PVR Q3FY17 Concall Summary

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Financial Highlights

PVR 9M FY17 Financial Performance
  • The consolidated revenues for this quarter was 540 Crores as compared to 509 Crores during Q3 of last year, which is up by 6%
  • Consolidated EBITDA for the quarter was 91 Crores, which was almost flat as compared to last year.
  • Consolidated PAT for the quarter was 23.5 Crores
  • The company sees recovery in ticket pricing, the discounts & promotions have come down. However promotions on F&B is continued. The company is confident that ticket pricing will come back & may take 2-3 months. Q4 was the best January for long time. Dangal, Raees & kabil were the big films. The content pipeline in February & March is looking fairly exciting.
  • The advertising spending takes a bit of backseat. The company feels that it will post a better number in Q4
  • The company occupancy has dropped from 37.3% to 34.6%. 
  • It was a challenging quarter from advertising perspective because a lot of advertising clients pushed their ad spends slightly ahead. The company also lost some bit of advertising revenues on account of demonetization & also Chennai floods. In spite of that the advertising revenue grew by 13% on overall basis

Business Updates

  • The company became the first cinema chain in the country to deliver more than a 100-Crore gross box office for a single film.
  • During the quarter the company offered various discounts promotions to customers to incentivize them to continue to come to cinema, as a result of which our ticket pricing was flat.
  • The company is doing some value engineering to bring down the overall cost. The company ran some promotions where in some discounts were given to certain big combos where the costs go anywhere lower. What the company managed to do through these promotions was to be able to sell the large combos where the costs were lower.
  • The effect on advertisement is nagging because other business also now picking up slowly. Automotive sector, fmcg are all getting back.
  • The company believes that cinema as an advertising medium is really getting valued.
  • The company foresees that it is good story for sustaining the EBITDA margin of 20%. The share of nonbox office revenues keeps going up. The company thinks that the drop in EBITDA margin is only because of content. If the content was good & got the same footfalls as last year the EBITDA margins would have been better than last year.
  • The company typically follows 19 minutes of advertising in a show so that consumer is not disturbed. This is only during blockbusters otherwise it would be average of 9 minutes.
  • The company believes that entire revenue growth could be a lot more in India simply because ATPs technically are separate in India. The company still works around the $3 mark whereas SPH has a big room to play. The company has explored themselves into much bigger & wider variety & because of which the consumer is given the right impetus will be able to spend a lot more.
  • The content break up for the Q3FY17 and 9MFY17
PVR content breakup
  • The distribution business of company is volatile business because of the films that release in a certain quarter versus another quarter. The company’s EBITDA as well as profit before tax has been growing at a healthy rate for the last 3-4 years. 
  • The company is not contemplating any consolidation opportunity.     
  • According to the company in some years the ATP growth at a total level can marginally look higher. Non comparable properties have shown higher ATP. It is really a function of the mix of properties.
  • The company existing portfolio in Delhi NCR has much higher ticketing. The company opened a 15 screen property in Noida as well, so that also contributed towards ATP. The overall theme is that the company will continue to take a 3:2 inflation kind of ticket pricing growth on same stores. The total can be either marginally higher, same or marginally lower depending on the mix of cities that company is adding each year. 

Vkaao

  • Vkaao is a demand-based ticketing platform, which has been put together by PVR.
  • The company has widespread presence in country with almost 50 cities/towns. The company releases close to 1000 films a year and there is a lot of fragmented demand for these films in pockets where films are not released in a regular fashion. A tamil film will not have much audience in North & a Bollywood will have less audience in South therefore there will be scattered fragmented demand. So the company has created a solution so that the fragmented demand can be captured.
  • The idea behind this initiative is to augment occupancy so the regular films that release on weekly basis that will continue, but the company can also gain some incremental admissions over and above our regular admissions.
  • It is also an ideal solution for smaller films which do not have big stars or marketing budgets & they  tend to struggle to get admissions in week #1, because company has so many releases every week even if it is a good film it does not do admissions in week #1, company has to move it out and create space for some new films to come in. With this initiative that urgency to do admissions in week #1 will go away and smaller films will be able to realize their full potential.
  • Bookmyshow is different from Vkaao. Vkaao is there to satisfy a very different needs, a very different sort of demand that exists in the market place. Bookmyshow, pvrcinemas.com, paytm exist for a very different use space. In that sense, they both are different initiatives, but yes, because with bookmyshow and paytm, the company has great relationship, the company’s entire inventory and all cinemas are available on boomyshow. The company & bookmyshow are collaborating & working very close.

