Ladies and gentlemen, good day, and welcome to the PVR INOX Limited third quarter FY24 results conference call, hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Periwal. Thank you, and over to you, sir.
Yeah, thank you, Viren, and, good evening, everyone. Welcome to PVR INOX Limited's third quarter and nine months ending financial year 2024 post-result earnings call. From the management side, we have with us Mr. Ajay Bijli, Managing Director, Mr. Sanjeev Kumar, Executive Director, Mr. Nitin Sood, Group CFO.
And other senior management personnel, including Mr. Alok Tandon, Co-CEO, Central, West, and East, and Mr. Gautam Dutta, Co-CEO, North and South. As usual, we'll start the call with a brief management discussion on the earnings performance, followed by an interactive Q&A session. Over to you, Mr. Bijli, for the initial remarks.
Yeah, thanks very much. Good evening, everyone. I'd like to welcome you all to discuss the unaudited results for the quarter and the nine-month period ending December 31, 2023. I hope you've had the opportunity to review our presentation and results, which were uploaded earlier today on our company's website as well as the stock exchange website. It's really heartening to see that in the calendar year 2023, India stands out as the sole major market worldwide to surpass the pre-pandemic peak in box office collections.
The Indian box office witnessed a notable 12% increase, reaching INR 12,226 crore in 2023, compared to INR 10,948 crore in 2019. Other significant markets like the U.S., China, and South Korea continue to be lower than their respective pre-COVID levels.
In 2023, the Hindi box office experienced a remarkable comeback with 4 highest grossing Hindi films of all time, each crossing the INR 500 crore mark. Besides, a diverse range of mid-scale movies across different languages showcased robust performance at the box office.
I'll be discussing the third quarter, of course, but despite the results, which, you know, you've all seen and I'll be talking about the highlights, I just want to take a moment and just say that despite everything that you see, the company, after the merger, continues to focus on improving our revenues and cost matrices. We are very, very focused to make sure that ROCE is a prime, you know, focus of the company to improve it as we go forward.
Despite all the other highlights, which I'll be talking about now, because that is really something that after this merger, we are very, very focused to improve in the coming quarters. So coming to quarter three, the first half of the quarter for, you know, very valid reasons, which is the World Cup, which is being hosted in India, and, you know, obviously with India playing very well and also playing over the weekends, impacted the movie releases and performance in October and November.
And movies that did well in October were only Leo from Tamil, which grossed INR 400+ crores, and 12th Fail, which is a mid-budget movie from Hindi, grossed INR 65 crores plus, and Tiger 3 was the biggest hit for November, grossing INR 350 crores at the box office. However, the moment the World Cup finished, it once again showed the appetite of the people to go out and watch movies on the big screen.
And of course, in an uninhibited way, the film industry also released lots of movies in this month, which propelled December to be the highest-grossing month of 2023, with the phenomenal success of Animal, which grossed over INR 650 crores and became the second highest-grossing Hindi movie of all time.
Other notable releases during the month included Salaar, which grossed INR 480 crore, Dunki, INR 270 crore, and Sam Bahadur, with an impressive INR 110 crore till date. We welcomed 36.5 million guests across our cinemas in third quarter of FY 2024. Coming to the financial results for the quarter, the following numbers are after adjusting for the impact of Ind AS 116, relating to lease accounting.
Total revenue for the quarter was INR 1,569 crore, EBITDA was INR 226 crore, and PAT was INR 41 crore. The pro forma financials of PVR and INOX combined for the period last year was the revenue of INR 1,474 crore, EBITDA, 220 crores, and PAT of INR 4 crore.
Now, January has also started off on a decent note with Hanu-Man, which is Telugu, grossing INR 190 crores, Guntur Kaaram, which is Telugu, grossing INR 140 crores, and Fighter continuing its run. It's only been five days, or six days rather, INR 140 crores till date.
As we look ahead, we are optimistic about the compelling content lineup across the languages. In Hindi, we have Teri Baaton Mein Aisa Uljha Jiya, which is Shahid Kapoor and Kriti Sanon; Article 370, starring Yami Gautam; Yodha of Sidharth Malhotra ; Shaitaan, starring Ajay Devgn and R. Madhavan; and The Crew, starring Kareena Kapoor and Diljit Dosanjh in March. From South, we have some big films in February, like Lal Salaam in Tamil, starring Rajinikanth, Eagle in Telugu starring Ravi Teja, and Operation Valentine in Telugu and Hindi, starring Varun Tej.
We also have a lineup of some exciting titles in other regional languages, including Kannada, Malayalam, Marathi, and Punjabi. From Hollywood, we have Argylle and Madame Web in February, Dune: Part Two, Kung Fu Panda, and Arthur the King in March. On the growth front, PVR INOX opened 29 new screens in third quarter of FY 2024, and exited similar number of underperforming screens. For the nine-month period, the company has opened 97 new screens and is on track to open 160 to 170 new screens in FY 2024.
