PVR-Inox's Growth Story Hits A Wall

In their 2022 application with the Competition Commission of India, PVR and Inox had argued that their merger — between India’s biggest multiplex chain — wouldn’t create a monopoly. After all, the vast majority of Indians watched movies in single screen theatres or local cinema chains. Despite a complaint from a consumer advocacy group, the merger was approved, and PVR-Inox became India’s largest exhibitor by nearly every metric: revenue, number of screens, and cities it was present in.

With this kind of dominance, business should have been a breeze. But more than a year since the merger, PVR-Inox is struggling to grow.

What is going wrong?

On the face of it, PVR-Inox’s headline numbers for FY24 don’t look bad (pdf). Sales of movie tickets and food and drink are up 19% and 21% respectively. Income from ads, a key indicator of steady viewership, is also up 18% year-on-year. Admits increased by 8% to just over 151 million for the year, while occupancy rates remained steady at just over 25%.

But these are weak numbers, given that 2023 was a historic year for box office collections, especially the first week of August when Jailer, Gadar 2, and Jawan brought a stampede to the theatres. For the quarter ended March 2024, the cinema chain’s occupancy rate was 22%, lower than the full year’s average. While revenue for the quarter grew more than 10%, the firm made a Rs 90 crore loss after tax and an anaemic Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin of just 2.7%.

Despite a historic year of box office collections and a merger to consolidate market leadership, PVR Inox hasn’t managed to get back on its original growth trajectory.

“Yes, our operating margins are still trending below where we were pre-pandemic,” Nitin Sood, group chief financial officer of PVR-Inox, told analysts in an earnings call (pdf) last week. “Occupancies have [been] trending …lower than where we were pre-pandemic. Mix of supply side issues because we've not had all the languages firing together [sic].” In FY20, just before the pandemic hit, PVR’s occupancy rate was at 34.9% (pdf).

The pipes are dry

Some of these problems are not entirely in PVR-Inox’s control. Hit movies have come in bursts, leaving some quarters (such as the one ended March 2024) dry. Box office collections haven’t been consistent, especially for Hollywood films that do most of their India business with premium exhibitors such as PVR-Inox.

As PVR-Inox’s collections plunged from a high of Rs 1,336.8 crore in the September quarter to Rs 759 crore in the March quarter, English films’ share in the earnings also fell from 20-30% in the first half of the year to just 6-10% in the second half. Hollywood strikes at the time cut off the supply of good quality films, especially those shown in IMAX, where tickets tend to be priced higher even in premium chains such as PVR-Inox.

Now, with Indians busy paying attention to the Lok Sabha elections and the Indian Premier League, there’s not much room for the movies. The June 2024 quarter is also likely to be a washout for PVR-Inox.

But this isn’t a temporary problem. Exhibitors have been struggling to keep movies and people coming to cinemas for a while now (read more about it in this edition of The Impression). Recent big budget films such as Fighter and Bade Miyan Chote Miyan performed poorly at the box office, while ‘smaller’ films with lower budgets and no big stars such as Laapataa Ladies and 12th Fail have recouped their money, leaving exhibitors wondering what films they should show next.

Instead, PVR-Inox is getting into a new business altogether.

Fewer screens, more food

Last week, it announced it was getting into the food courts business, setting up a 49:51 joint venture with fast food chain operator Devyani International (pdf).

“Devyani has been a good F&B partner to us, where they supply to us [all of] Pepsi[‘s] products,” PVR-Inox’s Sood said. “We've also had a partnership with them for Costa, where we have 76 or 78 stores already operational within premises. So that is independent of this JV… here, I think the focus is to roll out food courts in shopping malls all over the country, and we're in the process of building a long-term business plan...”

Neither company has earmarked a set amount to invest in this JV. However, PVR-Inox has made it clear it wants to cut back on long-term investments. While it plans to open about 120 screens every year, the company is cutting down capital expenditure on them. PVR-Inox nearly doubled the cash it spent on investing activities in FY24 to Rs 1292.5 crore (pdf), while its free cash flow increased by about 18% to Rs 393 crore.

“The idea is to use the free cash flows to look at adjacent businesses, which could potentially add value over a period of time,” Sood told analysts in the call quoted above. “And hence, food is a very large piece which we currently [earn from] in a post ticketed area. And this partnership to invest in the pre-ticketed F&B is one of such things that we are looking at.”

Long-time patrons of Indian multiplexes have probably complained about the price of PVR popcorn at least once. In 2018, the government of Maharashtra promised to cap popcorn prices in the state but didn’t follow through. But for PVR-Inox, food has been a promising counterbalance when the movies don’t work. In the relatively drier March 2024 quarter, the company’s movie ticket sales grew just 6%, while sales of food and drink grew by 17% year on year. With the Devyani deal, PVR-Inox has the opportunity to earn from selling food to more visitors at a mall or shopping centre, not just to those coming to watch a movie.

In FY24, the company shut down 85 ‘underperforming’ screens, mostly in malls and shopping centres that were nearing their end. This fiscal, it plans to close another 70 screens. PVR-Inox closed the year with 359 cinemas (not screens), the same number as last year. It is also being circumspect about opening new ones. Company executives told analysts they have “rejected a huge number of properties” and are picking only one out of every six proposals for a new cinema or screen coming their way, largely in south India.

Besides, the company is keen on a new ‘FOCO’ (franchise owned, company operated) model, where a developer or an investor bears the cost of setting up a new screen while PVR-Inox operates it. It already runs 42 such screens.

Survival tactics

Other cinema chains in India are also trying to recover from ‘long Covid’, struggling to bring back movies and audiences to their screens. In FY23, PVR-Inox had posted an (accounting standards adjusted) loss after tax of Rs 212.22 crore. That same year, rival Cinepolis posted a loss of Rs 69.46 crore. Smaller regional rivals such as Miraj Cinemas made a Rs 25 crore loss after tax, while Rajhans Cinemas made a Rs 4.47 crore loss for the year (on revenue of about Rs 111 crore).

Yet, smaller chains focused on non-metro cities are investing in long-term growth from screens, not food. Earlier this month, Rajhans announced that it will set up IMAX screens at its new theatre in Surat, Gujarat. Last month, IMAX tied up with Miraj Cinemas to open screens in Mumbai and Jaipur while promising to expand to smaller cities in north and central India (read more in this edition of The Impression).

For chains like Rajhans and Miraj, there is an opportunity to sell a more premium experience to a non-metro affluent audience, given that their ticket prices tend to stay below Rs 200. However, PVR-Inox has been hiking ticket prices geared to a premium or even luxury experience since the pandemic. Pre-pandemic, the average ticket price at PVR was at Rs 204; in FY24, it was Rs 259.

Where does PVR-Inox go from here? Already, it has begun cutting ticket prices and offering new experiments such as PVR Passport. To cram in more screenings, it has been screening films ad-free in a few cinemas, although company executives say it is an early experiment that has not hit ad revenue just yet. All of this can only work if there is a steady supply of new films that can attract audiences, something PVR-Inox cannot control. Until then, there may be more money for now in being a popcorn-burger-cola seller than in the movie business.