U.S. Markets closed

Edited Transcript of PVR.NSE earnings conference call or presentation 25-Jul-19 11:30am GMT

Q1 2020 PVR Ltd Earnings Call

Gurgaon Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of PVR Ltd earnings conference call or presentation Thursday, July 25, 2019 at 11:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kamal Gianchandani

PVR Limited - Chief of Business Planning & Strategy

* Nitin Sood

PVR Limited - Group CFO

================================================================================

Conference Call Participants

================================================================================

* Ankur Periwal

Axis Capital Limited, Research Division - VP of Media and Logistics

* Girish Pai

Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research

* Prateek Barsagade

Edelweiss Securities Ltd., Research Division - Research Analyst

* Rohit Dokania

IDFC Securities Limited, Research Division - SVP of Research

* Urmil Shah

IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst

* Yogesh Kirve

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Jaykumar Doshi

Kotak Securities (Institutional Equities) - Equity Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, good day and welcome to PVR Limited Q1 FY '20 Earnings Conference Call hosted by Kotak Securities Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Jaykumar Doshi from Kotak Securities. Thank you, and over to you, sir.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [2]

--------------------------------------------------------------------------------

Thank you, Zed. Good evening, everyone. On behalf of Kotak Institutional Equities, I welcome you all to PVR's 1Q FY '20 Earnings Call. We have with us senior management of the company represented by Mr. Gautam Dutta, CEO; Mr. Nitin Sood, CFO; Mr. Kamal Gianchandani, Chief Business and Planning and Strategy Officer and CEO of PVR Pictures; and Rahul Gautam SVP, Finance. Over to you Nitin. By the way, Nitin, thanks, the presentation is fairly detailed, at least in terms of Ind-AS adjustments and comparable metrics. Thank you. Great job.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [3]

--------------------------------------------------------------------------------

Thanks. Good evening, everyone, and thank you for taking out time for this Q1 earning calls for PVR Limited. I'll give you a brief snapshot of the numbers and then talk about some of the key issues during the quarter. I'll start with the key numbers.

So the overall revenues for this quarter were INR 887 crores as compared to INR 701 crores during the corresponding period of last year, which are up by 27%. The reported EBITDA for the quarter was about INR 285 crores as against INR 141 crores during the same period last year which is, on a reported basis, up by 102%. EBITDA margins are looking at 32.2% versus 20% last year. This is largely on account of the adoption of new accounting standard for leases, which really requires us to capitalize all our operating leases. And consolidated reporting PAT for the quarter, however, was down because of the higher depreciation and interest charge that is required to be taken under the accounting standard. So it was down at about INR 18 crores versus INR 52 crores during the corresponding period of last year.

I'll take this opportunity to talk a little more about the new accounting standard, AS 116, which has come into effect and is effective 1st April 2019 onwards. So this accounting standard really requires us to capitalize all our operating leases on our balance sheet. So in effect, all our lease rental payments which are due over the period of the lease need to be capitalized in the balance sheet, and we need to correspondingly create a asset and a matching liability against it. So if you look at the broad P&L of the business, your rental expense from the P&L will go away in some sense. And in lieu of that, you will have a depreciation and a interest charge in the P&L. So the EBITDA will look bloated, and there will be a higher depreciation and interest charge. The right way to read this would be, typically, if you look at our lease structure, we typically have a 15 to 20 years of a lease. In effect, what the accounting standard requires us to do is effectively straight line our lease rentals by capitalizing them on the balance sheet. So in the earlier years of the lease, you will have a higher depreciation and interest charge on your P&L as compared to your lease rental payments because effectively, you're straight lining all your rentals over the lease term. And in later years of the lease, you will have a lower depreciation and interest charge, which means that in the earlier years of a lease, typically, your P&L will look lower. And in the later years of the lease, your P&L will look better as compared to the normal lease rental payouts.

The only thing which I want to highlight is this is only an accounting impact. Effectively, there is no economic impact on the business. Absolutely, there is no change in the cash flows of the business. And accordingly because of this transition to the new accounting standards, our numbers are strictly not comparable. For the purpose of ease, what we've done is all the reported numbers that have got published, the investor update which is available on the website of the company, actually quantifies the impact under each line item and shows the actual comparable numbers, which can be compared with like-to-like numbers of last year.

So if you were to exclude the impact of this notional accounting charges that are required to be provided under Ind-AS 116, our EBITDA, excluding this impact, was INR 165 crores on a comparable basis, as compared to last year numbers of INR 141 crores. So EBITDA margin is effectively comparable, is about 18.6%, and our PAT number is INR 44 crores if you were to compare like-for-like versus INR 52 crores of last year. This would represent an EBITDA growth of roughly about 27%.

The key highlights for the quarter on an operating basis, the box office revenues overall were up by 19% from INR 385 to crores to INR 457 crores, which was driven by 19% growth in admissions. Our overall admissions for the quarter were INR 2.7 crores, which is inclusive of the new store additions that we've done in the last year and also the SPI acquisition that we made in August. So in some sense, it reflects the strength of the full circuit now.

Overall, F&B revenues at a consolidated basis were up 29% from INR 205 to INR 263 crores. I think the good news here is that F&B is seeing a strong comeback. Our average, even though our same-store admissions were down, primarily because of the sporting season in Q1, which is coupled with IPL and Cricket World Cup, and we had one of the best Q1s last year, so slightly slower quarter Q1 as compared to Q1 of last year. But F&B growth has been outstanding. SPH growth on a overall basis is up by 8% as compared to Q1 of last year. So we are seeing a strong revival in average F&B spending.

Advertising revenue growth has also been very strong. And it is up by 28% as compared to last year. So all the other metrics are doing exceedingly well.

On the screen addition front, I think last 4 months have been very strong for us, a lot of screens which had been stuck for opening, which are in advanced stage of pipeline, has come on board. We've opened 36 new screens during the first 4 months of this financial year. And if you add what we opened in March, about 15-odd screens. So last 4 months, we opened about 50-odd screens. And we have a strong pipeline of openings for this year. So we are on track to open 80-plus screens roughly this year.

I think if you look ahead, Q2 has started with a very strong line. We've had some big films starting July. We had Kabir Singh, which has done exceedingly well at the box office, which was followed by Super 30 and Lion King. Some of the Punjabi films have also done exceedingly well.

So Q2 is looking very strong, and we have a very good pipeline of content in August and September. And the festive season in Q3 is also looking very strong. So our expectation is, I think, Q2 and Q3 are looking very strong quarters. Last year, Q1 was probably one of the best quarters of the year. This year, I think, probably Q2 and Q3 are looking stronger than Q1. So they are likely to be much better.

Apart from the business, one more update I wanted to share with you, as you are all aware that Mr. Ronnie Screwvala had filed a case against multiplex operators and the Multiplex Association of India, making various allegations specifically with respect to collusion around VPF, et cetera. And there was a big media story about it a few months back. That matter was heard by CCI. And a CCI has passed an order yesterday dismissing all the complaints effectively levied, all the allegations leveled by Mr. Screwvala against the multiplex operators and MAI. And the matter has been dismissed by the Competition Commission of India. So that's, as a matter of update, which I wanted to share with you. A copy of the order is available in public domain, and we can share a copy with anybody who wants to analyze the judgment and read through it. So happy to share that as well.

I'd now like to hand over the floor for Q&As, and we shall be happy to take any questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you very much, sir. (Operator Instructions) The first question is from the line of Prateek B from Edelweiss.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

Yes. Nitin, my first question is on SPI in Q4, Telugu and Tamil movies were weak. How has been the Y-o-Y performance for SPI in Q1?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [3]

--------------------------------------------------------------------------------

Sorry, I forgot to talk about SPI specifically in my opening remarks. But if you look at the presentation, SPI has an outstanding performance in spite of slower regional content in Q1 of this year. On strength of the locations that SPI enjoys and the strong cinema circuit, this continued to do exceedingly well. The average occupancy for the circuit during Q1 was 52.5%. Obviously, Hollywood helped in South India, even though the regional content was weak. We did roughly about 39 lakh admissions across the cinema circuit. The overall revenues from the circuit was about INR 117 crores. And the circuit did an EBITDA of about INR 28.4 crores during Q1 of last year, delivering an operating margin of 24%. So effectively, the circuit is doing better than our expectations, and I think we should do an all-over EBITDA significantly upwards of INR 100 crores during this year from that circuit.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [4]

--------------------------------------------------------------------------------

But Nitin, what is the reason why regional language, which I think, for any multiplex, that's the main thing to bank on. For 2 consecutive quarters, it's weak because normally that's not the case, right?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [5]

--------------------------------------------------------------------------------

Well, I mean, we've always encouraged the analysts to look at our business on full year basis. The way our business is the G&A is such that our business has peaks and valleys and it tends to have unpredictability, uncertainty at quarterly levels. But when you look at it at annualized level, it tends to even out. So I mean I would not sort of make a generalized statement that regional films have not done well. Some of them have done well and some of the films, we would have expected to do a lot better. All said, I think, overall, given the performance of Hindi, English, given the fact that we had World Cup, which is a once-in-a-4-year phenomena, the numbers that we've done in SPI speaks all goes well for the resonance and strength of the cinema and, as Nitin spoke about, the locations that we have in SPI, that in spite of moderate quality content, the numbers are extremely strong.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [6]

--------------------------------------------------------------------------------

And are you giving Y-o-Y growth numbers for SPI in the presentation or the...

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [7]

--------------------------------------------------------------------------------

No. We don't have any Y-on-Y growth numbers because last year was run as a private business by then. We will be giving Y-o-Y growth numbers starting from the date when we acquired the business. So I think starting Q2 of this year, because we acquired in middle of Q2, we will be able to share Y-on-Y numbers. But we -- because they opened a lot of screens last year, so we don't have a full operating data visibility, cost structure was structured very differently preacquisition versus now. So they are strictly not comparable.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [8]

--------------------------------------------------------------------------------

My second question is on expansion. You have done well last 3, 4 months, 50 screens in 4 months, 36 in 3. My question is on the general liquidity crunch which I think all developers, real estate, mall developers are facing. Why you are not facing that issue? I understand you are a anchor tenant. But ultimately, all developers are facing the liquidity problem, right? Why would you not have any delays next 6, 9 months? It's a complete crisis situation currently, and FY '20 could also see that. So could you elaborate why you are not seeing any problems?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [9]

--------------------------------------------------------------------------------

No. So you're right, absolutely right. I think the economic conditions, especially on the real estate front, is not looking very good. And we expect a lot of delays around real estate delivery, et cetera. But some of the locations that we are talking about are in the last stage of completion. They are in stages where there have been -- the malls have been built, they have been handed over. We're in a very advanced stage of fit outs, some of the cinemas are partly complete, some of them are in advanced stage of complete. So when we give a guidance, we are very well taking into account that a lot of screens that we're actually anticipating to open this year may get delayed by some amount. So considering that, I think our guidance is also slightly muted. In a good year where some of these issues would not have existed, our guidance on screen opening would have been much, much stronger. So you're absolutely right. I think given what's happening on the NBFC front and smaller real estate developers, in the near term, there are likely to be issues around real estate and you may see some bit of a slowdown. But some of these developments that we are talking about, we are already fitting out the cinemas, in advanced stage of fit out of cinemas waiting for mall openings. So we are reasonably confident at least these many screens will open this year.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [10]

--------------------------------------------------------------------------------

No. But to understand this better, Nitin, FY '20 then -- see the problem, because currently, it's all fit out, so things are under control. But FY '20, could there be a slower expansion than 80 screen this year?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [11]

--------------------------------------------------------------------------------

Very difficult to say. We have a very long -- large pipeline, which is getting delivered again this year for delivery next year. But you're right, if the situation persists for next 6 to 9 months, there could be some delays. I wouldn't want to comment on what the specific screen opening outlook for next year would look like because I think it's too premature. We take normally 6 months to fit out a cinema. I think we'll be in a better position to comment on it probably closer to December on what the outlook for next year will look like because our pipeline right now, screens that we are fitting out is more than 100-plus screens. So we don't expect all of them to open this year. Some are likely to get delayed. By December, we'll have a better sense of how many more screens are already handed over and under fit out. So real estate has always been slow in India. We hope that, I think, it doesn't get any slower than what we already have.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

Yes. And then my next question is on the same screen. When I see revenue from operations for comparable properties, it is up 3%. But spends are up 9% and especially other expenditure is up 14%. So can revenue grow faster than your spends, expenditure in the comparable properties? Is that possible for the full year? And secondly, other expenditure, 14% higher, any one-off here?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [13]

--------------------------------------------------------------------------------

Yes. So as Kamal mentioned, on an annual basis, revenues will grow faster than expenses. So clearly, I think the reason you see expense growth higher as compared to revenue growth is partly because of the fact the same-store admissions in Q1 were slightly muted as compared to Q1 of last year. In other expenses, I think the big one-off expenses, as you -- as we mentioned, we opened 50 new screens in the last 4 months' window. So the initial opening, launch costs, et cetera, for all those screen openings that we've just done are kind of bloated and reflected in the other expenses, which will normally get spread out during the year. But because you opened a lot of screens, so they've got bunched up in 1 quarter.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

No, no, my question is on comparable screens. I'm not asking overall. Comparable screen, that shouldn't be the case, right? Other expenditures of new screens will not come in comparable...

--------------------------------------------------------------------------------

Unidentified Company Representative, [15]

--------------------------------------------------------------------------------

(inaudible) comparable screens, we've fitted out a lot of new technology, like 4Dx, playhouse, IMAX. And because of which there was the launch -- relaunch of the same properties as well. And there was a higher advertising spend on those. So that we would consider as a one-time.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [16]

--------------------------------------------------------------------------------

Yes. So the big one-off launch could be also Phoenix Mall's property that we relaunched in the new -- at start in Q1 of this year. So when we relaunched the property, we had good advertising spends around that property when we relaunched and repackaged it, so that could be one-off expenses that have come and hit during the quarter.

