Kalki a hit or not, PVR Inox needs to get these 4 things right to change fortunes

Kalki 2898 AD is a fantasy movie. But in the harsh reality of the box office, it has a lot of responsibility to shoulder. If the movie works, it can give a big boost to the revenues of PVR Inox, which is struggling to screen a big hit this year.The stock market to some extent is anticipating it. Even though the PVR Inox stock dipped 14% in the last one year, it gained 6% over the last five days, as many stock-market participants feel that Kalki might just be that much-needed hit of the year. The film’s YouTube trailer has 42 million views so far. Analysts expect the movie to garner INR120 crore revenues in the domestic market in the first day itself. Just for the record, Pathan, the Shahrukh Khan starrer, clocked INR300 crore in the first week. But even if Kalki is a hit, it does not solve the long-term problems of the movie exhibitors. For, the problem of PVR Inox lies in the multiple options the consumers of entertainment have today. 111322559Currently, the footfall is 25% at PVR Inox, and the pre-pandemic occupancy rates of 36% are a distant memory. The company has endured net losses for four consecutive years and carries a net debt of INR1,300 crore as of March 2024. 111338406So, how can PVR Inox sail through this turbulence?The only option is to shut down its non-performing cinema halls and become a debt-free company. The food and beverages (F&B) growth is still decent at 21% and accounts for 32% of the total revenues, but these are add-on revenues. The company even has special promotions like ‘Cinema Lovers Day’ and 30-min trailer shows @ INR1 to entice moviegoers. To boost concession sales, it introduced value-meal plans and partnered with a delivery service for extra savings. But the main challenge of growth persists.“Theatrical momentum has been disrupted in recent months by a confluence of events,” says Ajay Bijli, managing director of PVR Inox. He said the cricket World Cup, the Hollywood strike, and India’s general elections coinciding with the IPL season have hurt footfall. “This volatility in content flow has impacted moviegoers. We anticipate normalisation in the content flow in the second half of this year, with an exciting lineup”, he adds. Amid this ray of hope, the company is re-strategizing.Strategy #1: Trimming non-core assets“We are evaluating the sale of non-core properties in Pune, Vadodara, and Mumbai,” he tells ET Prime. “We anticipate generating INR300 crore-INR400 crore from monetising these assets, which will be used to further reduce our debt. Our ultimate goal is to become a net debt-free company in the foreseeable future, enhancing financial stability and investor confidence.” In FY24, the company opened 130 new screens and exited 85, resulting in a net addition of 45 screens during the year. Its portfolio, including the 42 management screens, stands at 1,748 screens across 360 cinemas in 112 cities in India and Sri Lanka. The company is shutting down screens from the malls, which were built 10 years or 15 years ago and have become dilapidated and are unlikely to survive given the new shopping centres that have opened in that city. So, shutting down an obsolete mall is likely to help in cutting down its operating losses. Also, some of the screens are coming out of their lock-in periods, where the company is working towards renegotiating rentals and pivoting them to more reasonable rental contracts or lower revenue-share contracts. Strategy #2: Increasing footfallPVR Inox has taken several innovative initiatives to drive footfall and increase occupancy. To keep the audiences engaged, the company launched a popular movie-subscription programme, and offered a variety of alternative content like sports matches and film festivals such as the T20 World Cup, concerts, and curated movie festivals like the current Pride Film Festival among others. Nayana Bijli, lead-distribution and licensing at PVR Inox, explains the launch of the first Pride Film Festival, a specially curated lineup of powerful films and performances to garner audiences. Nayana says, “We believe in the power of storytelling to bridge gaps and bring communities together. With our range of engaging initiatives and themed offerings, we aim to create a memorable and impactful experience that celebrates love, diversity, and the vibrant spirit.”The company is doing two more things to tighten the belt.Strategy #3: Leveraging the F&B businessPVR Inox is experimenting with food and beverages (F&B) business, where it got some good success.PVR Inox's F&B revenue grew by an impressive 21% year-over-year. Revenue from F&B reached approximately INR2,000 crore in FY24, up from INR1,610 crore in FY23. The F&B spend per head has increased to INR132 from INR120 – up 11% in the last one year. The company is keen to increase its revenues from the F&B division and pivot towards some pre-ticketing revenue as well. It has formed a strategic partnership with