India Equity Research | Media & Entertainment © September 26, 2019 Sector Update Emkay Media & Entertainment Your success is our success Refer to important disclosures at the end of this report Low-budget movies shine, yet again PVR HOLD . Net box office collections (NBOC) reveal that Q2FY20 will be better than initial estimates, CMP Target Price driven by the strong performance of Bollywood and Hollywood movies recently. QTD 1,879 1,850 Q2FY20, total box office collections are up 27% yoy despite lesser number of releases. Price Performance . Once again, the performance of low-budget movies was better than expected, with two (%) 1M 3M 6M 12M movies recording more than Rs1bn in NBOC vs. just one movie in Q2FY19. Better Absolute 25 15 18 49 Hollywood movie line-up resulted in a 174% rise in collections in QTD Q2FY20. Rel. to Nifty 18 18 17 44 . We expect double-digit footfall growth for both PVR and Inox in Q2FY20, which would be Relative price chart better than our initial estimates. Inox’s strong footfall growth should be backed by the 1875 Rs % 50 favorable base from last year as it then had a stand-off with BookMyShow for a month. 1730 38 . Footfall growth for FY20 hinges on H2 performance as the base from H2FY19 is high. 1585 26 However, Q3FY20 has a few big-budget movies which can deliver healthy NBOC. We 1440 14 maintain Buy on Inox and Hold on PVR with TPs of Rs410 and Rs1,850, respectively. 1295 2 1150 -10 QTD content performance Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 PVR (LHS) Rel to Nifty (RHS) Bollywood: Jul’19 and Aug’19 saw 27% yoy growth in net box office collections (NBOC), Source: Bloomberg driven by the healthy performance of big-budget movies. On expected lines, ‘Mission Mangal’ and ‘Batla House’ performed well at the box office, collecting Rs2bn and Rs1bn, respectively. Inox Leisure BUY QTD Q2FY20, NBOC stands at Rs10.8bn, up 27% yoy, with low-budget movies once again CMP Target Price supporting overall collections – for e.g., Chhichhore (Rs1.3bn) and Dream Girl (Rs1bn). The 336 410 total number of movies released in the current quarter stands at 15 vs. 21 in Q2FY19. Price Performance Continued collections of the movie Dream Girl and a couple of recent low-budget movie (%) 1M 3M 6M 12M releases should incrementally support total collections for the quarter, in our view. Impending Absolute 28 (2) 11 44 Bollywood movie releases in Q2 could also support collections. Rel. to Nifty 21 1 10 39 Relative price chart Hollywood: QTD Q2FY20 collections stand at Rs3.1bn, up 174% yoy, aided by ‘Lion King’ which collected Rs1.5bn in the quarter. 400 Rs % 60 Regional: Limited data availability of regional movies restricts yoy comparison but we try to 350 46 highlight the performance of movies such as Saaho (Rs1.5bn), iSmart Shankar (Telugu) and 300 32 Kadaram Kondan (Tamil) that collected Rs0.6bn and Rs0.5bn, respectively, in Q2FY20. The 250 18 dry spell of content releases in the biggest Southern market, Tamil Nadu, continued in Q2FY20. 200 4 150 -10 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Outlook Inox Leisure (LHS) Rel to Nifty (RHS) Once again, low-budget movies delivered better-than-expected performance, with two movies Source: Bloomberg delivering more than Rs1bn in NBOC vs. just one movie in Q2FY19. The trend of healthy box office performance despite relatively lower number of releases further confirms that content quality is the key for footfall growth. Strong NBOC should also support footfall growth in comparable properties. We had recently cut our ad growth estimates for FY20, while weaker- than-expected performance in Q2FY20 may risk our current estimates as well. Strong content performance in H2 is critical as the base from H2FY19 is very high. At current juncture, we maintain our footfall estimates for PVR and Inox at 6% each for FY20. With the base increasing after two consecutive years of healthy footfall growth, strong movie performance in FY20 is crucial for sustained growth. The overhang of JIO’s ‘First Day First Show’ service has This report is solely produced by Emkay Global. The following person(s) are responsible for the production significantly subsided as the offering is meant to cater only to the higher end of customers (i.e., of the recommendation: those with the Diamond plan of Rs2,499/month and above) and not the mass subscriber base Naval Seth at current juncture. However, JIO plans