PVR Inox plans a new show with revamped biz plan

Ajay Bijli, managing director of PVR Inox, outlined the company’s roadmap for the next 12-18 months in an interview with Mint, emphasising a focus on operational performance, debt-reduction, and moving towards an asset-light model.

With a gross debt of ₹1,725 crore as of FY24, PVR Inox—the world’s 8th largest multiplex chain—is prioritising initiatives aimed at improving return on capital employed and Ebitda margins. Bijli’s grand plan is to shut non-performing screens, renegotiate rental contracts, and optimise capital expenditure to achieve positive free cash flow.

“We are completely pivoting towards an asset-light and asset-right model, which means that we are telling all the developers who want us in their properties now that it will be like a FOCO model, which is franchise-owned and company-operated,” Bijli told Mint.

Since completing its merger in February last year, PVR Inox has emerged as India’s largest exhibitor by a significant margin. And experts suggest that the company, benefiting from its scale, can afford to make bold moves such as shutting underperforming screens without fearing a negative impact on footfalls.

PVR Inox’s measures seem necessary at a time the movie industry’s grappling with a dearth of quality films. Audiences have become increasingly discerning in their movie-going choices, leading to a stark divide in box-office performance—films either excel or falter.

While the financial third quarter (October-December) saw significant audience turnout driven by films such as ‘Animal’, ‘Salaar’, ‘Dunki’, and ‘Sam Bahadur’, the final quarter experienced a subdued performance as films across languages struggled at the Indian box office. According to Mint’s estimate, domestic box-office revenue dropped 20-30% year-on-year in the three months ended 31 March.

For PVR Inox, despite a robust 64% surge in revenue from operations during the third quarter, consolidated net profit declined 20% to ₹12.8 crore from ₹16 crore in the corresponding year-ago period.

So far this year, PVR Inox’s shares have lost nearly 15% on NSE, contrasting sharply with the benchmark Nifty 50’s 3.6% gain.

Facing an unpromising slate for the first half of the fiscal year, experts advocate for PVR Inox adopting a conservative spending approach and prioritising return on investment.

For its business revamp, PVR Inox is drawing inspiration from successful retail brands in India and identifying opportunities to leverage its real estate assets more effectively. This includes entering into partnerships with landlords or real estate developers for investment purposes, repurposing certain properties, and renegotiating rental agreements to drive value-creation.

Bijli said the company has identified around 125 non-performing screens, which it plans either to shut or to renegotiate rental contracts wherever the lock-in period is over. 

“If there are screens which are value-destructive, we are going back to the developers and asking them to renegotiate or reset the rentals, especially where lock-ins are over,” he said. “We will make sure that most of the deals, going forward, are on a revenue-sharing basis, and if there is an MG (minimum guarantee) proportion, it is ‘minimum’ as per the definition of MG.”

The company aims to reduce the rental cost to pre-covid levels (16-17% of revenue) from the current 19-20%.

PVR Inox has over 1,741 screens in India across 361 properties in 113 cities. The company added 97 screens in the first nine months of FY24 while exiting 62 underperforming screens.

“We’re still expanding. We’ll still be opening 100 odd screens per year, but we’ll be prudent in terms of how much we spend and how much contribution we get,” Bijli said. “I’m bullish on the cinema business and I know that the industry is going to bounce back. Just that… I would err on the side of caution and make sure that we get much better margins.”

The company wants to reduce its capex by 30-40% to ₹400-450 crore by entering into partnerships with landlords for investment purposes.

On plans to be a net-debt-free company in 2-3 years, Bijli said debt-reduction is a key priority for PVR Inox, with efforts underway to monetise real estate assets inherited from the Inox merger in prime locations such as Mumbai, Pune, and Vadodara.

“We have started working on monetising real estate assets to pare debt. The amount of money expected from these divestments is subject to several factors including the current market value of the properties, demand in these markets, as well as the outcomes of negotiations with potential buyers,” he said. “Overall, we have 14 million square feet of space in which the PVR Inox circuit is operating. We believe that we can utilize this real estate for much better use.”

The multiplex chain is also looking at ways to repurpose certain cinemas for other activities. 

“If we find that a four-screen multiplex can deliver better ROI in an existing eight-screen property, we will evaluate options of whether to give the extra area back to the developer or to convert it into a food court and open it to the public,” Bijli said. Another “option is that we can repurpose the auditoriums to conduct different kinds of live events, including stand-up comedy, plays, small concerts, or more. That’s one way of making sure that the real estate is yielding better returns per square foot.”

To facilitate faster decision-making, PVR Inox has adopted a leaner organization structure starting 1 April. Gautam Dutta has been named CEO-Revenue and Operations; Pramod Arora as CEO-Growth and Investment (including divestments); Alok Tandon as strategic business advisor to Bijli; Kamal Gianchandani as chief of business planning and strategy and CEO-PVR Inox Pictures; Nitin Sood as chief financial officer; and Sunil Kumar as the chief human resources officer.

Several brokerage firms including ICICI Securities, Prabhudas Lilladhar, and Sharekhan, remain optimistic about PVR Inox’s prospects, assigning ‘buy’ ratings for the stock.

“We believe the company is on track to meet ₹10 billion adjusted Ebitda target in FY24,” ICICI Securities said in a recent note. “We believe a structural rerating is likely given the company’s adj. Ebitda margin in Q3FY24 was 1,340bps higher vs Q2FY23 (comparable occupancy) and is clearly indicative of a more robust business model post-merger. Further, total gross box office in India growing ~12% compared to pre-covid levels in CY23 should dispel existential concerns about OTT competition.”