ICICI Securities has reiterated its BUY rating for PVR Inox, with a target price of Rs 2,250, reflecting a 39% upside from the current market price of Rs 1,621. The company’s Q2FY25 results showed a mixed performance, with revenues increasing 36.2% quarter-on-quarter (QoQ) to Rs 16.2 billion, but net loss standing at Rs 121 million. Despite a weak content pipeline, occupancy levels rebounded to 25.7%, and management anticipates a stronger Q3FY25 driven by a robust content lineup. The company is focused on reducing capital expenditures through asset-light models, while continuing to expand in key regions like Southern India.

Q2FY25 Results Overview

Revenue Growth with a Mixed Bottom Line: PVR Inox recorded revenues of Rs 16.2 billion, up 36.2% QoQ, but down 18.9% year-on-year (YoY). This result exceeded market expectations by 6.3%. Despite the growth in revenue, the company reported a net loss of Rs 121 million. The loss, however, marks a recovery from a significant decline in Q1FY25, driven by improved occupancy and strong operating leverage.

EBITDA Performance Adjusted EBITDA stood at Rs 1.8 billion, in line with expectations. The EBITDA margin improved to 11.5%, indicating a gradual recovery from the challenges faced in earlier quarters, primarily due to lower film content releases.

Occupancy and Ticketing Trends

Rebound in Occupancy Levels: Despite a weak content pipeline in Q2FY25, PVR Inox's occupancy increased to 25.7%, up 540 basis points QoQ. This improvement demonstrates the company's resilience in drawing audiences despite fewer film releases.

Ticketing Revenue Surge: Ticketing revenues grew 41.1% QoQ, reaching Rs 8.4 billion. Average ticket prices (ATP) climbed to Rs 257, a 9.4% QoQ increase, but still down 6.9% YoY. This signals the company’s ability to attract more patrons even in a challenging content environment.

Food & Beverage (F&B) and Advertising Revenue

F&B Revenue Growth: PVR Inox’s F&B revenues saw a 30.2% QoQ rise, totaling Rs 5.2 billion. The company’s spend per head (SPH) remained relatively flat at Rs 134, with minimal growth of 1.5% QoQ. While this growth was modest, management expects significant increases in SPH in the coming quarters.

Advertising Recovery: Advertising revenues grew by 17% QoQ, reaching Rs 1.1 billion, showing early signs of recovery from pandemic-induced lows. This rebound is expected to accelerate as audience footfall increases with an improved content lineup in the coming quarters.

Outlook for Q3FY25 and Beyond

Strong Content Pipeline in Q3FY25: Management is optimistic about Q3FY25, anticipating it to be the best quarter of FY25. The content lineup includes major releases such as Bhool Bhulaiyaa 3, Singham Again, Pushpa 2, and Venom. With stronger content releases, the company expects occupancy levels to rise above 30%, further boosting revenues.

Capex and Expansion Strategy: PVR Inox plans to reduce its capex intensity from FY26, focusing more on asset-light models and FOCO (Franchise Owned Company Operated) strategies. Around 35-50% of new screens are expected to operate under asset-light models, with the rest on structured lease agreements. The company is also planning to open 80-120 screens in FY26, focusing heavily on Southern India’s rapidly growing shopping mall infrastructure.

Cost Management and Debt Reduction

Focus on Fixed Cost Control: The management has proactively renegotiated rental agreements for underperforming properties and is focused on reducing fixed costs, particularly in malls with lower footfalls. As a result, PVR Inox expects its capex for FY26 to be Rs 4-5 billion, directed towards renovating high-performing properties.

Debt Reduction Initiatives The company’s net debt declined by Rs 1.4 billion in H1FY25, and management remains focused on deleveraging through asset monetization and operational improvements. Free cash flow generated after capex requirements will be directed toward further reducing debt.

Valuation and Investor Recommendation

Target Price of Rs 2,250: ICICI Securities maintains its BUY recommendation for PVR Inox, with a target price of Rs 2,250, implying a 39% upside from current levels. This target is based on a 16x forward EBITDA multiple, reflecting confidence in the company’s ability to grow revenues while managing costs effectively.

Risks: The key risks to this outlook include lower-than-expected performance of upcoming films and potential challenges in achieving merger synergies following the PVR Inox consolidation. However, with a promising content pipeline and an improved operational model, the long-term outlook remains positive.

Conclusion

PVR Inox’s Q2FY25 performance marks a significant rebound, with increasing revenues, improved occupancy, and effective cost management. As the company heads into Q3FY25, a strong content pipeline and strategic expansion efforts promise further growth. While some challenges remain, particularly around cost control and occupancy rates, PVR Inox is well-positioned to capitalize on a resurgent film exhibition industry. Investors are advised to maintain a BUY rating, with an expected target price of Rs 2,250 over the next 12 months.