--------------------------------------------------------------------------------

Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [17]

--------------------------------------------------------------------------------

And last question, you always said all these OTT, Netflix, et cetera, the consumer base is different. With this new development of mobile-only wherein all content is available at below INR 200 price in Netflix and Zee and everyone will also follow suit with mobile-only platform at a much lower cost. Now a lot of this customer for mobile-only will be the youth audience because they do the single screen [per person], so could there be some impact now because it's more affordable versus the INR 500, INR 800 earlier. Netflix is now below 200. Could it be more impactful?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [18]

--------------------------------------------------------------------------------

Actually, not, because if you notice that Netflix, Amazon, Zee5 OTT players have come into market, cinema business has seen unbelievable resurgence, resonate -- the movies the way they're resonating with the audiences is in fact getting better than the previous years. There is definitely a positive cycle at play -- a positive windmill at play as a result of OTTs coming in investing money in film business, because all of that is resulting in bigger and better films which are doing well, playing better, exceeding expectation in terms of box office numbers at theaters. So in fact, that's one positive.

Second is India is a handset market. And I think Netflix' launch of a cheaper plan only for phones validate this hypothesis even further. And I think the good thing -- the good positive takeaway is that if more and more people are going to watch Netflix, Amazon, Zero, Zee5 on phones, the charm and the grace for big-screen cinema, the distance between the OTT experience and the cinema experience will only widen. It'll become only bigger than what it is because Netflix, Amazon are popular on television in western developed economies. In India, they seem to be taking a handset handheld devices route, which is, in fact, good for cinema business because the experience of watching a film -- standard-definition film on phone versus watching a high-definition film with experience which cannot be replicated, I mean, on phone is out of question, but even at home, the experience cannot be replicated. I think this move is a validation of the fact that OTT on television is a failure in this market. And if people are going to watch OTT on phones, that experience is really substandard as compared to cinemas.

--------------------------------------------------------------------------------

Unidentified Company Representative, [19]

--------------------------------------------------------------------------------

And more importantly, I think just to add to Kamal's point, this entire foray of saying that we as a product category are compared to an OTT platform is incorrect. We believe we are in out-of-form entertainment. It's no longer just about hinging on the content. There is a charm about going and watching the content first day first show or on -- in the first week. And that charm and that need for people to get out of their homes, leaving their devices behind is something which is also growing. We can all sense that parallel move by consumers themselves to tell family members within to say divest your mobiles and let's get out and talk and bond and do something else is also growing. So to Kamal's point, I don't think it would be fair to keep comparing cinema to actually an OTT platform and seeing both as just peddlers of content. We are peddlers of great experience and not just peddler of a content.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

The next question is from the line of Urmil Shah from IDBI Capital.

--------------------------------------------------------------------------------

Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [21]

--------------------------------------------------------------------------------

Congrats on a strong operational performance. So my question was on things on the revenue side. First on the ad growth, double-digit growth on same store is quite good as compared to the previous 2 quarters. So if you could highlight what other things that are different that happened in this quarter, which enabled you to improve the growth?

--------------------------------------------------------------------------------

Unidentified Company Representative, [22]

--------------------------------------------------------------------------------

So actually, a lot of good work has happened and honestly, we've managed to get some big contracts this quarter. There were also some big blockbuster films which helped us get advertisers' interest within this medium. Having said that, the reality is that the macro economy is facing and going through some bit of depression and there are early signs of those across auto, real estate and other industries, FMCG. So we have to -- we believe that we have to sort of work harder, get into a micro market, look at more retail business going forward. But by and large, we are happy with what we've got this quarter. It's a combination of a lot of things that the team has done to be able to manage a double-digit growth on this.

--------------------------------------------------------------------------------

Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [23]

--------------------------------------------------------------------------------

Given all your commentary on Q2 and Q3 content, what is the kind of growth we should look for on advertisement for the full year?

--------------------------------------------------------------------------------

Unidentified Company Representative, [24]

--------------------------------------------------------------------------------

See, technically, advertising growth should be while -- it hinges a little more on the bigger blockbuster films than on films which tend to get more footfalls. So that's something that we must always keep in mind. Number 2, reality is that the overall industry's pattern is far too critical, much more than the footfalls and the films that get released. So if -- as you would know, if somebody has to sort of pull down on any expense, the first one to really cut down is advertising. These are very, very early signs. And as I said, the good news is that we are already aware that this is kind of creeping in. We worked out packages, we are still looking at slightly longer-term contracts with clients and agencies to see how we can tide over this short-term quarter or a 2-quarter situation. And we are quite optimistic that we'll be able to keep up to this chart. But clearly, it's not an easy drive from here on, and we'll have to work a lot harder.

--------------------------------------------------------------------------------

Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [25]

--------------------------------------------------------------------------------

Sure. And lastly, on the SPH growth of about 8%, which happened in this quarter. Would you attribute this to more of a mix change or it will be more on the conversion part.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [26]

--------------------------------------------------------------------------------

I think it's a mix of both. So we've seen average consumption on items for it move up, and we've also seen a value growth. So it's coming as a combination of both. As you are aware, I think, last year, post Q1, our effective growth on SPH was very muted. I think this is in spite of a strong Q1 last year, we saw -- where we saw a good growth. We managed to, after 3 quarters of slow F&B SPH growth, we have seen a big pullback here. So I think our overall guidance is that this year should see a strong SPH growth in terms of what we managed to achieve, and we are seeing strong signs there. We made a lot of menu changes, a lot of product changes, the new properties that we've recently opened that Phoenix has opened to some great response to our SMB offering there. So we are experimenting with a lot of stuff and some of the stuff is really working and helping us to drive SPH.

--------------------------------------------------------------------------------

Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [27]

--------------------------------------------------------------------------------

Sure. The last bookending part, the employee cost in the quarter on the same-store basis has seen a strong increase. Was part of it driven by the wage increase [that are given]?

--------------------------------------------------------------------------------

Unidentified Company Representative, [28]

--------------------------------------------------------------------------------

So you're right. I think part of it is due to, I think, the wage increase that we see. And also, we've kind of opened few new properties. During the course of the year, we've done some changes in uniform, et cetera, the way we are repositioning some of our iconic cinemas. So there is some bit of one-off costs, which is kind of accounted for here, because we are rebranding some of our properties and also the fact that certain reclassification within cinema that happened. Wherever we've innovated, we've taken the class of cinema a notch higher, which meant better quality people, more staff, new uniforms, the higher training cost. And because of which we've seen this higher percent. But everything is backed with a strong ROI plan. And we see this giving us dividends as we go forward.

--------------------------------------------------------------------------------

Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [29]

--------------------------------------------------------------------------------

So what would be the quantum of one-offs at least on the same-store basis?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [30]

--------------------------------------------------------------------------------

That's about 2% to 3% will be on account of that.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

The next question is from the line of Ankur Periwal from Axis Capital.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [32]

--------------------------------------------------------------------------------

Congrats for a good set of numbers. So first question, as you know, on the ad and the growth, while you did explain some bit of initiatives taken by us in terms of the higher duration of contracts plus a movie-specific demand. But overall, their -- we are seeing some uptick even on a per-screen basis, after probably 3, 4 quarters. So my question here is that, one, is the benefit of SPI screens, are you seeing that benefit coming in? Because that was one area wherein there was a significant operating leverage available to us at the time of acquisition. So has that benefit started coming in? Or there is still some time for it?