On screen closures, the company will exit 77 underperforming screens in FY 2024. Our screen portfolio, including the 42 management screens, stands at 1,712 screens across 360 cinemas in 113 cities in India and Sri Lanka. Now I open the platform for any Q&A. Thank you once again.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and One on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and Two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Abneesh Roy from Nuvama. Please go ahead.
Yeah, thanks. My first question is on the movie release calendar. So this year we have seen some weeks there is too much of bunching up, and some weeks there is a lull. And of course, this quarter, third quarter, the World Cup impact, 41% impact was there in terms of number of movies.
So my question is, is this the right strategy of a 41% drop? Because in hindsight, if you see, was this the right strategy by the industry, given now bunching up is happening or now exam season is there in fourth quarter? So even if you release now, the appetite will be generally a bit lower. And second is, when you see the World Cup kind of impact, in hindsight, where do you see that?
Third is, in terms of planning of the calendar, is there any improvement happening because we are seeing this again and again, lulls are happening when there is no movie, and then suddenly it's too many movies at the same time. What is the issue? Could this be made a bit more disciplined? Any thoughts on that?
Yeah, Abneesh, you know, in fact, if the results of October, November were muted, and we didn't know what to put our finger on, then I would be worried. But I think, very clearly, as I mentioned in my opening remarks, this is an event that happens every four years. It has happened in India, which means that the timings overlap, the peak timings of movie shows, plus all the Indian matches were on the weekend.
And then fourth, obviously it's a case of mixed emotions, India doing well and movies not getting released, but and India doing well. All these four factors definitely, you know, made the film industry pull back or hold back the releases. I agree with you.
It's not a right strategy, but, you know, some people, you know, they can get nervous about releasing upfront when such a large event with all those factors happens. But, you know, long ago, this happened during IPL as well. But then I think, I think people should continue to release movies. They should not, you know, hold back.
But as I said, I mean, you know, it was an event with of such a large scale that, they held them back, and that's why the results are, in October and November, slightly muted. But I'm happy I'm able to explain why the results are muted. It's not because of lack of people, the appetite of people to watch movies or anything else.
It's literally, if the content flow is going to be slow, then obviously the footfalls are also going to be slow. But come December, suddenly, it only goes to prove what a strong, you know, appetite people have, that suddenly, you know, Animal, which didn't look such a big movie on paper, ended up doing over INR 600 crore.
Salaar, Dunki, Sam Bahadur, you know, 12th Fail, all of them did well. So I think I'm very heartened by the fact that when movies do get released, you know, they do very well. Definitely, even the industry is aware of the fact that you should not come on the same date, and that is something we are also trying to work with them on. But sometimes, if the movies are of different genres, it's okay.
But two very big movies coming, yes, it can cannibalize, but, you know, sometimes it can work the other way around as well, and the appetite gets whetted, and if both movies are good, both end up doing well. So, Oh My God 2 and Gadar 2 came on the same date, and both did very well, and nobody was expecting them to do so well. So anything can happen, but I think on a big date like 16 August 2023, 26 January 2024, Diwali, Eid, sometimes you'll, you'll end up finding clashes, but we're working on them to stagger them in a better manner.
Sure. My second question is on the comparison you have done with the global box office. So one is, of course, you have given very advanced countries, very mature countries. I think the data would have been more useful if you would have put more in terms of the emerging countries, what is the pre-COVID versus current performance. But specific question is, we are seeing in all these mature countries, the drop versus pre-COVID being 17% to 34%, which is very high.
So my specific question is, would you be worried on this, that, structurally, in spite of now, the Netflix, kind of OTT is being fairly there for many years, but, still 34% kind of drop, say, in U.K., say, in China, in Japan, for example, or say 17% drop in China, for example, these are very worrying numbers. So I wanted to understand, is this the right data to compare, given these are countries with much higher GDP per capita versus India at, much lower?
So if you could compare with the more, comparable countries, that is one, and second, would you be worried? And related question is, even in third quarter, if you see, the December month was the all-time high month within that year, but isn't every year December month highest?
And second, related question is, most of the revenue is coming from a few movies. How would you really make it more democratic? I know you have tried the INR 99 pricing and those things also, but it seems that only the few big movies are getting all the revenues and rest of the movies are having very tough time. That's not enough for the health of the industry. So if you could address all these aspects.
Abneesh, that's a lot of questions. Let me just try to first calibrate and process what all you have asked. One is that, why are we comparing? Because these are the countries which have the highest movie consumption. So typically, whenever you look at global comparisons, you always compare with U.S., China, South Korea. South Korea, because it's got its own robust industry as well, and Japan. So these are top form, performing countries when it comes to movies.