to showcase one movie per week under ‘FDFS’, which [email protected] are expected to be low budget ones. We have an OW stance on Inox in sector EAP, while we +91 22 6624 2414 are EW on PVR as we continue to prefer Inox over PVR due to sustained outperformance and Harsh Kundnani better execution on the screen addition front. [email protected] +91 22 6624 2485 Please see our sector EAP (Page 7): Media & Entertainment Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore SA: SUNIL TIRUMALAI , SS, CS Media & Entertainment India Equity Research | Sector Update Exhibit 1: Net box office collections for Q2FY20 Q2FY19 Q2FY20 Box office Box office Release Release Movie Collection Movie Collection yoy date date (Rs mn) (Rs mn) Sanju 29-Jun-18 2722 Kabir Singh 21-Jun-19 1145 Soorma 13-Jul-18 301 Article 15 28-Jun-19 631 Dhadak 20-Jul-18 720 Super 30 12-Jul-19 1461 Saheb Biwi Aur Gangster 3 27-Jul-18 75 Arjun Patiala 19-Jul-19 57 Mental Hai Kya 26-Jul-19 383 Total July 3818 Total July 3676 -4% Karwaan 03-Aug-18 125 Jabariya Jodi 09-Aug-19 145 Mulk 03-Aug-18 125 Batla House 15-Aug-19 972 Fanney Khan 03-Aug-18 99 Mission Mangal 15-Aug-19 2002 Vishwaroopam II 10-Aug-18 15 Saaho 30-Aug-19 1485 Satyameva Jayate 15-Aug-18 891 GOLD 15-Aug-18 1074 Happy Phirr Bhag Jayegi 24-Aug-18 181 Stree 31-Aug-18 68 Yamla Pagla Deewana Phir Se 31-Aug-18 100 Total August 2677 Total August 4603 72% Stree 31-Aug-18 1297 Chhichhore 06-Sep-19 1277 Paltan 07-Sep-18 70 Dream Girl 13-Sep-19 1014 Laila Majnu 07-Sep-18 25 Section 375 13-Sep-19 125 Manmarziyaan 15-Sep-18 265 Pal Pal Dil Ke Paas 20-Sep-19 56 Mitron 15-Sep-18 25 Prassthanam 20-Sep-19 40 Batti Gul Meter Chalu 21-Sep-18 373 The Zoya Factor 20-Sep-19 25 Sui Dhaga – Made in India 28-Sep-18 366 Jhalki 27-Sep-19 Pataakha 28-Sep-18 23 Total September 2443 Total September 2536 4% Total 8938 Total 10816 21% Source: Industry, Emkay Research. Note: Box office collection data is updated as on 24thSep’19. Exhibit 2: Box office collections for Q2FY20 Q2FY19 Q2FY20 Box office Box office Release Release Hollywood Movie Collection Hollywood Movies Collection date date (Rs mn) (Rs mn) Ant-Man and the Wasp 13-Jul-18 306 Spiderman: Far from home 05-Jul-19 857 Skyscraper 20-Jul-18 80 Lion King 18-Jul-19 1500 M:i 6 - Mission Impossible (IMAX) 27-Jul-18 735 Fast & Furious: Hobbs and Shaw 02-Aug-19 688 The Nun 07-Sep-18 285 Rambo 06-Sep-19 32 Total 1008 Total 3077 Box office Box office Regional Release Release Language Collection Regional Movies Language Collection Movies date date (Rs mn) (Rs mn) Pantham Tamil 05-Jul-18 120 Oh Baby Tamil 05-Jul-19 232 Tamizh Padam 2 Telugu 12-Jul-18 260 iSmart Shankar Telugu 18-Jul-19 586 Kadaikutty Tamil 13-Jul-18 600 Kadaram Kondan Tamil 18-Jul-19 500 Singam Goodachari Telugu 03-Aug-18 102 Dear Comrade Telugu 26-Jul-19 220 Su Thayu? Tamil 24-Aug-18 155 Nerkonda Paarvai Tamil 10-Aug-19 700 Saaho Multi-lang. 30-Aug-19 1524 Gang Leader Telugu 13-Sep-19 220 Kaappaan Tamil 20-Sep-19 195 Total 1237 Total 3982 Source: Industry, Emkay Research. Note: Box office collection data is updated as on 24th Sep’19. Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd,its respective connected and associated corporations and affiliates are the distributors of the research reports, please refer to the last page of the report on Restrictions on Distribution. In Singapore, this research report or research analyses may only be distributed to Institutional Investors,Expert Investors or Accredited Investors as defined in the Securities and Futures Act, Chapter 289 of Singapore SA: SUNIL TIRUMALAI September 26, 2019 | 2 Media & Entertainment India Equity Research | Sector Update Exhibit 3: Percentage of NBOC by low budget movies in 1st week 70% 65% 60% 55% 50% 45% 40% Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 % of 1st week NBOC by low budget movies Source: Emkay Research Exhibit 4: Box office collection compared with PVR and Inox ticket Exhibit 5: Box office collection compared with PVR and Inox footfall sales 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% -10% Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 0% -20% -10% Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 -30% -20% -30% PVR ticket sales Inox ticket sales Bollywood NBOC Bollywood collection PVR-footfall Inox -footfall Source: Company, Emkay Research Source: Company, Emkay Research Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES.