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Post washout Q2 for multiplexes; Q3 content performance amid festivities key for recovery

ICICIdirect Research 21 Oct 2022 DISCLAIMER

What's Buzzing 

Multiplexes witnessed losses at the EBITDA level given the flop show by big Bollywood content in Q2FY23. 

Context 

Q2 was a weak quarter with major big budget/starrer films such as Lal Singh Chaddha, Raksha Bandhan, Shamshera, Liger, etc, turning flops. Given the weak movies collection, only two films (Brahmastra, Thor) crossed the Rs 100 crore mark during the quarter. Consequently, footfalls were down ~30-37% QoQ for multiplexes. Average ticket prices were also down 6-10% QoQ. The ad recovery was also muted (currently at 62-65% of pre-pandemic – similar to last quarter). Consequently, both PVR and Inox reported losses of Rs 9 crore and Rs 3 crore, respectively, at the EBITDA level. The weakness in Bollywood content was owing to a) pre-pandemic conceptualised films, not in sync with current consumer taste, b) negative social media against some Bollywood movies/stars and c) quality of content driving performance compared to superstar presence. 

Our View 

We highlight that the content pipeline in Q3 is strong with releases like Avatar, Drishyam 2, Ram Setu, Cirkus, Kisi ka Bhai Kisi ki Jaan, etc, slated to release. A good response will pave the way for a footfall recovery. H2FY23 ad growth should be better led by the festival season and strong content line up. Thus, near term monitorable is content performance. For the medium term, key trigger will be merger of PVR and Inox (likely to be consummated by Q4FY23), post which the MergedCo will benefit from a faster growth trajectory (the management is looking to add 200+ screens every year and ~2000 screens over the next seven years). Key synergy, in our view, will be bargaining power across the value chain, given the scale boosting revenues across segments such as advertisements and distribution. Thus, we remain constructive on multiplexes with medium to long term consolidation benefits in sight.

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