So typically, you'll always make-- You don't look at GDP, you look at movie going patterns, you look at the overall box office collections, and you look at the number of films that get released over there. So I think these are the five countries typically, that you always compare yourself with.
So I think, I would, stick my neck out once again to say that it's very heartening to see that, this, that all amongst all these countries, India is still, you know, performed better than pre-COVID level. That's one. Secondly, once again, there's a reason why these countries have not done very well, is because all these countries are highly dependent on Hollywood, and Hollywood has had, its number of releases getting reduced.
One is because the recent strike that happened of the actors and the screenwriters, and prior to that, because a lot of studios created their own, streaming channels. So when they created their own streaming channels, they, they got distracted between, you know, re-releasing some tentpole movies and also creating content, for their own streaming, platforms.
All that is now in the past, and after the massive success of movies like Oppenheimer, Barbie, MI7, everybody's gone back to the drawing board, and they're all making movies for the big screen because you just can't get, you know, these kind of results if you go straight to the streaming services. Lastly, you know, Netflix and OTT really is old news. I think it's a very tired question. I'm really sorry to say that, because eight weeks window is back now.
People are not doing only one thing. They are going out also to shop, to eat, to watch movies, and also they are staying at home and, you know, getting food on Zomato or booking, you know, shopping online. So I think movies are similar.
People can go out on the big screen and watch movies, and people can sit at home and watch TV shows. TV shows is the USP of OTT platforms, not movies. Movies are still a big screen phenomena, and after we've got our windows back of eight weeks, now people even mid-budget movies that people used to say are only meant for OTT, people are going out and seeing.
How do you explain the collections of Fukrey, Dream Girl 2, of 12th Fail , of a movie like Sam Bahadur? So many mid-market and mid-budget movies have come and they've done well. So I don't think the skew is only in big movies. Yes, the big movies are doing exceedingly well.
We've never seen these kind of numbers, but that doesn't mean that the mid-budget movies are not doing well. It's just that the decibel level of the big movies is so high, that we forget the small movies which have done well, also. December, we've not said that December has never been bad before. We're just saying that this year, December has been the best month. That's all we've said.
So thanks, that was useful. My question was on Netflix in terms of the other countries, not on India. That was, that is well understood. But on one question which was still unanswered, was on the loyalty program. If you could say, what are the learnings? How do you improve on that? What was the initial data, et cetera?
Because it seems very good and novel concept, but definitely if we see, still it is the bigger movies which are driving a lot of the numbers. So how do you ensure that on a every week basis, the footfalls are much strong rather than one big movie every month or two big movies every month? How do you democratize that in terms of loyalty?
Gautam, would you like to talk about the loyalty program or somebody else?
Yeah. Yes, yeah.
Yeah.
So basically, we had a traditional loyalty program where we used to give points against your visits to PVR. We saw that that wasn't really changing the behavior in the direction that we wanted. We ran that program for over three years, and we realized that consumers were still flowing to the cinema in the pattern they wanted, and that's the reason we have now changed the complexion of our loyalty program.
Our first bit that happened was on the Passport, which is the new form of loyalty in a manner where we want to drive visitation of the consumer to a cinema many more times in a month than he would normally come.
That would mean that he would definitely come and watch the big film, but he would also then be propelled to watch the medium and the small scale films. Any friction point based on the pricing of a ticket is completely removed. We did that experiment. That was very, very positive. We had great learnings around the passport program that we had launched.
You will be happy to know that within about three weeks' time, we're coming up with the second version of the Passport program. This time it will be launched as a pan-India program, and hopefully, it will be a much sharper program than before, and to your point, which shall propel the consumer to watch or visit the cinema at least a couple of times in a month.
Thanks, sir. That's all from my side. Thank you.
Thank you. The next question is from the line of Harit Kapoor from Investec. Please go ahead.
Hi, good evening. I have two questions. The first one, you know, was on the occupancy. So, as you rightly mentioned, you know, this last one year has been fantastic, and probably the best year in terms of collections, you know, in India. In that context, the first nine months, you've been able to do close to 26% to 26.5% kind of occupancy.
I just wanted to get your sense about, you know, with the customer, with the audience now stabilizing, you know, in terms of at home versus out of home. Do you think this is now closer to the new normal that, you know, that one would look at for the combined entity? Just your thoughts on that, you know, in terms of going forward.
Hi, this is Nitin. You know, I, I'll take that question. You know, first nine months of this year has seen 26.5% average occupancy, and you're right, while the overall box office has been up, for the year, I think admissions continue to lag behind. I think the primary reason for this has been, you know, the volatility in the content supply that we've seen.
