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PVR INOX Ltd
Earnings Call Analysis
Q2-2024 Analysis
PVR INOX Ltd
The company celebrated an outstanding quarter with historic high revenue, EBITDA, and PAT, largely driven by stellar box office performances. Films like 'Jawan' and 'Gadar 2' grossed massive numbers, boosting year-on-year growth in guest admit, ticket price (ATP), and spending per head (SPH) significantly. The company's aggressive expansion in the first half of the year, reducing net debt, and a robust content pipeline serve as a foundation for continued growth well into next year.
Aiming for a 1:1 net debt-to-EBITDA ratio, the company has a clear strategy to reduce debt levels while continuing its expansion, with plans to open up to 150 new screens. This strategy benefits from the integration synergies following the PVR and INOX merger, enabling more strategic screen openings and exits, optimizing the company's screen portfolio now standing at 1,702 screens across multiple cities and countries.
To address the perception of expensive cinema food, the company successfully introduced a promotion which boosted food conversion rates at concessions. This effort aligns with the emerging trend of consumers seeking bundled movie experiences and the company aims to maintain these promotions to continue attracting customers.
The company anticipates its ad revenue to recover to pre-COVID levels by next year, indicative of a broader trend of resurgence in advertiser spending. Confidence is further buoyed by a strong movie lineup across all languages and the expectation of robust quarters ahead. Substantial increase in ROCE is projected, reflecting the positive impact of a full year of stabilized earnings.
The company retains both PVR and INOX as individual brands, each with a strong consumer base and over two decades of presence in the market. Furthermore, there's a recognition of the sustainable trend of bigger films attracting diverse audiences and ensuring disproportionate returns on investment, a trend expected to continue given the positive results.
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Ladies and gentlemen, good day, and welcome to the PVR INOX Limited Q2 FY '24 Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Periwal. Thank you, and over to you, sir.
Yes. Thank you, Annu, and good afternoon, everyone, and welcome to PVR INOX Limited Q2 FY '24 Post Results Earnings Call. The call will be starting with a brief management discussion on the quarterly performance, followed by an interactive Q&A session. PVR INOX management will be represented by Mr. Ajay Bijli, Managing Director; Mr. Sanjeev Kumar, Executive Director; Mr. Nitin Sood, Group CFO; and other senior management personnel, including Mr. Alok Tandon, Co-CEO, Central West and East; and Mr. Gautam Dutta, Co-CEO, North and South. Over to you, Mr. Bijli, for the initial comments.
Thank you very much. Good afternoon, everyone. I'd like to welcome you all to discuss the unaudited results for the quarter and half year ended September 30, 2023. I hope you've had the opportunity to review our presentation and results, which are uploaded earlier today on our company's website as well as the stock exchange's website. I'm delighted to share that quarter ended September 30, 2023, was a record-breaking quarter in company's history with the highest ever admit, ATP and SPH leading to highest ever quarterly revenue, EBITDA and PAT. In Q2 of FY '24, we welcomed 4.8 crores guests and delivered an ATP of 276 and SPH of 136, which represents a year-on-year growth of 64%, 25% and 15%, respectively, over pro forma PVR INOX numbers in Q2 FY '23.
Coming to the financial results for the quarter. The following numbers are after adjusting for the impact of Ind AS 116 relating to accounting. Total revenue for the quarter was INR 2,020 crores. EBITDA was INR 447 crores, and PAT was INR 207 crores. Pro forma financials of PVR and INOX combined for the same period last year were revenue of INR 1,082 crores, EBITDA of INR 16 crores and PAT loss of INR 78 crores. The biggest highlight of the quarter was the historic performance of the Hindi Box Office. Jawan and Gadar 2 released during the quarter emerged as 2 of the biggest grossing Hindi films of all times, recording over INR 750 crores and INR 620 crores at the box office, respectively.
In addition, mid-scale movies like Rocky Aur Rani Kii Prem Kahaani and Oh My God 2 each grossed over INR 150 crores, while Dream Girl 2 and Fukrey 3 comfortably exceeded the INR 100 crore mark. Volatility in Hindi films performance has reduced considerably with a marked improvement in the average collection of Hindi films, particularly in the case of mid-scale movies, which have been making a strong impact at the box office.
Hollywood films had the quarter start on a fantastic note, blockbusters like Oppenheimer and Mission: Impossible - Dead Reckoning Part One grossed over INR 150 crores and INR 130 crores. Barbie and The Nun II also performed well and crossed INR 50 crores mark at the box office.
Regional movies across languages continue to demonstrate stable performance, Jailer, which is Tamil, was the highest grossing regional movie with INR 390 plus crores of box office collections. Baipan Bhari Deva became the second highest grossing Marathi movie at box office of INR 90 crores plus.
