PVR-Inox - Structurally Better Placed; Near Term Soft: Nirmal Bang

Nirmal Bang Report

In the context of a critical variable that is not under its control – the success of content – we believe the PVR-Inox Ltd. merger has helped build a better economic structure for itself–

1. it has led to a controlled expansion of screens now that competitive pressure is behind it. Industry sources indicate that Cinepolis, the other key competitor, does not have deep enough pockets to act as a spoiler. In H1 FY24, only a net of 28 screens have been added, which has helped in lowering net debt by Rs 3.27 billion. A blockbuster Q2 FY24 was a big help to achieve this net debt reduction. We believe actual screen addition number will come in lower than what the company has been publicly stating as it wants to add screens based on internal cash flows and seems to accord priority to reducing net debt.

2. better bargaining on lease rentals and capex to be put in by the mall operator in the screens as the power shifts in favor of PVR-Inox

3. control fixed costs better.

The better cost structure has led to breakeven levels of occupancy being brought down by 150-200 basis points to ~20% from nine-12 months back.

With further synergies to be exploited, we think this can head a little lower.

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