And you've had months where, you know, there is, you know, supply of and with the supplier content has been consistent, where we've seen, strong admissions, and there have been months where there has been lull in supply of content. I think the content situation has not fully resolved itself, you know, the way I see it.
We are continuing to see gaps, you know, in terms of releases, and that's one of the primary reasons, you know, you have huge amount of peaks and valleys in the occupancy. The best months are bigger than, you know, some of the best months we've had pre-COVID and, you know, the downs are a bit lower. My sense is this volatility is likely to continue in the near term, you know, till the time the content situation stabilizes.
And maybe, Kamal, you can add a little bit of, you know, color on what's happening on the content side. But definitely we see occupancy getting better from here. You know, the occupancy should land up somewhere between where we are and where we were pre-COVID. But definitely, you know, the occupancies are likely to improve over current levels, is what where we think things are.
Hi, this is Kumar. I think Nitin has covered pretty much all the important points. I would only add that COVID had a lot of impact on the you know, taste and preferences of the customers. There were certain type of films which were acceptable and which resonated with a large number of people pre-COVID, and what producers started realizing along with us as exhibitors, that those films were not resonating as well with the customers. And of course, producers have taken... Because as you know, there is a lag in producing a film.
It takes about 15 to 24 months from the point you greenlight a film to the point you bring it to theaters. So what we are going through is a period where producers are calibrating their content to the changing taste and preferences of the customers.
Also, we've had in the backdrop, Hollywood, which has been an important cog in terms of the content and the admissions that we draw. Hollywood has also had its own share of problems for studios. As Mr. Bijli was pointing out, they had different priorities. They were investing a lot of time, effort, money on their own streaming platforms. Thereafter, we got into these interpersonal disputes with the actors and the writers, and that took some 6, 7 months to fall in place, and that, of course, delayed a lot of films.
That also has had some impact. To Nitin's point, I think we feel there is a lot of headroom to grow as we move forward in terms of both occupancies, in, also in terms of contribution that we're getting from per customer.
So the ticket price, although we've had a healthy jump, but we believe going forward also there is scope to improve on the ticket price along with the concession spends. I would also add another point that when you look at the data of the overseas markets, you know, mature markets like U.S., U.K., South Korea and many other markets, they have a very, very massive penetration of streaming platforms. In terms of behavior adoption of streaming platforms, they are leaps and bounds ahead of India.
Now, with that backdrop, if these mature markets can, and also with the problems they had with the Hollywood content, if they can bounce back to 80% of pre-COVID levels, we draw a lot of comfort from that fact, from this data point, because this is pointing to a lot of resilience in the exhibition space.
It clearly shows that exhibition is part of our social fabric. It's an important habit that people have developed over a long period of time, and it's a habit they want to. They enjoy it, they want to continue with it. So in fact, we draw a lot of comfort from the data point and the recovery that we are seeing in the Western markets. And within India, as producers are calibrating the kind of films they want to put out, as Hollywood films are falling in place, we see headroom to grow occupancies and also the contribution per customer.
Thank you very much for the detailed explanation. I just had one more question. You know, this is probably the year where we've done the maximum kind of gross closures in probably our recent history. I just wanted to get your sense that after the 77 number is done for this year, do you think we're largely done with, you know, the adjustments we have to make to our screen pipeline, and, from here on, you know, gross openings and net openings will be, you know, much closer?
You are right. I just want to say that, you know, this is one of exercise that we've done this year, immediately post the merger, to rationalize all our unprofitable screens, you know, which we believe has come to the end of the life cycle. And, you know, this is obviously a one-time exercise.
I think on an annual basis, you know, unlike any other retail company, you know, there will be some properties which will come to the end of their lease tenure, and 1% to 2% of the portfolio, like any retail company, will go for a churn. But I don't think the 77 screen closure, you know, that we've done this year is going to repeat itself. It's a one-time event.
New screen opening number, you know, next year will be similar range, 150 to 160 new screens opening next year. The net screen addition number will be closer to that number. There will be a regular churn in portfolio for sure, but it will be a very small number.
Great. Those are my questions. Thank you. Wish you all the best.
Thank you. The next question is from the line of Arun Prasath from Avendus Spark. Please go ahead.
Thank you for the opportunity. My first question is, a little bit clarification on the ad revenue side. We have seen on a per screen basis, a sequential improvement, despite, say, footfall taking a hit. Is it... How much of this improvement is, we can attribute to the overall spending increase by advertisers due to festival season? And how much is, can we attribute to our turnaround process?