The growing acceptance and attraction of regional content is demonstrated by the success of these movies. We are confident that reginal films will continue to do well in the upcoming months. We're quite optimistic about the robust content lineup we have across all languages over the next few months from Hindi, we have Ganapath and Tejas in October, Tiger 3 in November and Animal, Sam Bahadur, Merry Christmas, Yodha, Dunki and Salaar in December. From Hollywood, we have Killers of the Flower Moon, in October, the Marvel's Taylor Swift, [Creator movie], Napoleon in November, Wonka and Aquaman and the Lost Kingdom in December. From regional genre, we have Leo, Maujaan Hi Maujaan, and Tiger Nageswara Rao in October, Naal 2 and Japan in November, Captain Miller and Hi Nanna in December.
In the first half of FY '24, we have also reduced our net debt by INR 328 crores. This firmly places us on the path to attain a free cash flow positive status by the end of FY '24. On the integration front of PVR and INOX, it is progressing seamlessly and is yielding substantial operational efficiencies, as outlined in our investor presentation. PVR INOX continues its strong growth momentum adding 68 new screens in the first half of this fiscal, while strategically exiting 33 underperforming screens.
We are on course to open 150 to 160 new screens in FY '24, and expect to exit a total of 60 screens in the current fiscal. Our screen portfolio stands at 1,702 screens across 358 cinemas in 115 cities in India and Sri Lanka. I now open the platform for any Q&A. Thanks once again.
[Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Institutional Equities.
Congrats on a very good set of numbers. My first question is on your debt levels coming down by INR 327 crores. I wanted to understand, given now you are much more confident on the Hindi movie business, which was suffering for the industry, what will be the plan from a 1 to 2 years' perspective on the overall debt levels? You had rationalized the store openings, the cinema screen openings also earlier. Would that change because of now free cash flow turning on the favorable side?
You're saying that will our opening of screens get impacted?
Yes...
No, because we are -- we still have a pipeline, as I said, of 100 to 150-odd screens that we will be opening. And I think the accruals will be enough to take care of both. And every screen we are opening is going to be [indiscernible], we are obviously very conscious of -- now how to invest capital, where to invest capital, which mall, which development, which catchment [Technical Difficulty] South India as well. And keeping everything in mind, we should be able to maintain our growth trajectory as well as pare down.
So just to understand, INR 1,100 crore net debt which is there currently, what will be the long-term goal on this? Do you have any aim to make it almost negligible over the next 2 years, would that be your vision?
I'll let Nitin answer this question, Nitin. Would you like to answer it, please?
Yes. So Abneesh, you're right. I think as you've seen, our report. So I think reduction in net debt will not come at the cost of growth. Our operating earnings and cash flows will continue to grow, and they will be sufficient to take care of our growth and the surpluses will be used to reduce the net debt levels in the balance sheet. Our focus this year obviously is to get down to a 1:1 net debt-to-EBITDA. But over the next couple of years, reduce that from existing levels.
Sure. My second question was on your promotions in F&B. So essentially, this INR 99 Monday to Thursday kind of pricing, which you have introduced. I think it's a great initiative. And on the other hand, you have this unlimited refills offer for the weekend. So how is the response here, especially in the Monday to Thursday kind of a lean period when footfalls are low. But within those footfalls, are you seeing a much stronger conversion than earlier? So some insights into that?
So largely INR 99 promotion was done to: one, correct price perception of cinema food being expensive; number two, we wanted to drive higher conversion at the concession. Both the objectives were completely met, and this is something that we plan to keep the promotions on for a long time. We are not going to sort of get off the promotion. So this is something, which is going to be there because we've realized that consumers today are looking at movie experience, which is bundled in with SMB. Everyone who gets to the cinema would ideally want to eat. So from that perspective, a great successful program is there, and we are trending well on both the parameters.
Sir, and last quick question on advertising revenue. Quarter-on-quarter, very good scale up. And now that you are quite confident on the movie industry revival, which I think will be also true for the advertisers, and overall, GDP is doing also quite well. So in that context, where do you see pre-COVID getting breached in the outlook -- from an outlook perspective, when do you see pre-COVID level on advertising getting breached?
That will be next year. Largely, we will come within the hitting range this year. Quarter 3 and quarter 4 are looking very good and positive. But in terms of breaching the pre-COVID PVR INOX combined revenue, it will be next year. We'll go ahead of that number next year.
The next question is from the line of Harit Kapoor from Investec.
I had a question on the synergy bit. You mentioned in your release that the number is already INR 120 crores to INR 140 crores for the first half. So if you could just give us a guidance of...
Sorry to interrupt you, sir, but your voice is echoing. Can you please come to a place where you could get a good reception?
Sure, is it better? Hello, I will just try to reconnect. Thanks. [Technical Difficulty]
The next question is from line of Jinesh Joshi from Prabhudas Lilladher Pvt Ltd.
