Sector Update | Multiplexes ICICI Direct Research
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Multiplex April 12, 2019 Strong box office collections boost prospects… Price Charts (Inox) FY19 is likely to end as the best year for multiplexes with net box office 12,000 350 collections (excluding regional) witnessing strong 23% YoY growth 300 10,000 250 (boosted by ~40+% growth in Q4). Most importantly, collection internals 200 8,000 reflect a key positive trend that there is less reliance on top movies as well 150 as star studded (three Khans) line-up. We believe this well distributed nature 6,000 100 of box office collections (if continued) is likely to even out the quarterly 50 4,000 0 May-16 Nov-16 May-17 Oct-17 Apr-18 Oct-18 volatility trend, to an extent. Moreover, key players have ramped up their Apr-19 expansion plans and are on track to maintain their healthy growth track. Price (R.H.S) Nifty (L.H.S) Update Sector Deriving comfort from all these factors, we remain positive on our multiplexes universe and maintain BUY recommendation with a target price of | 1910/share for PVR and | 385/share for Inox Leisure. Price Charts (PVR) 2,000 14,000 Robust Q4 box office show 12,000 1,500 10,000 8,000 Net box office collections for Q4FY19 were led by five movies with | 100 1,000 crore+ collections. The collections for the quarter were driven by sleeper 6,000 500 4,000 hits such as Uri, Total Dhamal, Gully Boy, Simmba, Kesari, etc, which led to 2,000 0 0 Sep-17 Mar-18 Sep-18 Mar-19 Sep-16 Mar-17 uniform growth in box office collections rather than usual trend of crest and Mar-16 trough pattern in collections. This trend is encouraging since it would lead to i) higher share for multiplex players as the box office collection skewed Price (R.H.S) Nifty (L.H.S) towards multiplex players for longer tail movies and ii) encourage producers/content creators to produce more such strong storytelling content that could be made with reasonable budget with faster turnaround time. The content slate, going forward, is also encouraging with movies such Key Highlights as Kalank, Super 30, Kick 2, Mission Mangal, Bramhastra, etc. This, coupled with stronger screen additions, is expected to lift box office collections in The box office collection has been robust in FY20E. However, we note that Q1FY20E collections could be tepid given the Q4FY19, aided by sleeper hits, structurally IPL and Cricket World Cup, during the quarter. We are baking in 16% CAGR good for the industry box office collections for PVR and Inox, over FY19-21E. Inox leading the screen additions vs. PVR. The balance sheet strength likely result for Retail Equity Research Equity Retail Inox leads organic expansion; PVR adds SPI acquisition aggressive push for inorganic screen additions – Both key multiplexes continued their expansion drive albeit in different Maintain BUY ratings on Inox and PVR with mode. While Inox added 82 screens organically, PVR’s 138 screen add revised target price of |385/share and included 68 screens added through SPI acquisition and 70 organically. We |1910/share note that PVR had guided for organic addition of 90+ screens for FY19. The miss would have been owing to approvals led delay. Therefore, FY20 could be front loaded with such screen additions. We build in 85 screens additions Research Analyst each for PVR in FY20E and FY21E. For Inox, the key positive is that they are Securities ICICI net debt free (gross debt of ~| 129 crore and treasury shares of ~| 138 Bhupendra Tiwary crore) post the recent raising of | 160 crore from promoters through [email protected] preferential allotment. This is likely to result in aggressive push for inorganic Sameer Pardikar screen addition. We build in 70 screens additions each for Inox in FY20E and sameer.pardikar@icicisecurities FY21E. Multiplex industry in sweet spot We continue to maintain that the multiplex industry is staring at strong growth in the medium term as some of the major issues of higher GST for tickets and public outcry on higher F&B prices seems to be behind now. Moreover, content pipeline and recent performance signals strong growth ahead. Both PVR and Inox remain key beneficiaries of a flourishing multiplex business, which is one of the proxies on rising urban discretionary consumption spends. We value PVR at 12.5x FY21E EV/EBITDA and arrive at a target price of | 1910 with a BUY rating. We value 9.4x FY21E EV/EBITDA (25% discount to target EV/EBITDA multiple of PVR) to arrive at a target price of | 385/share. Sector Update | Multiplexes ICICI Direct Research Other highlights Regulatory risk behind: The GST Council’s recent decision on reduction in GST rate for cinema tickets is also a welcome step for the multiplex industry. GST rate cut is earnings neutral for multiplex players as they have to pass on these rate cut