So, we had indicated in last couple of quarters as well, that advertising is gonna be coming back in a few quarters. This is exactly how it's happening. Of course, you're right. This festive season does propel brands to do more advertising, and we've benefited. We've also done some long-term deals during this period. Having said that, advertising still, I would say, is in the path of recovery, and in a couple of more quarters, then we will be getting back to the 2019/20 numbers.
Right. And then, when you say long-term deals you have done with advertisers, is it on a price basis or a volume contract? Can you give a little bit more details on this?
It's just a contract of how much time they will consume and what media they will consume on our screen on a perennial basis. So there is a certain burn. Otherwise, what happens is that every month you have to go farming for business. If you have slightly long-term deals which stretch upon three months, four months, five months, then you could sort of begin the month with a certain surety of income. And that really benefits our business.
Today, what percentage of our ad revenue comes from these kind of deals?
It would be in the region of about 30% to 35% odd.
Rest of the slot, we need to. That will still depend upon the content, how strong that is.
Content base and the kind of hype the movie creates in the market.
Right. Right. Right. And then, second thing is that obviously, sequentially, our mix change is much more visible when you see the box office collections of Hollywood, Bollywood, and regional. But, it is not reflecting in our ATP numbers. Can you give more color on this? What's happening to the ATP?
So our average ticket pricing is actually very strong. It is up. You know, in this quarter, our average ticket pricing is up 14%, and our average food and beverage spending is up 8%. So I'm not clear on the- It totally mirrors what's happening today. The big films end up playing on much higher ticket price. All special formats, IMAX, PXL, 4DX films, also attract much higher ticket pricing. So, and this is exactly how the ATP gets reflected in our results.
Okay, so the point of asking is that we usually have much better ATP than a Bollywood or Hollywood does. But despite, you know, of course, couple of films did very well from the Bollywood side, but Hollywood hasn't really performed as compared to, say, a previous quarter. So ATP is still holding up, so that's what I'm trying to understand.
Yeah. So, because you're comparing a Hollywood big film versus a Bollywood big film, both actually stack up exactly the same way. So there could be months where we will continue to get big Hollywood titles, and they, too, shall attract higher and similar ATP and a strong Bollywood film.
In fact, what has happened now is some of the strong regional films, like Pushpa 2, which is in the pipeline already, or whatever, would also attract the similar high ATP. So which is very encouraging for the market, that big star, big event films across the board, whether it's regional, whether it's Bollywood or whether it's Hollywood, continue to operate at high ATP.
Does it mean this is our steady state ATP, or do we still have some growth levers that we can expect to play out in the next 12 to 18 months?
Yeah, of course. ATP is always in line with inflation, and every year, if you look at the past so many years, ATP always goes up between 4% to 6%, and that trajectory will be maintained.
Right. Thank you. And you spoke about the occupancy being far lower than, say, what we had at the pre-COVID levels.
Uh-
Does it mean that the repricing of the contracts did also happen? Does it give any room for lower fixed OpEx on a per screen basis?
Which contracts are you referring to?
Uh-
Lease contracts?
With the developers, with the mall developers, and yeah.
Of course, I think based on how the cinema is performing, lease contracts will be a function of as and when they are available for reset, they, they will get priced based on what the cinema can, you know, pay to achieve the optimum ROEs and profitability for that unit.
All right. So, question is, how many such contracts or the properties are coming up for renewal, where you are expecting that because of the lower occupancy that we are seeing, we will be able to... What percentage of our portfolio is falling under this category?
We can't share that data. We can't share that information.
Right. Right, right. Right. Okay. My last question is on the screens that you have added in the so far. Usually it takes some time to arrive at the steady state, say, 2 quarters to 4 quarters. Is it something in line with the pre-COVID trends, what we have added in the recent quarters?
Sorry, I have not understood your question.
My question is, usually, when you are putting a new screen, it takes some time to reach steady state occupancy and the profitability for that screen to achieve. That the time period is same now as compared to the pre-COVID levels?
Yes. You know, there has been no change. In fact, a lot of our screens have hit the road running in terms of what we've opened, you know. So there is no fundamental change in what we were seeing in screen performance pre-COVID versus now in terms of new property openings.
Right. So which means what I'm trying to understand is that we have closed around 100 to 150 screens in the last 12 to 18 months, and which is similarly replaced by the new screens, which should have ideally led to much better margins, despite even though the content performance is more or less same. But we are not seeing this in the numbers, the. So what we are missing?
Well, because overall footfalls are much lower as compared to where they were pre-COVID levels. If you analyze the numbers, you know, every single parameter is up and all costs are lower, you know, when you compare. I think it's the sheer operating leverage of the business, because the footfalls are lower, average occupancies are low. That's the reason that's not reflecting in the operating margins.
But otherwise, Arun, just to add what Mr. Bijli said earlier and what Nitin is saying now, everything else has remained the same. And just continuing with what he said is that occupancy is low because of what Mr. Bijli said was because of the World Cup Cricket. So October and November were low.
