Owing to a strong pipeline of movies and screen additions, PVR should post healthy earnings for the remaining quarters of FY17, says Chairman and Managing Director Ajay Bijli.
Riding on the back of a stable performance in the second quarter ended September, PVR is expecting a healthy earnings season the remaining two quarters of FY17 owing to a strong pipeline of movies and screen additions.
PVR attributed the lower margins to volatility of movie content. While there was a slight decrease in margins during Q2FY17 as some big-banner films such as Mirzya, Mohenjo Daro and Bar Bar Dekho fizzling out, PVR expects a strong show in Q3 and Q4 due to big releases during Diwali and healthy line-up thereafter, said Ajay Bijli Chairman and Managing Director of PVR.
A host of movies such as Ae Dil hai Mushkil, Shivaay, Dangal, Raees and Kaabil make the second half of FY17 look very promising, he said adding that PVR is likely to add 58-odd screens going ahead.
Consolidated net profit for the quarter stood at Rs 29.1 crore against CNBC-TV18 Poll of Rs 23.3 crore, while total income at Rs 554.2 crore higher than the poll estimates of Rs 529 crore. The company’s EBITDA margin stood at 16.8 percent against poll estimates of 16%.
Below is the verbatim transcript of Ajay Bijli’s interview to Sonia Shenoy and Anuj Singhal on CNBC-TV18.
Anuj: We will talk about the quarter gone by but first tell us how have the advance bookings been for the two new releases?
A: It is very good. I am glad the controversy is all over and ‘Ae Dil Hai Mushkil’ and ‘Shivaay’ are both looking very strong. We have already opened our online booking and advance booking and it is phenomenal. So, we are not only going to have a good weekend but even Monday, Tuesday being a holiday is going to be a very big at the cinemas.
Sonia: In terms of margins, your margins continue to do better quarter after quarter and it is consumers like us who pay a lot for some of your products especially popcorn but do you think you can do much better than this 17 percent margin?
A: If you look at the fundamentals of our business, what we have tried to concentrate really on is building a very good infrastructure to connect the consumer and the filmmaker. So, we are a conduit between the two. So, our locations are good, they are at the right rentals, they are in the right malls, in the right cities. Now, what fluctuates quarter-on-quarter (QoQ) is the volatility of the content.
So, therefore this quarter that has just gone by, we were little disappointed with some of the movies which were supposed to be big hits. So, whether it was Mirzya or whether it was Mohenjo Daro of Hrithik or Baar Baar Dekho which was produced by Karan Johar and Ritesh Sidhwani, so, a lot of big films we were expecting should have done well, they didn’t do that well.
However, still there were some sleeper hits as well like Pink. However, last quarter same period we had two huge films like Bajrangi Bhaijaan and also Baahubali. So, I think that we could not manage with all the other films like Rustom and other films that came. So, that is the reason why there has been a slight decrease in the margin compared to last quarter.
Anuj: Just tell us what about talks with Wanda, where are they right now? The street is abuzz that some deal is happening; I want to hear it from you.
A: No there is no deal happening whatsoever. I am Glad I am on a very well reputed TV channel and with very well reputed anchors so I can completely refute that is completely -- I don’t know where that is coming from. There is nothing of that sort happening.
Anuj: I say that because Multiples which invested in PVR at Rs 200, just at about three years back and PVR has just raced onto Rs 1,200, there is some talk that Multiples will exit having made 6X returns and that will happen when that takeover deal happens. So, I just wanted to have a question on that regards that is why I asked.
A: You can ask me questions but I will keep giving you the same answer because it is not true unfortunately. I don’t know where these rumours have started from. So, I can just keep refuting that it hasn’t happened. If you look at Multiples, they also came in last year before the DT acquisition at Rs 700 and we still have to implement the whole integration process. So, I don’t know where they are coming from.
Anuj: How is business looking otherwise in terms of the EPS numbers, going forward what kind of numbers do you think you will be able to post?
A: Third quarter and fourth quarter, both are looking very good because normally we have these big films which are releasing this Diwali, then we have got Kahaani coming in, then we have Befikre which is looking very strong, then we also have Aamir’s movie Dangal which is coming. So, luckily we have a very good quarter this particular three months and also we are opening about 20 screens odd as well.
So, overall about 58 screens odd will be opening so business from that point of view, the outlook is good. Even getting into fourth quarter, for the first time we have two big blockbusters coming on January 26, Raees and Kaabil. So, Hrithik and Shah Rukh , so, as compared to last year’s fourth quarter we didn’t have very many big movies. So, we are looking at good second half of the year.
Sonia: What kind of conservative or realistic run rate are you looking at per year in terms of screen additions and over the next say two to three years, how many screens could you add?
A: If you look at the first half itself 43 screens have been added. 29 through the acquisition of DT and then 14 organic and we are looking at another 58 screens. So, about 70-80 screens odd every year are something which are very realistic. We have almost about a 100 screens at a fit out at any given time.
Sonia: In terms of F&B margins your gross margins in the F&B space stand at more than 70 percent if I am not wrong. Do you think you can get better than that?
A: I think this is about it. Our COGS which is cost of goods sold is about 23.9 percent, roughly 24 percent and I think that is because a lot of our food has been internalised now. Also, there are items that we are now introducing which are not very heavy on margins but people want to have them because they want to replace what they have at the cinema with a meal.
So, we have like burgers, we have complete meals, sushi meals which don’t have the kind of margins that you have in Pepsi and popcorn. So, therefore I think margins are going to probably remain the same but we would like more people to consume. So, we are working on our strike rates more than looking at COGS any more.
Anuj: From your own point of view, you have also grown inorganically. Organically also you have grown but you have made a lot of acquisitions. Is there enough space for more acquisitions in the future or is it going to be about organic growth from here on?
A: I think most of the quality assets, last 18-19 months were very active. So, many deals happened and a lot of fringe players or people for whom it was a non-core activity, they sort of sold out to the main players. I don’t see any major acquisitions, perhaps some regional acquisition can still happen, it could be somewhere like a small circuit of 30-40 screens in say UP or Punjab or down South, something like that.
However, we will still have to look at the quality of the asset, we will have to look at the valuations and only then we will go ahead. However, definitely there are smaller circuits of 30-40 screens still available but nothing major, nothing significant.
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