I was just trying to think how the footfall count will be maintained for the subscription plan that you have just launched? Basically, the customer here is paying us a fix fee to buy the subscription. So irrespective of how many times he visits, basically we have our money. So will every visit will be considered as a separate count? Or how will it be basically?
Please repeat your question because there is a lot of echo, we couldn't sort of understand.
Okay. I mean is this better now? Or is it echoing?
Much better. Much better.
Yes, yes. So I was just trying to think through how will the footfall count be maintained for the subscription plan that we have just launched. So if I understand this right, the customer here is paying us a fixed fee to buy the subscription to see. And irrespective of how many times he visits us, we have got our money upfront. So how will the footfall count be actually be maintained? Will every visit be considered as a separate footfall? Or how will it be?
See, this is like a subscription voucher, which has been sold to our customer. Every time he comes to cinema, ticket will be issued to him and that is how the subscription count will be captured.
And the Ñ is largely in advance that the company we are holding.
Got that. And how will the revenue recognition happen? Will it be on the sale of the pass? Or will it be amortized over the term of the plan?
Sorry, I did not understand your question, again?
The revenue recognition, how will it happen? Because this is a minimum 3-month plan, if I'm not mistaken. So will we recognize the revenue right at the scale of the pass itself? Or will it be amortized over the term of the plan?
Yes. So it's not a long-term pass. It's a monthly pass so it will be recognized at the end of every month.
It has a validity of 30 days. So Rs. 699 expires within 30 days. And within the 30 days, you get 10 movie vouchers. So if you do not sort of end up using those 10 vouchers, there is an expiry and then you move into the next month.
Got that. Got that. One last question from my side. If I look at our screen portfolio down south, I think the screen mix for us is about 32%. But if I look at our box office share in Jailer's collection, I think it is a bit low at about 17% odd. So is there any specific reason to look into it because our screen concentration down south is pretty decent, but our share in Jailer is a bit low if I compare it with our screen mix.
So that's an incorrect comparison. South is a very large market, which comprises of Karnataka, Kerala, Telangana, Andhra and Tamil Nadu. Tamil Nadu is a subset of South India. Jailer as a film is a Tamil film, which was primarily released in Tamil Nadu and did exceedingly well in Tamil Nadu. So you have to look at it in that context. And while the total -- while we have about more than 500 screens in South India, the total screen count in South India, if you include single screen cinemas as well is in excess of 4,000 screens. So obviously, our market share in South India is much lower. And that's the reason we've been mentioning in all our calls and conversations as more retail development happens in that part of the market, we want to add more and more multiplex screens because we think that part of the market is underscreened in terms of multiplex screen capacity.
The next question is from the line of Arun Prasath from Avendus Spark.
My first question is on the advertisement revenue. I think, on a per script basis, we are still at least 30, 40 percentage lower than the pre-COVID levels. And I think this is the best quarter we had, even better than the June '22 quarter. Almost double the revenue, footfalls are also much higher. But obviously, on a per screen basis, the growth is very, very less. Is it a structural issue that advertisers are not coming into the cinema because this is something which is happening for the last 3, 4 quarters, despite of the strong footfalls, we are not translating into the advertising revenue on a per screen basis.
Advertising technically works on big blockbuster films doing well. We've spoken about this in our earlier calls as well, and we were very positive that Q2 would have some big titles and on basis which advertising will go up, which is exactly what has happened. Even now as we move forward, advertisers are coming back, there is absolutely no issues there. It's just that we need a certain momentum to be able to get the money, which advertisers earlier used to flow back into cinema, which had gone into other media sources. So it takes time. And as I just mentioned, by next year, we should definitely be reaching our 2019, '20 numbers and moving ahead. So it seems to be on the right path.
Sorry, just a clarification. When you say that advertisers have moved to other sources, what is the competition for you in these sources? Is it -- obviously, it cannot be -- it has to be more [hyper local].
Yes. No, no. It's not that. It's -- the fact of the matter is that when you rate a cinema media, it used to come in the fifth or the sixth preference for a media planner and buyer. So technically when we were out of action during the COVID time, they started to put that money, which was available for promotions and media into digital, into TV, into radio, into outdoor mall activation. So now we have to go back and start getting all of those advertisers back. The good news is that most of the brands are back, and it's about now when you would see that a bigger traction begins to play out as we move forward into some big blockbuster films releasing over the next 2 quarters.
I understand. Just I'm trying -- what I'm trying to get clarity on this as well, what is your competition when it comes to this kind of an advertising? Is it like an outdoor digital? Or is it like newspapers or what is the...
I won't be able to comment on this because the fact of the matter is, if you look at the total advertising pie, cinema advertising is only about 1% of the total pie. So it's very difficult for me to ascertain where that 1% is getting allocated in terms of any alternate media choices. Media planners have different choices available. And we are also a brand-building media eventually. So that money could be being spent on digital, on radio, on any media that works best for that product category.