Yes, December was outstandingly well, but otherwise the other metrics are the same. In fact, you'll see a healthy growth in ATP, a healthy growth in SPH. So all those things are valid. So all the new screens we have added, these 97 screens, I would say whether the payback or the return we get is identical as for pre-COVID.
It's not just third quarter. If I'm looking at the nine-month numbers, we have roughly around 120 million footfalls during this first nine months versus around 112 million in the nine months of FY 2023. But a lot more screens are new, and it is new, and it is replaced the old underperforming screens. So it is not explaining that fact that we have put new, brand new screens which have turned around faster or at the same rate as the pre-COVID levels, but still not seeing footfalls. That is what we are trying to understand, not just third quarter.
Yeah. As I mentioned earlier, you know, we can take this offline as well, but our basic difference is because the average occupancy levels are much lower and footfalls per screen on same stores are much lower than they were pre-COVID level, that delta in operating leverage is reflecting in the operating margin.
Okay. All right, all right. We'll take it offline. Thank you. Thank you very much. All the best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to one or two per participant. Should you have a follow-up question, we would request you to rejoin the queue. The next question is from the line of Nitin Sharma from MC Pro Research. Please go ahead.
Yeah, hi. Thanks for taking my question. Just one question. So is there any kind of a debt reduction target that you have for 2025?
Yeah, as we've guided, you know, all the free operating cash flow that we will achieve from the business after funding our CapEx needs will all go for debt reduction. You know, depending upon what the operating cash flows are for the year will play out to be, you know, the surplus cash flows will be used for debt reduction, which we've already done, and this is demonstrated in the first nine months of the year. So, you know, that's the plan.
Okay. And average cost of debt is around 9%. Is that correct?
That's correct. That's it.
Thank you.
Thank you. The next question is from the line of Ganesh Nagarsekar from Bharat Bet Research. Please go ahead. Hello, Mr. Patanjali Srinivasan, sir? Hello?
Hello. Yeah.
Yes.
Yeah. Yeah, so I thank you for the opportunity. Firstly, I wanted to understand a bit on the fast food program and the likely pricing, because we've been talking about this for quite some time. Any tentative timeline on when this is likely to come into, like, when are you trying to launch it by?
Yeah, as Gautam has mentioned, I think, the launch sometime this month, you know, with the revised features, and it will be a pan-India program that we are planning to launch. We don't want to diverge too much about what are the changes that we are making based on the pilot. I think in next few weeks, you will get to hear about them.
This would go through its own churn and alterations. This is not the final product, because through launching this product, we also are learning a lot about how consumers are accepting and using this product. We will keep, as we move forward, we will keep, sharpening this product.
Sure. And, just a couple of more questions from me. So one is on the occupancy level. So you had mentioned that October and November were very weak, and December was better. So if you could give me from December, what is your exact, occupancy level, just to figure out what kind of, traction you are seeing?
Yeah, you know, we don't disclose month-by-month occupancy, but just to give you a perspective, you know, average occupancy during the month of December was 37%. You know, as compared to, you know, the average of quarter four of 25%, quarter three of 25%. So which means there is a, you know, huge variation in the occupancy in the first couple of months and the month of December.
Correct. And just one last question if I could just. So region mix, I think currently we have about 32% of our capacity in South and around 550 screens. So incrementally, when we're adding about 160 to 170 screens in the next year or the year after that, what would be the additional mix coming in the South? And, can we say that from an occupancy, the occupancy levels in South are much higher than what it is the rest of, ex of South?
You're right. The occupancy levels in South are generally higher. Again, it varies market by market, but they are generally higher than, you know, rest of the country. And I think more than 40% of our new screen additions is in South India. You know, the ratio will change marginally depending upon what ends up opening first, but between 40% to 45% of new screen additions will be in South India.
Sure. Yeah. Thank you very much.
Thank you. The next question is from the line of Ganesh Nagarsekar from Bharat Bet Research. Please go ahead.
Hello. Yes, so my question was, so the first part of my question is partly answered in terms of our growth in South India. The second part of my question is regarding our growth in new screen outside of metros. So, broadly, how is the management thinking about this? And, in terms of what are the key challenges that you see in terms of growing outside of metros, other than say, malls or good real estate there? So if you could just shed some li ght on that.
Yeah, see, what we are seeing is that the existing cities are continuing to expand. Metro cities are continuing to add premium locations. Tier One markets, Tier Two markets, all are expanding. The rooms are expanding, so you know, even in the current year, you know, 50% of our screen additions is focused in metros, 20% is focused on Tier One cities, which are continuing to add more capacity in, you know, as these cities are expanding. New age shopping malls are opening up. Just to give you an example, you know, we are opening three large-scale shopping malls with Phoenix MarketCity this quarter alone.