--------------------------------------------------------------------------------

Unidentified Company Representative, [33]

--------------------------------------------------------------------------------

It has or it got blended in within the teams, and while we've seen that a little, the reality remains that quarter 2 and 3 would be really the quarters where, honestly, more quarter 3 than even quarter 2, where we believe that we would have completed all the ground work on integrating SPI really into the channels of PVR, and that's the time we believe that the full-throttle benefit would come in. But to your point, yes, it has kind of grown our portfolio. We managed to give our advertisers better footfalls, more quantum of people coming in, and that's kind of helped.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [34]

--------------------------------------------------------------------------------

And will be fair to say that most of this growth is all yield-driven?

--------------------------------------------------------------------------------

Unidentified Company Representative, [35]

--------------------------------------------------------------------------------

Yes. But totally yield driven, nothing is on volume at all. In fact, we've tried to pull down on volume, so that we do not compromise on the consumer experience. All of this growth, 100% growth is on yield and not on volume.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [36]

--------------------------------------------------------------------------------

Sure. So in our earlier interactions, you did mention on initiatives taken for on-screen and off-screen advertisement, which was also one potential areas. Any updates you would like to share over there or it is still a work in progress?

--------------------------------------------------------------------------------

Unidentified Company Representative, [37]

--------------------------------------------------------------------------------

We got some initial success on sponsorships. So our PXL in Chennai has moved, our gold classes in down South has all got branded with the telecom partner. We have a big partner in Chennai. We've got some banks to work with us on IMAXes. So clearly, there has been a movement up, we've gone much higher in terms of off screen, but we see a huge potential there. And that work has just kind of begun, we'll need at least 3 to 4 quarters more to be able to start selling off screen more aggressively in the market.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [38]

--------------------------------------------------------------------------------

Sure. That's helpful. Now given the rather slightly subdued growth in ATP in this quarter, will you still maintain your earlier guidance of 4% to 5% sort of a growth on ATP for this year? Nitin did mention of a healthy growth on SPH, so 80%...

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [39]

--------------------------------------------------------------------------------

So when we talked about 4% to 5% growth, we really refer to a net ATP growth, which we will achieve. ATP is down because we reduced pricing and passed on bulk of the benefit to the customers. Towards later part of the year, you will see ticket pricing growth. So I think on an overall level, we will see about 4% to 5% net realization growth. There may not be a growth in gross ATP, but there'll definitely be growth in net realization.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [40]

--------------------------------------------------------------------------------

No. Yes. That's helpful because I was referring to net ATP only, so -- and your earlier comment on strong SPH growth was also on the net basis, I presume?

--------------------------------------------------------------------------------

Unidentified Company Representative, [41]

--------------------------------------------------------------------------------

Yes. So there is no difference in the SPH between last year and this year. But because of the tax rate changes and GST reduction, we've cut down the gross ticket pricing to the customers and passed on bulk of the benefit there. But because this year, you'll have a lot of bigger films as compared to last year, like films like Thugs of Hindostan, et cetera, which did not work in Q3. So you'll have a lot of big films this year, which will give us a potential for a higher net realization as compared to last year.

--------------------------------------------------------------------------------

Ankur Periwal, Axis Capital Limited, Research Division - VP of Media and Logistics [42]

--------------------------------------------------------------------------------

Sure. And lastly, if you can guide on the CapEx side for this year?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [43]

--------------------------------------------------------------------------------

Yes. I think, broadly, the CapEx outlook is about INR 500 crores kind of a number for this year. We are also evolving and seeing, depending upon how some of the real estate projects have delivered and get executed on the ground. But I think, broadly, we have INR 500 crores kind of a CapEx outlook for this year.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Next question is from the line of Yogesh Kirve from Batlivala & Karani Securities.

--------------------------------------------------------------------------------

Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [45]

--------------------------------------------------------------------------------

So I understand in the distribution side, we will be also focusing on the Indian films this year. So just wanted to understand the thought process behind this? Why do this now because it sort of we are only focused on the Hollywood films. So are there any changes in the market condition which has also prompted these decisions or this a pure organic call that you are taking?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [46]

--------------------------------------------------------------------------------

Yes. It's a bit of both. The market is offering very solid, strong, consistent opportunities, which we believe are sustainable to PVR, simply because PVR over the last '18 or '19 years that PVR has been distributing films in between also produced films, PVR has been able to build a very high level of credibility and trust amongst the filmmakers, the content suppliers. And that trust is reflecting in the kind of opportunities which have been offered to PVR pictures. And that's one big reason that we took a view that this is a good time to sort of step up our local language distribution business. And the other part is that, for any business, growth is only quite natural. And we reached a point with our independent foreign-language films where we feel that the growth going forward, because we sort of dominate that market with a large market share in terms of number of films that we import into the country and distribute within the country, we feel that we've reached a level where growing at least on a sustainable basis would be difficult unless we add more revenue streams, and that's where distribution of Indian films comes in very handy.

--------------------------------------------------------------------------------

Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [47]

--------------------------------------------------------------------------------

So as far as the typical commercials that will be there, so would it be pure commission transactions or you would be open for the MG kind of deals as well?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [48]

--------------------------------------------------------------------------------

So we've sort of consciously stayed away from minimum guarantee deals. That said, there are no fixed rules and depending on content, depending on opportunities which are offered to us, if it's an MG, which is at a low level, MG is not a bad word in isolation, we would look at it. But by and large, these would be deals where we will advance cash flows, and we would work on commission basis. You would see a strong number being reported in distribution piece in Q2, mainly on the strength of distribution of Indian films that we've taken up.

--------------------------------------------------------------------------------

Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [49]

--------------------------------------------------------------------------------

Right. And so I understand so what is the typical duration of the advances? I mean from the time we queue for this theatrical release, what is the typical time period? And what amount of capital we would commit in this business on the yearly basis?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [50]

--------------------------------------------------------------------------------

See there is the time taken for advances to be deployed and for them to be recouped varies from film to film, typically between 2 to 3 months. And it's advanced out in a staggered fashion. Bulk of it is paid closer to the release date. So that's the way this business functions, but it varies from film to film. The amount of capital that could be invested into the business is something which I'll request Nitin to sort of...

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [51]

--------------------------------------------------------------------------------

Yes. So I think roughly -- we have roughly about a $10 million capital commitment to the business right now, which is not fully utilized. And I think because it's largely a working capital business, so it's on a need-based basis, I think $5 million is a permanent capital that has been invested, and $5 million is kind of a floating capital that's been invested. And depending upon how the business evolves, probably we may give a little more capital, but it will largely be a working capital-based business.

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [52]

--------------------------------------------------------------------------------

Yes. And in addition to the $10 million investment that Nitin spoke about, we also have a very robust decent amount of reserves and surplus, which are available in the business from the previous years. The business has been generating, has been cash flow positive, has been profitable for many, many years. So that reserve and surplus is also available to be deployed from [businesses].