So difficult for me to put a finger to say the monies, which were coming to me has now gone to outdoor or mall activations, difficult for me to have an answer around this. Different clients have decided in different strategies. But to get back our share, we are already on it. We've shown a great growth this quarter, and we believe that we are on the right path.
Understood, understood. My second question is on your -- the INR 19 subscription plan. I think it is still not extended to the South. Given that our -- less share we have on the South, is there any reason why South is excluded? Or we are -- we don't want to cannibalize the existing revenues? What is the thought process behind this?
So I have -- as we have all said in media that we've opened passport for a big trial program. We are wanting to enroll only 20,000 passport users in the first phase. We want to close the subscription after that and study the consumption pattern. Down south, the consumption is anyway very high. And this program is largely to propel more consumption.
A market which is already fairly fertile and also had price restrictions, we felt that in the first phase, we needed better clarity on how it changes consumer consumption pattern. So in this next phase, after we've studied the consumer a little more closely and deeply, we may come out with the product for down south as well in Phase 2.
[Operator Instructions] The next question is from the line of Ankur Periwal from Axis Capital.
First, on the synergy benefits overall, your -- the presentation does highlight benefits coming from F&B as well as advertisement -- sorry F&B box office as well as overall cost synergies. Just trying to understand, is the ATP improvement because of price disparity and now everything is in sync in terms of pricing across INOX as well as PVR theaters. And secondly, on the F&B side, where are we in terms of updating the menu as well as veg, non-veg options, et cetera, across the INOX screens?
So Ankur, we will answer your first question first, where ATP is concerned, yes, we've seen a significant growth in ATP and that's because of a regular inflation increase as well as the contribution of the entire synergy, which has taken place across the 2 companies. That's one. Where F&B is concerned, yes, we have changed a lot of menu.
Both companies have incorporated the best of menu of either. And whether it was the erstwhile PVR or the erstwhile INOX, menus have been now -- are available in most of the cinema halls across the country. So a lot of work and synergy has been done, as you see from the slide also, whether it's ATP, which has gone up by about 13% year-on-year, which normally due to inflation used to be only 3.5% to 4.5%, as well as F&B SPH has again witnessed a 13% growth, which used to be in the range of 7.5% to 8.5%.
So whether it's a menu tweaking, menu mix, all that has contributed to SPH. And the ATB is concerned, yes, proper programming. If they are more cinemas in a cluster, they've been treated as one, so that a [patient] whenever he comes, we watches as a movie in a gap of 10 to 15 minutes. So this is what the result of synergies has been over the last 6 months.
Sure. So just to clarify. So Slide #19, wherein we are highlighting the ATP growth, organic growth as well as the implied synergy-led growth. Will it be fair to say that on a pro forma number, there will be a INR 20 higher ATP on an average on an annual basis henceforth as a base case?
Yes. So Ankur, the way to look at it is this year like we had guided, we will see much higher ticket pricing as a lot of this stuff will get rationalized and synchronized between both the PVR and INOX properties. And we will see a significantly higher average ticket price growth than the normal averages that we see. It may marginally keep on varying quarter-on-quarter because it's partly also linked to content -- but we are reasonably confident.
Yes, it will be it will be a decent number. Whether that number will be INR 20 or INR 15 is difficult to comment at this stage because part of it will be linked to movie by movie performance as well.
Sure. Fair enough. And on the SPH side, the full benefits, presumably the launch across as well as the acceptance of all the new menu may take maybe a quarter or so. The full benefit, will you expect it, let's say, by the end of this year, which is Q4, or probably we should look at FY '25 for that number?
FY '25 first quarter, I think, we should have largely everything rolled out. It would take about 3 more quarters for the entire synergy in terms of the back-end work and menu synchronization to happen. To your question on non-veg about -- already about 74 sites have been rolled out and a few more are in the pipeline. So the work is happening. And by end of March, that piece will be largely out of the way.
Great. And just continuing the synergy bid on the advertisement side, while I take your point in terms of the overall macro, et cetera. But how has been the industry's response to the negotiated joint sort of negotiation now on the advertisement as well as on the convenience [fee bit].
It's been tough and to be very honest. And this year, we may not get too much synergies on the advertising front, while there will be growth. But the fact is, in terms of synergy, the major part of the synergy may roll out next year. We will look at a fairly decent growth this year in quarter 3 and 4.
Great, sir. And just last question from my side. On the windowing period, among the digital release and theatricals for Hindi and regional, where do we stand? Because as I understand, there were certain negotiations again, especially on the regional side to expand the window?
Kamal, would you like to answer that?