We're opening a 14-screen complex in Bangalore at Phoenix MarketCity, Bangalore. We're opening a 14-screen complex in Pune with Phoenix, and then we are opening a nine-screen complex in Ahmedabad Palladium Mall, which has recently opened.
So what we are seeing is big cities continue to expand. We are also adding about 30% of our screens in Tier Two, Tier Three markets, but we are waiting for the right location and the right opportunity. We've moved to cities like Gwalior. We've just opened in Ajmer, Cuddalore, so Bhubaneswar. We are opening in markets like Machilipatnam. So a lot of a mix of both is happening, but we want to open in the right locations, which will sustain over a period of time, and hence we are very conscious on where we build and what we build.
Understood. And so in terms of our, Tier Two, Tier Three, cinemas that are there, in terms of the pricing and occupancy, could you shed some light on, the trends there versus, the screens in metros?
We see no big noticeable differences in that, other than the fact that obviously the pricing power in some of the smaller markets is much lower, and so is the CapEx spending, but nothing changes as far as our return on capital employed metrics and return ratios.
Understood. And the occupancy is broadly similar, right?
Yeah. Occupancies are almost similar with what we are doing in other markets.
Understood. That's it from my side, sir. Thank you.
Thank you. The next question is from the line of Jinesh Joshi from Prabhudas Lilladher. Please go ahead.
Yeah, thanks for the opportunity. I have a question on our screen opening guidance. So we have opened about 97, and the plan is to open about 160 to 170 for the full year. So the run rate for fourth quarter appears to be a bit high at about 60 to 70 screens. So can you share—I mean, have we got the position of the screens, and how many of them are currently under fit-out?
Well, we would be-
Sorry. You asked Jinesh about how many are under fit-out. Well, all 72 screens are under fit-out, and they're absolutely ready. Just to tell you that out of those 72, 4 screens in Ajmer have already opened. In the presentation, where you see the entire list, every cinema which we have mentioned is under fit-out and is waiting for licenses. That's how ready we are. We are not aggressive at all. Whatever we've committed will be opening. The projects are nearly over, and we are waiting for the licenses to come so that we can open our cinemas.
Sure, sir. One bookkeeping question from my side. So if I look at our other income, it appears to be a bit high at about INR 58 crore for the quarter. So is there an element of one-off here? And also, if I recall, in our last presentation, we had shared certain numbers on EBITDA synergy that resulted from the merger. And that figure, if I remember correctly, was anywhere between INR 124 crore-INR 143 crore for FY24. Would you like to call out any specific numbers for 3Q?
No. First of all, on merger synergies, we'll share an update now at the end of the year. You know, we've shared something on a six-month level. We'll share an update at the end of the year on the, what is laid out during the year. On your first question about, you know, other income, the other income, like we mentioned in our notes, includes, you know, we've shut down about, 62 screens in the first nine months of this year.
There is other income representing about, of about INR 35 crore, which is represented in the financials, reported financials, not in the Ind AS adjusted financials, which is the writeback of lease liabilities on account of shutdown of those screens, which I would say is in relation to the exit properties and is a one-off. Obviously, in the Ind AS adjusted financials, that number is not there, and that is adjusted for this one-off item.
Sure, sir. One last question from my side on the ad revenue front. I think in the earlier remarks, you mentioned that we have got some long-term contracts, and currently that number is about, say, 30% to 35%. So, with this contract coming back, this INR 130 crore-INR 140 crore kind of a run rate, which we have seen in this quarter, is this something which will be sustainable now, given the fact that we have a committed inventory in the form of long-term contracts? Or how should we look at it from a yearly perspective, so to say?
So advertising, as we've always said, mirrors what happens at the box office and the big films that get released. It also, sort of, has to keep in mind what is happening in the market at, in those months and weeks.
So specifically in quarter three, because this Diwali, New Year, new launches of cars, telecom, new products, of course, the advertising goes up. So, it may not be fair to sort of, sort of level advertising out over 12 months or 4 quarters. There will be certain quarters where the advertising needs to peak, and there will be quarters when it will fall, simply because it, as I said, it, it sort of mirrors the sentiment of the overall market, retail market, and, and stuff like that. So, we technically never give guidance over a quarter-on-quarter number.
But to, but if you look at the trajectory, it is positive. We are coming back, and, every quarter is going up, and it's a healthy increase. It's not a marginal increase, but a healthy increase, which clearly show that, overall clients and media planners are, sort of coming back. It has taken time because it is still a peripheral media, but, I think the teams have done a great work in able to get all the money back into the cinemas, and, hopefully this trajectory will keep going. Thanks.
