PVR Q2FY18 Concall Summary

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Financial Highlights 

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  • Q2 FY 18 revenues Rs 559.5 crore
  • EBITDA for Q2 was about Rs 94.7 crore, which is down by 3% over the last year
  • PAT for the quarter was Rs 24.7 crore, against Rs 29 crore last year
  • Exhibition revenue higher by 3%
  • Company’s average spend per head grew by 9%
  • Advertising revenues up by 10%; estimates of 15% to 18% growth in absolute terms for the next two years
  • LTL growth down by 5%; ticket pricing grew flat
  • Cost increases ~4% on overall cost basis
  • Lower rental cost is due to the input credits the company received on GST
  • Input tax credit is not at risk of the anti-profiteering clause introduced by the government
  • Effective tax rate unchanged
  • Y-o-Y increase of ~16%-17% in terms of content cost or film hire cost
  • Net box office revenues effectively unchanged because earlier govt grants were reduced from net box office figures and shown as other income; this amount is effectively zero versus Rs 11.5 cr in the similar quarter last year
  • Other operating income down by 55%; largely because the tax benefit has gone away
  • Revenues of BluO was about Rs 10-12 cr booked in this quarter
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Business Updates 

  • Slightly lower revenue figures
  • No  big films during this quarter
  • Loyalty programme launched recently
  • Film line-up for Q3 seems good with Padmavati, Tiger Zindahai, Justice League and a lot of good regional content films in Tamil, Telugu and Marathi
  • Sale of company’s bluO business completed in this quarter
  • Overall flattish revenue growth over the same quarter last year
  • ~50% of total tickets sold are done through PVR app, Bookmyshow, PayTM, Ticketnew, and other online platforms
  • Apart from vouchers and discounts offered on sites like PayTm and Bookmyshow; PVR will launch PVR privilege, soon, to provide additional benefits to its customers
  • Piracy remains the No.1 problem for the industry
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Screens

  • Company opened 21 screens in the first half of FY18; another 48 screens in the rest half; maintaining the target of adding 60-70 screens annually
  • Some screens await mall opening in the quarters to come
  • Two to three events done in the quarter
  • Company opened a big screen format – P[XL] in Kolkata
  • P[XL] to be opened in Bengaluru and Mumbai shortly
  • PXL is ~ 1/3rd the cost of IMAX screen; ~2.5-3 years of payback with ticket price charging between Rs 25 and Rs50 premium on PXL as compared to a normal auditorium
  • Medium-term perspective of having 11 screens in all in the next 18-odd months
  • The company was first to launch virtual reality lounge in a mall in Noida, India; five to six additional such screens to come across India

Loyalty programme

  • To give competitive advantage to the company by getting people to consume more at their cinema
  • Short-to-mid-term advantage of the programme- create more stickiness on immediate basis, increase & encourage visitation and LC spending at F&B
  • Long-term advantage in terms of huge competitive edge through establishing direct link with company’s best customers and engage them in a meaningful precise manner
  • Discounts/ redemption benefit on loyalty programme are treated as an expenditure; this treatment is mutually exclusive  from ATP; no impact over ATP
  • The accounting perspective- sales of Rs 200 ticket and Rs30 redemption as a cost

LBET (Local Body Entertainment Tax) and other issues in Chennai (Tamil Nadu)

  • Continuous engagement with the govt; supportive & receptive response from the govt
  • As  an outcome, the company has opened cinemas in the region with usual business, though conversation with the govt continues to find solution to some of the challenges that the company is facing there
  • The company continues to push for zero LBET & to push for non-Tamil language film LBET
  • In case the govt & the various local body would have LBET, the focus would be on having the same LBET for non-Tamil language films as well in the state
  • No other state except Greater Chennai,has levied LBET on cinemas
  • Steep ticket price increase in Tamil Nadu for both single screen and multiplexes improves the financial model of single screens, multiplex screens, exhibition business & revenues to the content partners as a whole
  • Market has been fairly competitive in terms of real estate in the region and no specific impact of ticket price change on the real estate competitiveness could be speculated 

GST

  • To accommodate the 18% GST, the company has reduced ticket prices as the net realisation did not make much a difference between paying higher tax versus charging the customer more
  • Average tax rate has marginally increased on ticketing, along with, F&B tax realisation going up too
  • No clarity on state tax holidays and exemptions, if any
  • Benefit of input tax credit has neutralised the impact of GST
  • The company plans to maintain status quo and pricing will grow with inflation until there is a clearer picture on GST
  • GST instead of service tax applicable on the in-screen advertisement, though it is fully passed on to the end customers
  • 28% rate levied for cinema ticket; previously it varied between 15-20%

Content cost or films hire cost

  • No change in the commercial terms with the content supplier
  • In lot of states earlier where tax rates were high, company enjoyed tax holiday; example UP where the company was paying 60% tax rate i.e. the headline rate of tax and the govt had given them tax holiday based on their investment
  • Due to transition to GST, as the tax rates went down, company’s notional tax reductions have gone down; 28% tax rate, no clearance about tax holiday
  • Thus, deduction of tax benefit from net box office revenue is much lower the effective rate of film hirer is looking much higher

Competition

  • Drop of 4-4.5% in admissions in company’s US business; mainly because of the cyclical nature of the business the company is in
  • Netflix and Amazon Prime have contributed to increase content consumption and overall increase in content consumption, thus, increase in revenues to the content creators
  • Western entertainment markets are saturated- US with 40,000 screens
  • India has ~8,500-9,000 screens; company would lose single screen to dilapidated traditional screen , but continue to add multiplex screens; India is a growing market
  • No emphatic impact of Netflix observed towards changing customer trend for cinema
  • Company feels no competition from Netflix or any other alternate source of entertainment
  • Content partners are receptive & respectful in exhibition business and follow a minimum eight week window; episode of Toilet EkPrem Katha being an exception owing to its social significance, had shorter window; no threat to the business from such exceptions
  • The economic viability of schemes, adopted by competitors, like unlimited movies for Rs 400-500 within a stipulated time window, is being closely watched, not only in India, but in more mature entertainment market like that of USA

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