The window on Hindi films is 8 weeks. Regional films varies from region to region, Punjabi films, for example, is 8 weeks, Bengali films is 8 weeks. Hollywood films, which are the international segments films, that's 8 weeks. Tamil, Telugu hover between 4 weeks and 6 weeks. We would not like to comment on any active negotiation. But suffices to say that our endeavor is to sort of standardize windows as far as possible. Our aspiration is to take the windows to minimum 8 weeks. That's our current position on it.
The next question is from the line of Arjun Khanna from Kotak Mahindra Asset Management.
Congratulations on a good set of numbers. Sir, I just wanted to understand the convenience scene in a little bit more detail. For the last few quarters, we are seeing a decline on a per admit level. So last quarter, when this question was asked, we mentioned that now both PVR and INOX are on a revenue base since the deal with BookMyShow has come to an end. I was curious why in the second quarter FY '24 on a per admit basis, we are down compared to first quarter FY '24?
Yes. I think, Arjun, we answered this question last quarter alone. Our previous contract with online aggregators had a concept of a minimum guaranteed payment irrespective of what the footfall would be and subject to a revenue shift. Because there is no minimum guaranteed payment under the existing contracts and online aggregators underperformed in terms of what effective admissions were in cinemas.
Our effective realization due to the minimum guaranteed commitment in the previous contract was higher than the revenue share commitment, which is not the case under the current contract. And as a result of which, that is reflecting on a per admit basis.
Sir, but that's happened in the previous quarter since you did allude to that in the previous quarter. So if I look at the second quarter versus first quarter, since the impact is already in the base, we have declined on a quarter-on-quarter level on a per admit basis, while our ATP has moved up from INR 246 to INR 276. So I just wanted to understand is [14.15] the right number or previous quarter of [15.69] the right number?
So Arjun, at quarter 1 for the month of May there was the minimum guarantee under older contract....
Okay. Sure.
April and part of May. And therefore, on a per admit basis, the convenience in quarter 1 was higher. And then we moved it to the new contract on May onwards. And that's why on a per admit basis this year dropped quarter-on-quarter.
Sure. So since this quarter is fully on revenue, so this would be the base going forward?
Right.
Right. That's right. That's right.
Sure. Perfect. Very helpful. Secondly, in terms of the number of screens that we are planning on closing, we have increased from 50 to 60, obviously, given what the multiplex is, where they are situated. Just wanted to understand how do we look at our growth over this year, next year? And is the real estate availability, et cetera, largely on track for our growth part that we had earlier articulated?
Yes. The growth path is absolutely intact. We have lots of screens in the pipeline. And this year also, as Mr. Bijli said in his opening statement that we will be opening 160 screens and 68 we've already opened. Well, we are shutting down only those 3 which have come to the end of their life cycle or are not profitable, or the mall is shutting down. So that's the way which we'll take going forward. And this year, we said that 33 we have already closed and we will in totality close 60 this year. But the answer to your question is that our growth is absolutely intact and if we go by 160 screens per year. I think that's a very, very aggressive and a nice number for the industry.
Sure. For the next year, so this closure of screens, is it just a onetime event this year or potentially that could be repeated going forward in the future?
No, it will not be a onetime event. Now we have a fairly mature portfolio every year. We will continue to evaluate bottom 1% to 2% of our screens, which we believe would have come to an end of the life cycle and accordingly take decisions to move out. That's the constant part of any retail portfolio. Anyway, screens at the bottom end are not contributing to our profitability and margins. So closure of these screens should only help positively and are taking our operating margins higher and profitability higher.
Sure. So if you're adding gross between 160 and net -- assuming 1% to 2%, that's around 15 to 30 moving out. So essentially, on a net basis, they're looking at adding 130 to 150. Is that the right way of looking at it?
Yes, Absolutely. Absolutely.
The next question is from the line of Mayank Babla from Enam AMC.
Am I audible?
Yes sir, you are audible.
Congratulations on a great set of numbers. My question is around screen openings. So in the earlier calls, we had mentioned that our vision is to open, means expand more towards the south and around 35% to 40% of the new screen openings will be in the South. Now pertaining to that, I noticed that we have apparently concentrated around Karnataka, the new screen openings. So I wanted to understand why the skewness towards Karnataka? And what is the strategy as far as other states are concerned in the South?
Well, we have seen that we have opened a few in Karnataka, but does not mean that we will not open in other Southern states. It's that those properties were ready in Q2, and we opened it. Going forward, we will see more screens being opened in other parts of the country also. So as we always say that we are a pan-India player. And yes, south is important to us.
And this time, what you have seen is that we have opened a few properties down South, especially in Karnataka. But the strategy of the company is to be in all possible space. And the guidance which we had given that we have south as a preference, it is for all the 4 to 5 states, which are over there. And if we get great properties, we will open it. But let me also tell you that in some other states other than Karnataka, our projects are going on, and you'll see opening of our properties very soon.
The next question is from the line of Abhisek Banerjee from ICICI Securities.