--------------------------------------------------------------------------------

Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [53]

--------------------------------------------------------------------------------

And sir, could you talk about the typical margins in this business?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [54]

--------------------------------------------------------------------------------

Again, it varies. I mean it really depends on when we invest the cash flow, what kind of film are we talking about. If it's a big film, it's a big starter, we are happy to go as low as 5% commission, but if it's a smaller film, then we look at a minimum distribution fee level. We don't link it to the revenue of the film, we expect a minimum distribution fees. And it varies from film to film level, but at business at a high level, the expectation in terms of our distribution fee is typically between 8.5% to about 10%.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [55]

--------------------------------------------------------------------------------

Yes. And I think the way we look at the business is really cash-flow based. So I think effectively, we intend to generate a 20% IRR pretax from the business, same philosophy as we have for the core exhibition business.

--------------------------------------------------------------------------------

Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [56]

--------------------------------------------------------------------------------

Right. So this is very helpful. And I had another question related to the slowdown that could emerge in the real estate side of the business. So are we seeing this in the Tier 2, Tier 3 towns as well or is it more focused in the bigger cities?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [57]

--------------------------------------------------------------------------------

I think these are early signs, but the impact is wherever real estate developers are dependent on external funding to complete the projects, I think it's likely to have an impact. It's very difficult to say project specific. I think the bigger developers have less of a concern because they are normally funded by institutions or private equity investors, and they have more organized funding, but the smaller one-off developers or local developers are likely to face issues around financing, which could impact completion of mall or delays in malls. That's possible.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

The next question is from the line of Rohit Dokania from IDFC Securities.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [59]

--------------------------------------------------------------------------------

A few questions from my side. Firstly, on the sort of -- obviously, in the presentation, you have mentioned that there is sort of no impact on the credit rating, but I just wanted to sort of understand whether we have had any discussions with credit rating agencies across for the implementation post-Ind AS?

--------------------------------------------------------------------------------

Unidentified Company Representative, [60]

--------------------------------------------------------------------------------

So Rohit, we've had some informal conversations with the rating agencies. And to be honest, I think the rating agencies are also sort of deliberating internally on how they want to look at it. I think they appreciate the view that there is no impact on cash flow because of this change in accounting standards. And their rating also is more dependent on cash flow-based rating rather than just accounting-based rating. So while we haven't yet heard from them, but our initial informal conversations are indicating that they don't expect it to have any change in the way we run the business.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [61]

--------------------------------------------------------------------------------

The other thing is, if you can talk about the sort of net debt position at the end of the quarter? And when does sort of that peak out essentially?

--------------------------------------------------------------------------------

Unidentified Company Representative, [62]

--------------------------------------------------------------------------------

Yes. So our net debt, the cash that we used to report earlier is about -- on a net debt basis is about INR 1,325-odd crores, which was about INR 1,250 crores, INR 1,260 crores at the end of quarter -- at the end of March 31. And I think we are in a -- we've sort of -- I don't think there is any material change going to happen on the debt numbers going forward. And most of the growth is going to get funded through our internal growth.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [63]

--------------------------------------------------------------------------------

Okay. That is great. The other thing that I wanted to sort of check was in terms of the sort of -- what's the percentage of premium screen as a percentage of the overall sort of screens right now? If you can sort of give us some sense on that?

--------------------------------------------------------------------------------

Unidentified Company Representative, [64]

--------------------------------------------------------------------------------

I think 10%. About 10%, yes.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [65]

--------------------------------------------------------------------------------

78 screens out of 794 are premium screens.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [66]

--------------------------------------------------------------------------------

Okay. That's helpful. And on the sort of -- so you did allude to the fact that there was some sort of one-off in terms of the relaunch expenses of the sort of low-operating property. I was just wondering, this relaunch thing would be like more of a recurring thing because in the earlier calls, you have sort of spoken about relaunching the more premium screens across catching data which can sort of take it. So should this really be considered as a one-off, maybe probably the amount could be higher because of the profile of the property, but otherwise, I think it's more like a recurring expense, right?

--------------------------------------------------------------------------------

Unidentified Company Representative, [67]

--------------------------------------------------------------------------------

You're right, wherever we do spot an opportunity to upgrade a property, renovate them or add a technology, we will need to spend some advertising bucks to then talk about that reclassification. But yes, you're right, in certain cases, wherever we are putting IMAX or a laser projector or an Atmos or a 4DX or a PXL or completely renovating the property, we will need to then prop it up with a certain marketing spend.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [68]

--------------------------------------------------------------------------------

Yes, but Phoenix was unusual.

--------------------------------------------------------------------------------

Unidentified Company Representative, [69]

--------------------------------------------------------------------------------

Unusual, you're right, it was a very, very high-profile launch. But yes, this is something that will happen.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [70]

--------------------------------------------------------------------------------

That's right. That's right. And the other bit I wanted to check about was so this distribution piece that we are talking about will this also sort of lead to some kind of coproduction, et cetera, or we are very clear that it's only sort of distribution because you spoke about it once so I just want to check on that.

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [71]

--------------------------------------------------------------------------------

No. We are very focused on distribution. We've been very upfront and very precise and clear on this aspect that we would remain a very focused distribution player of international foreign language films and the Indian films.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [72]

--------------------------------------------------------------------------------

Great. That's very helpful. Just one last question from my side, Nitin, if that is if you can take this? Any sort of guidance that you would want to give in terms of revenues for the full year and also, from a like-to-like margin perspective how we should see FY '20?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [73]

--------------------------------------------------------------------------------

Yes, I think it's difficult to give us forward-looking guidance. So I can only say is that Q2 and Q3 are looking strong quarter. So in fact, we think that -- I think Q2 and Q3 this year, hopefully, on the content side, are looking better than last year. And with SPI combined, I think the outlook looks strong. Our focus will be -- because see, last year was a fabulous content year, our focus will be if we can strive to achieve and deliver the same kind of operating margins, which we achieved last year because revenue growth is looking strong, so on a strong revenue growth, we can sustain the same level of operating margin, it will be a big achievement for us. I think that's the core focus. Unfortunately, in a business like ours, it's slightly difficult to predict how the quarterly outlook will play out. So I will not like to give a specific guidance.

But I think, overall, I think the year is looking fairly strong.