benefits to end consumers. However, the decision has certain intangible benefits in terms of prospects of increase in footfalls. Also, on the issue of allowing outside food inside multiplex, multiplexes had favourable judgments in the past PILs filed in Madhya Pradesh, Maharashtra and J&K. As a precautionary measure, multiplex players had cautiously moderated F&B prices on a selective basis to mitigate the risk associated with F&B to some extent. Recent VPF controversy: Recently, there were media reports wherein Ronnie Screwvala, who heads a production house named RSVP, filed a complaint with the Competition Commission of India (CCI) over the virtual print fee (VPF) payments. VPF is typically charged as per property by multiplexes on a per-title basis, from the producers. Mr Screwvala has argued that while no VPF fee is charged for Holly wood titles, multiplexes continue to charge it for Bollywood titles despite sunset clause. We note that VPF income for PVR for FY18 is at ~| 17.2 crore, while for Inox it was ~| 24.6 crore. Our interaction with the managements of Inox and PVR suggests that there is no sunset clause for Bollywood movies for collecting VPF fees. The matter is likely to be handled legally. Exhibit 1: Change in estimates - Inox FY20E FY21E (| Crore) Old New % Change Old New % Change Revenue 1,867.5 1,952.0 4.5 2,171.4 2,274.7 4.8 Revenue upgrade on higher than expected screen additions EBITDA 316.0 341.4 8.0 392.5 430.6 9.7 EBITDA Margin (%) 16.9 17.5 59 bps 18.1 18.9 83 bps PAT 129.0 142.9 10.8 164.0 185.7 13.2 EPS (|) 12.6 13.9 16.0 18.1 Source: Company, ICICI Direct Research Exhibit 2: Change in estimates - PVR FY20E FY21E (| Crore) Old New % Change Old New % Change Comments Revenue 3,501.8 3,607.4 3.0 4,004.0 4,130.1 3.1 Screen additions to spill through FY20 to boost revenue growth EBITDA 669.7 683.9 2.1 811.0 830.1 2.4 EBITDA Margin (%) 19.1 19.0 -17 bps 20.3 20.1 -15 bps PAT 203.4 211.6 4.0 264.0 287.3 8.8 EPS (|) 43.5 45.3 4.0 56.5 61.5 8.8 Source: Company, ICICI Direct Research ICICI Securities | Retail Research 2 Sector Update | Multiplexes ICICI Direct Research Exhibit 3: Quarterly trend of box office (excluding regional) collections Q1FY18 Collections (| cr) % Q1FY19 Collections (| cr) % Baahubali 2 511 Avengers: Infinity War 223 Tubelight 121 Race 3 161 The Fate Of The Furious 77 Raazi 123 Hindi Medium 69 Baaghi 2 120 Half Girlfriend 60 Veere Di Wedding 80 Top 5 839 82.7 Top 5 707 61.8 Others 175 17.3 Others 436 38.2 Total Collections 1,014 Total Collections 1,143 YoY (%) 13% Q2FY18 Q2FY19 Toilet - Ek Prem Katha 134 Sanju* 268 Baadshaho 78 Stree 127 Jab Harry Met Sejal 63 Gold 107 Mubarakan 55 Satyameva Jayate 89 Jagga Jasoos 53 Mission: Impossible - Fallout 77 Top 5 382 45.5 Top 5 669 64.3 Others 458 54.5 Others 372 35.7 Total Collections 840 Total Collections 1,040 23.9 YoY (%) 24% Q3FY18 Q3FY19 Tiger Zinda Hai* 252 2.0(Hindi) 188 Golmaal Again 206 Thugs Of Hindostan 145 Judwaa 2* 101 Badhaai Ho 137 Fukrey Returns 79 Simmba 96 Secret Superstar 62 Zero 95 Top 5 700 78.0 Top 5 661 64.4 Others 197 22.0 Others 366 35.6 Total Collections 897 Total Collections 1,027 14.5 YoY (%) 15% Q4FY18 Q4FY19 Padmaavat 300 Uri - The Surgical Strike 243 Sonu Ke Titu Ki Sweety 102 Total Dhamaal 151 Raid 97 Simba* 144 Tiger Zinda Hai* 87 Gully Boy 139 PadMan 79 Kesari 117 Top 5 665 72.4 Top 5 794 61.1 Others 253 27.6 Others 505 38.9 Total Collections 918 Total Collections 1,299 YoY (%) 42% * collections during the quarter Source: Company, Koimoi.com, ICICI Direct Research Exhibit 4: Top 10 movies over FY18 and FY19 Top Ten movies in last 2 FY Collections (| cr) Baahubali 2 511 Tiger Zinda Hai 339 One of the key highlights is that nine out of top 10 Padmaavat 300 movies (in terms of net box office collections) in Sanju 268 FY18 and FY19 were non-Khan movies Uri - The Surgical Strike 243 Simba 240 Avengers: Infinity War 223 Golmaal Again 206 2.0(Hindi) 188 Total Dhamaal 151 Source: Company, ICICI Direct Research ICICI Securities | Retail Research 3 Sector Update | Multiplexes ICICI Direct Research Financial Summary -PVR Exhibit 5: Profit & Loss statement Exhibit 6: Cash flow statement (Year-end March) FY18 FY19E FY20E FY21E (Year-end March) FY18 FY19E FY20E FY21E Total operating Income 2,334.1 3,089.1 3,607.4 4,130.1 PAT 123.3 183.4 211.6 287.3 Growth (%) 7.9 32.3 16.8 14.5 Add: Depreciation 153.7 188.4 227.3 260.2 Film Distributors Cost 537.7 709.5 839.6 972.0 Add: Interest Paid 83.7 127.3 163.1 166.2 F&B Cost 159.1 237.9 292.8 333.3 (Inc)/dec in Current Assets -14.4 -42.1 -51.2 -51.6 Employee Expenses 254.1 343.4 419.3 468.0 Inc/(dec) in CL and Provisions 41.9 149.3 105.5 108.3 Other Expenses 981.5 1,217.5 1,371.8 1,526.6 Others 0.0 0.0 0.0 0.0 Total Operating Expenditure 1,932.3 2,508.2 2,923.5 3,300.0 CF from operating activities 388.3 606.3