Congratulations on a great set of numbers. Sir, just a couple of questions on the outlook first for Q3, right? And so the lineup seems great. What exactly are you expecting from the movie line up here vis-a-vis Q2 results, Q2 numbers? And if you could give us any update on how the screening of [films] is going that would be helpful.
Yes. See, we'd not like to give any specific guidance on Q3 or Q4. All we can say is that the content lineup is quite strong. October and November have been slightly slower in terms of movie releases, but December is looking quite packed with almost 2 big films releasing every month. So both Q3 and Q4 are looking quite strong, and they should be decent quarters, but it will be tough to replicate what we managed to get in Q2, where all the films fired in 1 quarter, Hindi, Regional and English. That will be a tough act to repeat. But irrespective of that, I think Q3 and Q4 should be good, decent quarters.
Understood. In terms of your ROCE, right, now that you have done the merger and you are kind of working in reducing the variability of earnings. So how do you look at ROCE in a steady state number going forward?
No, you should see ROCE inching up strongly in the balance sheet on a gradual basis. We'll have a full year of stabilized earnings this year to some extent. And you will see ROCE at mid-teens level even in the end of the financial year. And it should get better as we move forward. So clearly, we are very positive. I think as the earnings stabilize and move up, the content flow coming in, you will see a significant increase in ROCE at the balance sheet level.
Got it. And again, just coming back to the content part. Earlier, there was this trend of Hindi movies -- I mean, Bollywood not releasing more than 1 or 2 large budget Hindi movies in a quarter. Now that number seems to be going up significantly. So if Sir Bijli, can comment on whether this is just because of the bunching up of a lot of the releases? Or is it something that you believe is a sustainable trend going ahead that would be really helpful.
Kamal, will you take that?
Sure. This is a sustainable trend. The business, the response that producers have seen for bigger film. And without taking away any scene from the mid-level films, their performance has been also very positive and very strong. But the bigger films have done extraordinary business. And taking a cue from the response that the audience has given to these mainstream, the pot boilers, which target every segment of the 4 quadrants, whether it's male, female, above 25, below 25, they have something for everyone. These sort of films, I think, is a sustainable trend because a lot of producers are getting disproportionate return on their investment.
Actors are sort of expanding on their reach. They're expanding on the brand equity and which augurs well for them as well in the long term. And therefore, producers, actors naturally would want to do more bigger films.
The other trend which would be helpful to exhibition and to film industry at large is that the South Indian funds, especially, but even non-South Indian regional films are getting pan-India acceptance. So films are getting dubbed in Hindi and they started to penetrate territories, which till now were sort of focused only on Hindi films or Hollywood films dubbed in Hindi. Regional films are also finding acceptability.
So I think this is a sustainable trend. You will see a lot of big films in Hindi. You will continue to see a lot of regional big films being dubbed in Hindi and gaining a lot of success in territories, which are on pan-India basis.
Understood. And in terms of your brand portfolio, PVR and INOX continue to be 2 separate brands as of now. So what would be the vision for each of these brands? Is there a case where you use 1 of these brands as comparatively more value [indiscernible] more premium and one has a more value brand and try to expand the penetration of screens overall, bringing more footfalls from the lower consumption categories?
Yes. So I'd answer that. Both PVR and INOX are very strong brands in the consumer space. Both the brands attract -- these have an existence of over 20 years, and have very strong consumer affinity and consumer visitation behavior. So INOX used to get about 70 million footfalls on an annual basis pre-COVID. PVR used to get 100 million footfalls pre-COVID. With such large footfall and consumer base, we've decided that we will continue to run and operate both the brands on an individual basis. While the corporate identity of the company will be PVR and INOX, both the brands will continue their journey and we'll continue to coexist as far as consumers are concerned.
No. Sir, my question was more with regards to, is there a way of using maybe INOX as a more value brand that...
No, we don't think -- I've got your question, but we don't think there is any change we want to do with respect to how both the brands are currently perceived. Both the brands have a certain perception. We want to continue and maintain that perception and not use 1 brand as a premium brand or 1 brand as a value brand. That's not the idea.
The next question is from the line of Lavanya Tottala from UBS.
Congratulations, sir. Sir, most of my questions are answered, just 1 thing. When you mentioned ad revenue, you expect it to recover next year, is it an absolute level or per screen basis that you expect it to reach pre-COVID levels next year?
At absolute level.
Okay. So it will still be a lower per screen basis even in FY '25 then?
Yes.
Okay. And 1 thing on the synergy bit, synergies, based on the ticket prices for quarter 2, so INR 20, which it is showing it has impact of higher Hollywood share, which we have seen in Q2. So most likely, that might decline a bit in the upcoming quarters, right?
Yes, it could because ATP is a function of the kind of content we get. Mega blockbusters and Hollywood do drive ATP up. You're right.