--------------------------------------------------------------------------------

Operator [74]

--------------------------------------------------------------------------------

Next question is from Jaykumar Doshi from Kotak Securities.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [75]

--------------------------------------------------------------------------------

A few questions from my end. First, just confirming the screen guidance or the screen opening guidance for this year is what 80 screens now?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [76]

--------------------------------------------------------------------------------

Yes. So broadly, I think if you look at it, we've already opened 36 screens. And I think we should open 80-plus screens at least during the course of the year. It's difficult to put a specific number on the table, but I think based on the pipeline of screens under fit out, we're reasonably confident to at least achieve that number.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [77]

--------------------------------------------------------------------------------

Understood. So last year, we opened about 70-odd screens. Is that correct?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [78]

--------------------------------------------------------------------------------

That's right. That's right.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [79]

--------------------------------------------------------------------------------

Right. So I think maybe if we go back a year ago, your expectations were about 1,900 screens in FY '19 and maybe a similar number in FY '20. And some of the screens that were to open in 4Q of FY '19 got pushed to 1Q of FY '20, and still, your FY '20 guidance is not sort of actually increased to that extent. So somewhere I feel that there is a little bit of delay. So is this the delay that you're already seeing, which you probably would attribute it to some slowdown or liquidity issues that the real estate industry is facing? Or you think that, that has not hit you yet? And if things sort of slow down further on the real estate front, it will come and hit in FY '21? Just trying to get a sense, you were hoping that 1,900 screens per year from FY '19 to FY '21, it looks like that number will more likely be 75, 80, but can that be just to that 75, 80 number as well?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [80]

--------------------------------------------------------------------------------

Yes. See, I wouldn't want to comment on specific numbers, but our outlook we're giving, we believe that, I think the guidance is conservative. I think based on the pipeline of screens under fit out, the number could potentially be more, but it's very difficult to comment given what's happening on the ground. Just to give you a perspective, we've 2 large projects, one 12 screens scheduled to open in Delhi, which is ready. We are waiting for the mall to kind of finish their work and about to open. And we have a 9-screen project in Colombo, which has got delayed because of the incident that happened in Colombo. It is right adjoining. So some of these projects got delayed by 3 to 4 months on account of circumstances beyond our controls. So if you open these 2 projects that itself is like 21 screens out of the incremental screens that we're talking. So like this, we have more than 100 screens currently under fit out, it's difficult to comment on specific time lines on how and when they will get expected to open. But we are reasonably confident with that overall guidance to get to 1,000 screens in the next 24 months.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [81]

--------------------------------------------------------------------------------

So this 9 screens of Colombo is included in 80-screen guidance?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [82]

--------------------------------------------------------------------------------

That's right. That's right.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [83]

--------------------------------------------------------------------------------

Right. And does it also include some SPI screens were under progress, work in progress or...

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [84]

--------------------------------------------------------------------------------

Yes. Yes. So as I said, we have a very long pipeline, which is currently under fit out. It's difficult to estimate which specific screen will open in which specific month. I think as we progress during the year, we will continue to revise our guidance based on actual openings, but we are reasonably confident that at least, this is a minimum number that I think we should be able to achieve during the course of the year.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [85]

--------------------------------------------------------------------------------

Perfect. That's helpful. Second is any updates on Middle East, you had planned at some point of time, we haven't heard much.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [86]

--------------------------------------------------------------------------------

No. We actually gave out a specific press release on that extent and even, I think, talked about that in the previous earnings call that we've abandoned our plans to go to Middle East. We've looked at the geography and opportunity there in, and we didn't think the risk-reward metrics really kind of suit up for us at this point of time. So we've decided to kind of cancel the MOU that we had signed with -- it actually expires and not to look at that geography for the time being.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [87]

--------------------------------------------------------------------------------

Right. So Sri Lanka is the only market outside India that you are right now...

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [88]

--------------------------------------------------------------------------------

Right. The way we look at Sri Lanka is like an extension of South Indian strategy for us. And it's a project that we're opening is going to be the largest project of Sri Lanka. The film market there is really underdeveloped, and it's very in an infancy state. So I think after this project, we'll really explore that market and see how it takes off.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [89]

--------------------------------------------------------------------------------

Perfect. Second is, I think you moved from some 45, 50 cities to 65, 70 cities in the past 3 or 4 years. What is your experience in these new cities that you've opened properties and what is the kind of average ticket price, occupancies, F&B spend that you're seeing, with some example, some markets that have positively surprised you, and how many cities do you think you'll need to sort of -- when you will be at 1,000 screens at a very ballpark level?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [90]

--------------------------------------------------------------------------------

Sure. So the first part, PVR expanding to 60-plus cities and towns. I think the experience has been wonderful. A lot of cities, firstly, having cities has been extremely receptive to the entertainment options that PVR and the other fraternity members are bringing to those cities. India has, because of certain policies that town planners have practiced, India has a unique problem. There are pockets within cities which are saturated, which have oversupply of multiplexes, and then there are pockets within the same cities, which are totally underdeveloped. And I'm talking not just about smaller cities, but even the bigger cities, some of the biggest cities also have this issue.

That said, there are plenty of towns and cities, which are virgin in that sense. They are craving for good quality legit entertainment options. Then there are cities which already has multiple options, but they are craving for better upgraded enhanced version of those options. Anand is a case in point. There are sectors like [Patonko] and I'm deliberately talking about smaller towns, population of 2 lakhs to about 4 lakhs sort of a number. These are towns where the perception is that the propensity to spend is lesser, but we are seeing some surprising trends. The eating habits in certain towns are much better than what we expected them to be. Guwahati is a case in point, which is a full-blown, developed city, but just has been denied of all sorts of development entertainment options for years and years. And I think the -- that demand, which has been there, the potential is just sort of unfolding now.

So our experience has been terrific. There are always some centers, some towns, which give you an underwhelming experience, but that's all right. We have full conviction that with a stable government on top with a very decisive Prime Minister we have, we are confident that this country will grow forward. What has happened in big cities is bound to happen in mid and the smaller towns. There'll be better employment, more discretionary expenditure. And all of that will give impetus to products and services, like the kind of business that we are in.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [91]

--------------------------------------------------------------------------------

Great. This is very helpful. One more, if I may. If I were to sort of just as an observation, there are a few interesting trends that we see in some of the trends that we have seen this calendar year there's that the sequels of Hollywood movies are doing much better than the previous sequels. In fact, the growth of Avengers Endgame versus Avengers last year would be -- is perhaps more than 50% for India box office, which is probably higher than what they've done globally. So I think some of these Hollywood sequels are gaining a lot of traction. On the regional side, also, we do see that good movies are clocking quite well nicely. However, when I look at your -- in fact, one more thing that we are observing is some of the smaller movies, which probably used to hit INR 40 crore, INR 50 crore earlier are now getting to INR 70 crore, INR 80 crore or maybe even INR 90 crore, INR 100 crore benchmark.