Devyani International Limited, one of the largest quick service restaurants in India, to jointly set up a company for developing food courts in shopping malls in India. Ajay Bijli says, “Our partnership with Devyani International is a strategic move to pivot into a pre-ticketed F&B revenue stream, as opposed to the current post-ticketed F&B model which is highly dependent on movie line-ups. Our ability to co-promote both movies and food to a 150 million audience would be the USP of this collaboration. It is the first of the many steps we intend to take to further our strategy of expanding our F&B business.”The company is in the process of incorporating the joint venture company and finalising the brand strategy. It has also identified five-six sites for setting up food courts over the next year. Strategy #4: Adopting a capital-light growth modelThe business of movies seems to have a challenging road ahead. To navigate this evolving landscape, PVR Inox is deploying various strategies.To steer back its books towards profitability, the company has decided to shut underperforming cinemas that have reached the end of their lifespans. It shut down 85 screens in FY24 and has plans to exit another 70 screens in FY25. Since the pandemic, the company has taken several initiatives to reduce rental expenses and minimise overhead costs to create a leaner and more efficient operation.The Indian cinema giant is rethinking its expansion strategy, prioritising a ‘capital-light-growth’ model that sheds the burden of hefty upfront costs. At the core of this new approach lies collaboration. PVR Inox is forging partnerships with developers, sharing the financial load of building new screens without crippling their investment.PVR Inox is exploring a FOCO (franchise-owned, company-operated)-like ownership structure for cinemas. This model essentially allows local entrepreneurs to own the cinema buildings, while PVR Inox manages the day-to-day operations – like booking tickets, selling concessions, and ensuring the buttery goodness of the popcorn. The company eventually wants a capex-light model which means that over a period, it reduces its capital expenditure intensity by 30% to 50%. By adopting this model, the company can expect to improve its asset turnover ratio (more efficient use of assets). While profit margins might see a slight decrease, the capital-light nature of the model will significantly improve the return on capital employed (ROCE).111343785 Bijli says, “We will be highly selective when adding new cinemas, prioritising expansion in South India, a promising market with high growth potential. In FY25, we plan to open approximately 120 new screens strategically located for maximum impact.” While investors will closely watch how PVR Inox fares in its effort to improve the financials of the company, the upheaval in its foreign holding is important to understand.FII decline: Merger or market jitters?Foreign institutional investors (FIIs) have pared their stake in PVR Inox dramatically from 42% to 17% in just one year. One of the reasons for the decline in FII holding is due to PVR’s merger with Inox in February 2023. “Historically PVR had a higher FII shareholding than Inox. Prior to the merger approval in February 2023, PVR had approximately 40% FII ownership, while Inox had 19%. Immediately post-merger, the blended FII shareholding came to around 31% for the merged company. So that was purely a technical adjustment due to the merger,” Bijli says, clarifying the drop in FII holding. He emphasises that the post-merger decline doesn’t indicate a loss of confidence in PVR Inox specifically, but rather reflects broader market trends. FIIs have been net sellers in the Indian markets overall, with their shareholding reaching an all-time low in the current quarter. This shift is driven by macroeconomic factors beyond any individual company’s control. While FII shareholding has decreased, domestic institutional investors have shown increased interest. The share of domestic institutional investors has risen from 30% to 40%, with domestic mutual funds increasing their stake from 25% to 35% in one year. The final cutWhile the broader stock market is making new lifetime highs, debt and shrinking margins are weighing on the PVR Inox stock price. The stock is currently trading 35% below its life-time high of INR2,200 per share.During the pandemic years of FY20 and FY21, the company’s operations were mostly shut, leading to financial losses in those years. While FY23 marked recovery, in FY24, the company reported a profit after tax (PAT) of INR114 crore, on a pre-IndAS 116 basis (adjusting for lease accounting. Clearly, things are improving. And by innovating, diversifying, and re-strategizing, the company hopes to get back to its pre-pandemic glory and rebuild investor trust. It’s too early to say whether the efforts put in by PVR Inox will pay off or not, but as the saying goes – the show must go on. (Graphics by Sadhana Saxena)