And partly, and that point is quite valid. It will obviously -- ticket pricing will partly be also be impacted by big films. But if you look at the way we've calculated the synergy, we've not based it on Q2 numbers. Our average ticket pricing growth was 25% in Q2, and average ticket pricing growth in the first quarter was much lower at 3% to 4%.
So what we've done is we've calculated over an average of 13% growth, which we've achieved in the first half of the year, which basically, we thought a much more fairer representation because there will be ups and downs and some quarters will have higher ticket pricing than others due to content. So we just wanted to call that out.
So I just wanted to mention that because Q2 last year, our ticket price was much lower, like it was somewhere around •. So even on an average basis, we are a bit high for the first quarter -- sorry, first half.
That's fair. And what you pointed out is fair. It is quite possible that the second half of the year we may have a lower ticket price goal. And so it is not a multiplication formula. It will -- it can vary and it could be lower in the second half of the year. That's possible.
Yes. So but F&B should be largely sustainable even for the second half? Is that understanding right?
Yes, absolutely. It could be, yes.
The next question is from the line of [Favelo] from [Favelo] Funds.
Congratulations on a great set of numbers, Mr. Bijli. My question is on the price elasticity of verticals. So what I understand is that tickets, even for a blockbuster like Jailer are priced lower even when there is the demand -- where there is demand as compared to Jawan in the North. So why is this difference? Is it because of the competition? Or if that is the case, are there -- because you are concentrating -- the next opening of screens is concentrated in south, right? So if this is the case, how do we -- how are we going to work on the ATP to increase the ATP down south? And my second -- I'll come on to the second question later.
Jailer was a Tamil film and in Tamil Nadu, there's a price cap in tickets. So there are a few southern states where there's a cap on ticket and hence, we can't increase it. So the comparison with Jawan and Jailer was not right. Because Jawan plays all over the country and in states where it's absolutely free pricing. So that's 1 answer.
And when you said that, how will we increase the ticket pricing, once those movies, which are released in Tamil Nadu, Andhra Pradesh or Telangana, we have to go as per the rates which are already subscribed. But in other states, depending on the demand of the movie, the cost structure of the property or as per the paying propensities of the people, we can price the tickets accordingly.
It's just addition to what Alok said, the price of Jailer in Karnataka was higher than Jawan. That's because Jailer was a bigger film in Karnataka, where there is no price restriction. Ours is a very heterogenous market, each state, each city has its own dynamics and prices are governed by the local dynamics. In the Hindi films, North India, West India, Central India, Jawan was a much bigger title than Jailer, which is the reason Jawan tickets were more expensive as compared to Jailer.
Okay. Okay. And my -- on to the second question. And does the overhead spend that is the food and beverage spend also vary depending upon the movies. Say, for example, that crowd that is -- the crowd that might come for the Jawan might spend more versus the crowd that is coming for another -- does it vary according to the movie too?
Not significantly. They are more region specific. Yes, titles, which are not family titles or where we see films which are depressing in nature, which are more serious films, you can have very selective and a niche audience. So yes, there is a marginal impact, but largely what we've seen is that it doesn't change for every film. The trend is normally homogeneous. But obviously, for each market, the trend is different. More and more family films where the group sizes are larger, people come more often, there is definitely a positive impact on the average of food spending at the cinemas.
The next question is from the line of Arun Prasath from Avendus Spark.
My question is on synergy. So if I look at the PVR INOX combined numbers at the pre-COVID level we are around 19 to 20 percentage EBITDA margins. And going by the quantified synergy benefits we had -- we have shown in this quarter, it looks like our steady-state margin should be at least 200 bps higher than the pre-COVID levels. Is this the right understanding? And this is what we can build in our numbers?
Absolutely. I think this is what we have guided once we realize the full synergy benefits, clearly, that should have an impact of at least 200 bps on our operating margins.
Right. So that means the current quarter margin, 22 percentage, it is still below our -- because this is a very strong quarter. So despite that, we just achieved around our steady-state margins. So in a future scenario where this kind of a blockbuster quarter should result in a much higher margins, right?
This quarter already reflects a very large portion of the merger synergies. But yes, a lot of elements will play out like advertising revenues still to recover to the fullest extent. And if we just continue to achieve this kind of level of occupancy, can we do better margins from here 12 months out? Definitely.
The next question is from the line of Apurva Mehta from AM Investments.
Congratulations on great set of number. Sir, how much would be the synergy benefit in the coming quarters left to pencil out?
We can't give any quarterly estimates. We've given...
But maybe on the ballpark, this is -- okay, we see now like a 30% leftover. We have 70% -- we have done with it, 30% is still remaining.
Not like to give any guidance for it.
Okay. And then the cost when we are comparing quarter-on-quarter, the rentals are up by 12%, personnel expense is about 8% and then other expenses about 16%. Because rentals are more or less fixed in nature. Why is there so much of inflation in such costs, can you just throw some light?