However, when I -- and I was just observing the top 15 movies' box office collection for Hollywood and Bollywood 1Q FY '19 versus 1Q FY '20, I see a good 10% growth at least the aggregate box office for the 15 movies, 15 relevant movies. So 10% growth in box office. But when I look at your same-store footfall growth, it's probably drove -- it's down 8%. When I look at your box office revenues, it's down about 2%. So I think, what should we -- how should we think about same-store footfall growth in this business? I understand you're opening new screens in similar markets, which may be cannibalizing some existing screens, at least in the initial fit in the market until the time the market expands. So in your planning, how do you think about same-store growth? What is a sustainable same-store footfall growth number that one should think when you're looking 2 years, 3 years out? Because I think when we look last 5 years, that number is fairly muted. And so I just want to understand, because you must be reviewing a lot more data than we have access to and how should we think about it?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [92]

--------------------------------------------------------------------------------

So, Jay, the way we look at our business is, we think that same-store box office growth should vary between 5% to 7% on an annual basis. India, you will see a lot of ticket pricing growth with inflation. And because we are opening not enough screens for the size of population that we have, we think between ticket pricing growth and footfall growth, you will see about 5% to 7% growth on an annual basis. Some years, we'll see higher growth, depending upon how the content has played out, some years we'll see slightly slower growth. So if you look at last year, same-store growth in box office was 15%. So you will have a year where it will be only 4%, 5% and you'll have years, which will be 15%. So you'll probably have to look at in a block of years. Our sense is when we look at for budgeting for a property, effectively, we think properties will typically reach their peak maturity level in '18 to 24 months, and I'm averaging out numbers because in lot of new markets where we are opening, the residential catchments, new suburbs are getting developed, et cetera. In some cases, you've seen the peaks taking 4, 5 years to reach. But normally, after a property stabilizes, footfall will typically grow in the range of 1% to 2%, not beyond that. In good content years, it could be 5 to 7. In slower content years, it could be flat or minus 1% or 2%. But I think overall, beyond 1% to 2% growth once the store stabilizes is tough to achieve, but combined with ticket pricing and footfall growth, 5% to 7% growth on box office.

--------------------------------------------------------------------------------

Jaykumar Doshi, Kotak Securities (Institutional Equities) - Equity Research Analyst [93]

--------------------------------------------------------------------------------

That is very helpful, Nitin. Ideally, we would like to see 1% to 2% ticket price increase growth and 4% to 5% footfall growth, but 5% to 7% is helpful.

--------------------------------------------------------------------------------

Operator [94]

--------------------------------------------------------------------------------

Next question is from the line of [Jignesh Joshi] from [Propelus Lether].

--------------------------------------------------------------------------------

Unidentified Analyst, [95]

--------------------------------------------------------------------------------

I haven't...

--------------------------------------------------------------------------------

Unidentified Company Representative, [96]

--------------------------------------------------------------------------------

Sorry to interrupt Mr. Joshi, we can't hear you.

--------------------------------------------------------------------------------

Unidentified Analyst, [97]

--------------------------------------------------------------------------------

Am I audible now?

--------------------------------------------------------------------------------

Unidentified Company Representative, [98]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [99]

--------------------------------------------------------------------------------

Not really. Can you be a little bit louder?

--------------------------------------------------------------------------------

Unidentified Analyst, [100]

--------------------------------------------------------------------------------

Is this fine?

--------------------------------------------------------------------------------

Unidentified Company Representative, [101]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [102]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Analyst, [103]

--------------------------------------------------------------------------------

So I have a bookkeeping question now because of transition to Ind-AS 116, I see that the lease rental capitalization on balance sheet is about INR 3,200 crores. Now going forward, when we enter into more agreements with the mall owners, the rental expense is bound to rise, so does that mean that this capitalization figure will kind of change every quarter, so to say?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [104]

--------------------------------------------------------------------------------

Yes, that's correct. I think, because depending upon how many leases we have, this amounts will keep changing on a quarterly basis, both the right to use asset, lease liability will continue to change, and this number will continue to change on a regular basis as we add new leases to the portfolio.

--------------------------------------------------------------------------------

Unidentified Analyst, [105]

--------------------------------------------------------------------------------

Okay. But the change will be incremental change, right? Whatever new leases that you enter into...

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [106]

--------------------------------------------------------------------------------

That's right.

--------------------------------------------------------------------------------

Unidentified Analyst, [107]

--------------------------------------------------------------------------------

Okay, okay. And sir, second...

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [108]

--------------------------------------------------------------------------------

That will be only an incremental change, that's right.

--------------------------------------------------------------------------------

Unidentified Analyst, [109]

--------------------------------------------------------------------------------

Okay. And sir, secondly, on the CapEx front, I mean, you guided that we plan to open about 80 screens in FY '20 and if I use an average CapEx per screen of about INR 3 crores, it comes to about INR 240-odd crores, but we have given a guidance of about INR 500-odd crores, so the math kind of does not add up. If you can just help me on that?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [110]

--------------------------------------------------------------------------------

Yes. So CapEx is not directly proportional to the screens that are opening. It is a function of screens that we are fitting out. As we mentioned, apart from the 36 screens that we've opened till now, there are approximately 100-plus screens that we are in the -- we are currently fitting out. It's difficult to estimate how many will actually open. But some of them will open next year, some of them may open towards the end of the year. So depending upon how we are fitting out the screens, the CapEx is a function of that and is not directly proportional to screen openings.

--------------------------------------------------------------------------------

Unidentified Analyst, [111]

--------------------------------------------------------------------------------

Okay, okay. And so one last bit from my side on the advertisement revenue front, you mentioned that the off-screen advertisement offers a huge potential. Now considering the fact that we are limiting our total ad inventory to kind of improve the cinema experience for viewers, do you think that growth from here on, on the advertisement front, will be led by off-screen advertisements? Or do you think these hikes from on-screen advertisements will be the major drivers?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [112]

--------------------------------------------------------------------------------

It will be a bunch of both because advertising yields have been under pressure over the last couple of years due to competitive intensity, but with the portfolio of premium screens that we are -- we have now, I think, ad yields which have been suppressed for a while, the focus is to improve those.

Secondly, I think, as we rightly said, we want to focus on improving and managing the customer experience as well. So there is a lot of focus on driving off-screen advertising opportunities, which do not intrude directly with the customer experience. So I think it will be a bunch of both. It will be difficult to put how much will come out of where. I think it's an evolving thing. So it's tough to put a specific number on which part of segment will contribute to how much growth.

--------------------------------------------------------------------------------

Unidentified Analyst, [113]

--------------------------------------------------------------------------------

Can you share the proportion of off-screen advertisement to the overall advertisement revenues?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [114]

--------------------------------------------------------------------------------

The overall off-screen percentage to the total advertising revenue is sub-10% right now. So I think that has a huge potential for growth.

--------------------------------------------------------------------------------

Operator [115]

--------------------------------------------------------------------------------

The next question is a follow-up from the line of Rohit Dokania from IDFC Securities.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [116]

--------------------------------------------------------------------------------

Just 2, 3 quick ones. One is, obviously, you've seen multiple cycles in the past 20, 25 years, is there really an impact on sort of cinema consumption during economic slowdowns?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [117]

--------------------------------------------------------------------------------

Well, I mean could you tell us which were the years of recession in India in the last 20 years, because I can't seem to remember many years when we've had recessions. This is the first time then -- when we are talking about a possible slowdown in economy. Otherwise, the last 15, 20 years have been fairly strong. That said, if you look at it globally, I think there is -- I mean, you would not say that entertainment out of form is recession proof, but is definitely recession resistant. The impact of recession or slowdown on entertainment is definitely lesser on entertainment business and some people claim that in situations of slowdown, people find it much more attractive to look for escapism and that's when going to cinema halls and watching films is a preferred mode of spending their time.

