ad-revenues (a high margin business), and strategy to penetrate deeper into the Southern market (a high footfall geography) are expected to aid growth and margins.

“Consequently, we expect footfalls of 154 million and 166 million with a pre-IND AS EBITDA margin of 16.2 per cent/17.8 per cent for FY24E/FY25E, respectively.” The brokerage has retained a ‘BUY’ rating on the stock with a target price of Rs 1,797.

According to Nirmal Bang Securities, July 2023 has already started on a very promising note with big movies like ‘MI: Dead Reckoning Part 1’, ‘Barbie’, Oppenheimer, and ‘Rocky aur Rani Ki Prem Kahani, which have registered strong box office collections. “With strong content to come across Hollywood, Bollywood, and regional genres, we believe that consistency in the content will return like in pre-COVID times and will help with a faster recovery for the film exhibition sector,” the brokerage said in its Q1 review note.

As regards the Hollywood strike, it said, “We hope the strike is not prolonged beyond the next two months. If it prolongs, then there is a chance that content in FY25 may get hit with potential downside risk to our estimates.” It has a buy call on the stock with a target price of Rs 1,811. Zee Business

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