We have 3 factors. One, we've added a lot of new screens, newer screens in the new shopping centers. So one, there is screen addition. Number two, rentals are subject to annual inflation. Number three, a lot of our rental expense in a lot of properties is linked to revenue share. In quarters where we'll have much higher occupancies, we also end up sharing much higher revenues in form of rentals with the landlords. So all 3 factors put together is the reason for increase in revenues -- for rental costs.
And for personnel and other expense on Q-on-Q are up by almost 16%. And so even the...
Same logic. If you calculate -- wages are subject to average 7% to 8% annual inflation and out of you new screens, you should calculate on a per screen basis. the effective cost increase will be very minimal.
Yes. But this is again on and -- we have not added any screens barring from Q1 to Q2. We are more or less at -- just standing around 15, 17 screens. And per screen, if -- to see the per -- everything is going up, other expenses are up, personnel expenses are up by 8% on quarter-on-quarter. I'm not talking about year-on-year.
Yes. So on quarter-on-quarter basis also, see, when you look at the new screen additions that we have done in terms of new properties, on a net basis, you compare per screens. All the old properties that we are shutting down are small dilapidated screens, whereas the new screens that we are opening are in all modern shopping centers, with different quality of staff, more premium screens. One, obviously, the cost of running those screens is not the same. Secondly, there is wage annual wage inflation, minimum wage increases, which happened from state to state. South Indian states of Tamil Nadu and Karnataka alone have had a 29% to 30% minimum wage inflation this year.
So wage inflation definitely takes place. And thirdly, temporary manpower because a lot of our manpower also goes up during -- we add manpower when the footfalls are high on cinemas because we run largely a weakened business and when the occupancies are at the peak, we have to supplement headcount. So quarter-on-quarter, we've added headcount this quarter. Our admissions are up by -- from 3.3 crores admissions in Q1 to 4.8 crore admissions, almost 45% over Q1. So we need additional hands to take care of consumers and service them on a weekend. So these 3 factors put together are the reason for the frequent cost increase.
And 37 screens is not a less number to open in a quarter with big ticket items like Kanakapura, Bengaluru, properties in [Rourkela], Patna, Delhi, [indiscernible] hence all the adds to the cost.
Okay. And the movie distribution and paying charges, which have also gone up substantially. It is because of the blockbuster films coming in and that's why the thing has gone up? Or if there is anything else we can...
That's largely relating to our PVR pictures business, and it will continue to vary quarter-on-quarter depending upon what films that we are distributing. So it is not linked to our core cinema exhibition business.
The next question is from the line of [Yash] from [Dante Equity].
Congratulations on a good set of numbers. I missed the first 20 minutes of the call, so I'm sorry if this is repetitive. But my question is, regarding your debt, can you -- are you giving a guidance on debt for the next 2 years on that. Do you see the debt number in the next 2 years? And also, what's the net debt right now?
One, our net debt at the end of this quarter is about INR 1,100 crores as compared to INR 1,430 crores, which was at the beginning of the year. So we've reduced our net debt by INR 327 crores in the first 6 months. I think I can only give you a directional sense over the next 2 years, depending upon how the business performs, our endeavor would be to reduce and pare down leverage from even the existing levels.
Our current year endeavor is to get to 1:1 debt-to-EBITDA, but over a period of next 2 years, we want to fund all our growth from internal accruals, be free cash flow positive and use the free cash flow to reduce leverage even from the existing levels.
So with the -- how are your expansion plans basically looking for the next 2 years? And what you're trying to -- basically tell us that the next phase of expansion will basically come through internal accruals?
That's correct. That's correct. Even current year, if you look at our presentation, we are adding 160 screens we've guided that we will, in the first half of the year, we are free cash flow positive after funding all our CapEx. And the endeavor would be that even for the full year, we are reasonably confident that we will be a free cash flow positive company after funding all our growth from internal accruals.
So just to conclude your answer, would it be safe to conclude that the debt for PVR INOX has peaked out?
Absolutely, it has peaked up. In fact, it is now going down from its peak level.
Could you give me the number for your interest -- what rate are you borrowing at on a net level?
Yes. Our average cost of debt is approximately 9%.
And do you see that coming down anytime soon? Because you've become basically cash flow positive, right? And I think that should [rerate] you in terms of the debt security market.
Yes, we pretty much benchmarked most of our borrowings to market. So it will move in line with how the interest rates move from the existing levels. Most of our borrowings are benchmark to market rates.
As there are no further questions, I would like to hand the conference over to the management for closing comments. Over to you, sir.
Yes. Thanks, everyone, for taking your time to join the earnings call. If you have any unanswered questions, please feel free to write to us, and we'll be happy to respond. Thank you.
Thank you so much. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.