F&B Business

  • The company delivered 11% growth, average spend per person on F&B moved from Rs.74 to Rs.83.
  • In case of FBH (F&B per head) clearly there was a lot of work to be done post the demonetization. The company is positive & look at double digit growth, but once the demonetization hit in, the company had to change plans. The company introduced a lot of discount schemes. The company got of customers to go cashless by giving heavy discounts on the website & app. & that is how the company maintained FBH hit within quarter.
  • Revenue from F&B is up 1%. It is a function of footfalls & average spend per head. The footfalls are down but the average spend up per head is up.
  • The company anticipated that average growth in F&B is about 10% & due to demonetization the company lost 1% or 2% growth due to that.

Update on drive-in

  • The drive-in is still under planning and is expected to come close to 2018.

Screen Additions

  • The company has built about 2200 multiplex screens in the last 20 years. 1997 is when the first multiplex opened in Delhi, which PVR had opened in Saket. The market can take at least 10000 multiplex which means next decade a half india would only be constructing multiplexes if there is retail growth. The company feels that it can coexist & create market & expand
  • Added a total of 55 screens this year including 29 screens from DT cinemas acquisition.     
  • A lot of screens which were scheduled to open have been back ended this year and company has about six properties ready to open, awaiting licenses, etc & it expects to open most of these screens in February & March, so that overall screen count for this year should hopefully grow by 50 plus screens. 
  • The company has added 26 new screens organically this year in first 9 months & have added 29 screens from DT portfolio, which were acquired.
  • The company plans to open another portfolio of roughly about 35 to 37 new screens which is scheduled to open in next 2 months. These are all ready & awaiting license & almost last stage of completion.
  • The company hopes to open about 53 screen in the current financial year.
  • More than 50% of the screen addition are in tier I & prime tier II markets. Therefore the company does not see any impact on overall ATP of the company at least for the next 2-3 years, because it is not that 60-70% of the total screens are tier II. 
  • The company’s organic business Capex per screen is closer to 3 crores. 
  • After a screen is acquired the company does renovations & spending again completely varies depending upon the location & earning ability

Renovation of Cinemax properties

  • Half of the properties acquired under DT cinemas is under renovation & would be done by April 2017.
  • The renovation for Cinemax properties has not been completed. The 100 crore plan was over a period of 4 years. The company has still not spent that kind of money on Cinemax property renovation. half of this amount has been spent & it has delivered well ahead of payback. The incremental revenue from most of the properties where the company has done renovation have been fairly high and that has reflected in the ticket pricing growth and F&B, and pricing revenue growth
  • The company is targeting a payback period of 3 years for the renovation. The function is of revenue from not only tickets but advertising also.

    Tax

    • Average tax rate for ticketing is about 27-28%, & on F&B is about 10-11%. So the average tax rate will be closer to 23% odd. The company sees that GST will be helpful as more input credits will be available. Currently a very small proportion of benefit is available, which under GST would be full set of service tax benefit.
    • Currently 15% of company’s total revenue are chargeable to service tax, but totally the company can get 15% of the total credit. Post translation to GST there will be 100% input tax credit
    • The company does not know whether it will be beneficiary of GST. The information on the same will be available only after 3 months. Its initial assessment indicate broadly that exhibition sector would gain about close to 250 to 300 bps minimum because of the input credits & tax rate under GST. The company feels it is very premature to talk about the GST & its effects. The company may gain on ticketing & adversely hit by F&B. 

    Demonetization

    • The company managed to deliver a decent financial performance even after demonetization.
    • The company lost 1-2% growth in F&B business due to demonetization
    • Occupancy was lower by 20-25% during demonetization
    • First eight weeks post demonetization were tough. A lot of films in the box office did not do well, but company’s presence in urban & semi urban centers really helped, where the impact was much lower as compared to smaller cities & smaller towns.
    • Dangal was released towards the end of December, which really helped company to claw back a lot of footfalls that was lost during the quarter.

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