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Kartik Aryan starrer Chandu Champion is to release on 14 June; as per our assessment, the film will have a below par opening at INR 80-100mn, as lifetime net box office is likely to be in the range of INR 0.8-1.0bn. Overall performance in Q1FY25E has been below par and occupancy levels in April and May have been in the range of 18-20%, which is slightly ahead of break-even occupancy. Q1FY25 may start on a weak note as occupancy may be in the range of 20-22%, down by an average 160bp QoQ; exhibitors continue to cut shows and capacity over the past six months on the back of a muted content pipeline. Our checks show spend per head (SPH) is the only metric that remains stable QoQ, due to menu innovation and increased offtake. We expect green shoots in occupancy levels and metrics in Q2FY25, which could see healthy QoQ growth; however, this performance could accelerate further based on a strong lineup of regional and English films, which could lead to an occupancy level of 24.8% in FY25E.
Hindi genre struggle continues
Kartik Aryan starrer Chandu Champion is to release on 14 June; we believe the film will have a below par opening at INR 80-100mn, as lifetime net box office is set to be in the range of INR 0.8-1.0bn. Overall performance in Q1FY25E has been below par and occupancy levels in April and May have been in the range of 18-20%, which is slightly ahead of break-even occupancy. While Hindi film releases, such as Maidaan and Bade Miyan Chote Miyan, have reported net box office of INR 0.50bn and INR 0.65bn, respectively, due to below par content, small medium budget films, such as Srikanth and Munjya, have seen respite with box office collections of INR 0.5-0.6bn each.
Postponement of Pushpa 2 toward Q3 hurt near-term performance
Q1FY25 may start on a weak note as occupancy may be in the range of 20-22%, down by an average 160bp QoQ; exhibitors continue to cut shows and capacity over the past six months on the back of a muted content pipeline. Hindi box office in Q1FY25E is set to decline by 21% YoY to INR 5.8bn, which indicates overall box office revenue too will see a sharp decline YoY, as regional and English content too have not shown any respite; regional content has fared well only in the Malayalam genre, which has already reported gross box office of INR 10bn in CY24 so far, which has doubled YoY, led by small and medium budget films doing well consistently.
Q2FY25 was supposed to be the strongest quarter in FY25, led by large ticket releases, such as Sarfira, Pushpa 2, Indian 2, Stree 2, and Kalki 2898 AD (27 June); however, there is some likelihood of Pushpa 2 being postponed from 15 August, will likely hurt overall occupancy levels and its recovery toward pre-COVID levels in Q2FY25E. We believe other releases will add respite, which may lead to occupancy levels breaching 27-28% in Q2FY25E, up 600bp vs Q1FY25E. We have estimated an annual occupancy of 24.8% in FY25E, which could be at risk based on a muted Q1 performance.
Drag in content hurts metrics
Our checks show SPH (Spend Per Head) is the only metric that remains stable QoQ, due to menu innovation and increased offtake. However, ticket prices could decline QoQ on the back of increased promotional offers, such as the National Cinema Day and others; ad revenue too is likely to decline QoQ, due to no large ticket film doing well in Q1FY25E. Ad revenue continues to be heavily skewed toward large budget films and premium spot rates in the post COVID era, as content fails to do well on a consistent basis, negatively affecting annual contracts.
Our view: medium-term prospects remain healthy
We expect green shoots in occupancy levels and metrics in Q2FY25E, which could see healthy QoQ growth; however, this performance could accelerate further based on a strong lineup of regional and English films, which could result in an occupancy level of 24.8% in FY25E; we expect momentum to continue in FY26E, led by comeback of large ticket franchise films in Hindi, such as Housefull 5, War 2, Ramayana, Dhamaal 4, Sikandar, Spirit & Golmaal 5 and in English, such as Captain America, Fast X, Mission Impossible, Superman, Batman, Avatar, Star Wars, and Fantastic Four, which would support recovery in occupancy. We expect an occupancy of 27.5% in FY26E, which is ~87% recovery (ex-screen addition growth) vs pre-COVID levels for the merged entity. The risk-reward remains favorable for PVRINOX over the medium term, as the stock is trading at 9.5x FY26E EV/EBITDA (pre-Ind AS); synergies of INR 2.25bn to EBITDA would sustain valuation multiple toward pre-COVID averages (13x fwd. EV/EBITDA - pre-IndAS), despite a volatile performance in content. Increased synergies backed by better ad revenue per screen and improved content performance in Hindi genre remain key monitorables for re-rating. We retain our positive view on PVRINOX from a medium-term perspective. |