In our case, coming to your original question, I think PVR's occupancy, same-store, in spite of the growth that country has been seeing in terms of screen addition, has been hovering between 32% to about 36%. That has remained fairly consistent over the last, I would say, 10-odd years, and depending on the curiosity and the excitement around content, it has moved up or down. And this is in spite of the fact that India has been adding screens at a fairly robust pace in a very consistent manner. So I mean, I think the consumption story as far as entertainment business in India goes is fairly strong and is here to stay (inaudible).

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [118]

--------------------------------------------------------------------------------

The only piece that could possibly get impacted through recession is advertising. So the core business doesn't seem to get affected at all.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [119]

--------------------------------------------------------------------------------

Fair enough. Fair enough. That's helpful. The other piece was, if there's any incremental update on the F&B issue from any of the courts?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [120]

--------------------------------------------------------------------------------

No, there is no incremental update. The matter is yet to be listed now for hearing in the Supreme Court. We did update, I think, everyone that -- in the last call that there was a judgment by the Madras High Court, where a similar petition was filed and was dismissed, and that is a very good speaking judgment, which is available in public domain. But yes, the matter is -- all the pending matters are still tagged in Supreme Court, not yet come up for hearing.

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [121]

--------------------------------------------------------------------------------

The verdict which has come out vis a vis VPF and CCI, which is a very clear verdict, would demonstrate that PVR's legal strategy seems to be fairly sound. We should be seeing a lot of legal matters in the relevant courts and with the relevant authorities. So you're in safe hands. Don't worry.

--------------------------------------------------------------------------------

Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [122]

--------------------------------------------------------------------------------

Sure. I'm sure a lot of companies are running behind on their legal team now. And nonetheless, sorry, just one last question on the sort of QIP bit, if there's any sort of update? And also till when is the enabling resolution valid? If you can just update us on that?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [123]

--------------------------------------------------------------------------------

Yes, I think the enabling resolution is valid till January next year. And as we mentioned in the call, I think we have intention to do a QIP, but as we said, we haven't decided on either the timing or a specific amount that we intend to raise, but we have plans to do a QIP. There is no immediate urgency or a timing that we've decided, but depending upon how the markets are, we do intend to do a QIP.

--------------------------------------------------------------------------------

Operator [124]

--------------------------------------------------------------------------------

The next question is from the line of Girish Pai from Nirmal Bang.

--------------------------------------------------------------------------------

Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [125]

--------------------------------------------------------------------------------

I recall some 3 or 4 quarters back, you mentioning that you have a -- you would probably going to unveil your strategy on Tier 2 and Tier 3 markets, but I haven't heard anything from you on that. Can you just discuss, I mean, is there something on the anvil? And what kind of economics do you see in those markets?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [126]

--------------------------------------------------------------------------------

Can you repeat the last part of your question? I missed that part.

--------------------------------------------------------------------------------

Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [127]

--------------------------------------------------------------------------------

The economics in Tier 2, Tier 3 markets in terms of CapEx, in terms of ATP, SPH. Can you like spread out your advertising to those markets? And what kind of rates will you get there?

--------------------------------------------------------------------------------

Kamal Gianchandani, PVR Limited - Chief of Business Planning & Strategy [128]

--------------------------------------------------------------------------------

So I mean, firstly, we are very buoyant as like we mentioned earlier on India as a market, I think the next 5 years are very strong for our country. We totally believe in it, and we're truly convinced that the opportunities that the market is offering. And that becomes the underpinning thought for PVR, which has been perceived as a luxury format player, big city-centric player to venture into smaller towns with population of sub 5 lakh. The CapEx, some of the specific questions, CapEx to -- for these smaller markets tends to be at around INR 2 crore per screen level, we're trying to take it down. We're doing a lot of cost reengineering to take it down to about INR 1 crore 75 lakh level per screen. In terms of average ticket price, markets tend to surprise us a lot. There are markets where we expected INR 110, INR 120 and we ended up with about INR 140, INR 150 ATP. But in general, if we added about INR 125 to about INR 135 level per admission as ATP, we would be quite satisfied. Even at INR 100 to INR 125 level is a good number as long as we can do about 25% to 30% in terms of occupancy. SPH, I think this story still has to travel some distance. At the current level, SPH tends to be about INR 35 to INR 45 level (inaudible) but we do believe, like a national average, which tends to be between 50% to 55%, which is SPH 50% of our ATP, 45% to 50% of our ATP, we believe the same story will play out also in smaller towns. And SPH will inch towards INR 50, INR 60 sort of numbers.

Advertising, again, it's a story which needs to travel some distance. I mean at this point, if we do INR 40 lakhs to INR 50 lakhs for a theater with 3 screens in a small town, we would be happy, but we believe this has potential to travel up to INR 75 lakhs to INR 1 crore.

--------------------------------------------------------------------------------

Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [129]

--------------------------------------------------------------------------------

Okay. I think when you did the SPI acquisition, Nitin, you mentioned that you want to take up the EBITDA per screen number to somewhere close to INR 1 crore, I think, you mentioned in a couple of years. Do you stand by those numbers?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [130]

--------------------------------------------------------------------------------

Yes, we do stand by that numbers. And if you look at, I think, progressively, we are seeing that kind of reflecting. I think if you look at the SPI circuit alone, I think this year numbers based on the run rate are going to be quite strong on the EBITDA front. And if you look at the overall portfolio outlook, I think we do stand by that numbers. And I think we will get there in the next couple of years.

--------------------------------------------------------------------------------

Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [131]

--------------------------------------------------------------------------------

Yes. My last question is regarding going back to the Tier 2, Tier 3 markets, how many screens would be there in that space right now of the overall portfolio?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [132]

--------------------------------------------------------------------------------

Less than 10%. 10 to -- reflective of 5%.

We got I think in Tier 3 locations is about 40 screens.

--------------------------------------------------------------------------------

Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [133]

--------------------------------------------------------------------------------

Okay, okay. And this whole talk of this PVR Talkies, has that -- is that the brand that you're kind of taking to the Tier 2, Tier 3 towns?

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [134]

--------------------------------------------------------------------------------

Actually, as we've mentioned earlier, there is a complete rehash of the brand strategy on this. And currently, we have put the new-found proposal or the entire package into a pilot testing. This is how typically PVR would roll out a bigger plan. As we talked, there are already a couple of cinemas which have opened and running, and we are kind of sort of managing and seeing how they perform. Once this stabilize, that is the time when we want to sort of call for a media and launch our brand and share the complete brand story with all of you.

--------------------------------------------------------------------------------

Operator [135]

--------------------------------------------------------------------------------

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing remarks. Over to you.

--------------------------------------------------------------------------------

Nitin Sood, PVR Limited - Group CFO [136]

--------------------------------------------------------------------------------

I would like to thank the Kotak team and all the analysts and investors who joined the conference call of PVR. I hope we've been able to answer all your queries. In case you have any follow-up questions, you can reach out to me or my colleague, Rahul Gautam or [Nirali] from our Investor Relations team, and we'll be happy to answer your specific queries around our Q1 numbers or around the business. Thank you very much for taking out time to join the call.

--------------------------------------------------------------------------------

Operator [137]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, on behalf of Kotak Securities, that concludes today's conference call. Thank you all for joining us, and you may now disconnect your lines.