Sure. So one follow-up. Actually, the reason I thought of asking this is because, if I look at 1Q, 2Q, we were at INR 89 crore, and we were at about INR 114 3Q, and obviously the content did well, but the pipeline for 4Q appears to be slightly weaker. So the context was that if we have long-term contracts in place, then perhaps the fall may not be as steep.
And, because the flow-through to EBITDA from advertising income is quite high, so the margin knock-off will also be not that high. So that was the context, and was just trying to read through whether this INR 130-INR 140 crore number is something which one should build in, or you might see some bit of high volatility in 4Q and 1Q, where the pipeline is slightly weaker. That was the broad context.
Yeah. So as I just said, it will mirror the content. Long term only is about 30% to 35%. Even if they continue to advertise, they cannot change the trajectory for the quarter. So, technically, it is the balance 65% to 70% that comes into play, which completely mirrors the content flow and the hype flow of the film. So technically, you will need to keep the volatility of content and the seasonality in mind whenever you are trying to project advertising revenues. Thanks.
Sure, sir. Thank you so much, and all the best.
Thank you. The next question is from the line of Abhishek Kumar from JM Financial Limited. Please go ahead.
Yeah, hi. Thanks for taking my question. Just one question. I was just curious about the FHC. You know, this seems to have gone up both on a quarterly basis and also for the nine-month basis. I just wanted to understand, is it just because, you know, the most of the box office collection is happening in the first couple of weeks, or is it anything structural in terms of, you know, the price band, et cetera, that we set with the distributors?
Kumar, will you take this?
Sure. So 2 reasons. One is that, in third quarter specifically, as you know, for blockbusters which cross a certain threshold, we offer a bonus percentage to our producer partners. In third quarter, we had 4 such films, versus last year, same quarter, we had only 1 film. And that was the main variable which caused an increase in the film hire percentage. But please make no mistake, there has been absolutely no change in the arrangement with the producers.
The percentage sharing arrangement, which has been there last year, is the one which is continuing this year. The other variable is also the fact that on 3D revenue, you know, as you know, we charge for 3D films.
For the 3D glasses, we charge service charge separately for the glasses, and that amount is shared with the producers. But the percentage sharing of 3D revenue is much lower than the percentage, the percentage sharing of the ticket revenue. In last year, the 3D revenue was very high, almost 10 times of the 3D revenue that we've had in the third quarter this year. That's another reason why there is an uptick in the film hire percentage. You know, we expect this to even out.
I mean, the whole year will remain slightly higher than last year, but one should see this as an aberration. Going forward, we believe it will remain stable and probably go back to the film hire percentage that we had last year.
Okay, great. Thank you, and all the best.
Thank you. The next question is from the line of Vivek Subbaraman from Ambit Private Limited. Please go ahead.
Hi, thank you so much for the opportunity. Could you, share some qualitative updates on the progress made towards achieving synergies? I'm not looking for any numbers specifically, but an update on the qualitative aspects that you have discussed in the past. That's question one. Secondly, what about CVR Pictures? What's the pipeline there and, and the capital investment and research for FY 25? Thanks.
Okay. Nitin, should I take this or are you taking? No, Nitin, go ahead....
Okay, Kumar, are you sort of—would you want to answer?
Okay. So, you know, in terms of the first question, synergies, I think we've made rapid progress in terms of technological synergies. Both, Inox and PVR were operating on different technological systems, different technologies, softwares and architecture. Everything was different. We've integrated, we've made great progress, and hopefully by the end of March in 2024, we would be a ubiquitous, fully integrated, seamless system which would be operating.
And this would help us in terms of eliminating a lot of duplication and processes, and therefore, in long run, you would see efficiencies emanating from technological integration. The jump in average ticket price is also largely a result of synergies that we've been able to exploit with both chains coming together. I would request Gautam and Alok to contribute on the cost savings that we've had, and then I can come back to answer the PVR Pictures-related question. Gautam and Alok.
So both, whether it's been, HR, you know, rationalization, both in RO and corporate, function alignments, all process and, you know, alignments across, PVR and INOX Cinemas. We've also taken into account all the best practices of both the brands and seen how we could move together. A lot of work has happened on the branding per se. On F&B side, you've already seen the kind of growth we've posted over the last two quarters.
So, like a simple thing like non-veg rollout in INOX properties, you know, standardization of F&B menus, promotion to actually encourage footfalls and consumption in cinemas, which is a 99 rupees promotion Monday to Thursday, with popcorn and Pepsi refill plan for weekends, brand campaigns across for both the brands coming together and taking the higher ground to get consumers back to cinema.
I think, from design to uniform, to process and systems, branding, people rationalization, alignment in terms of leadership, a lot of work has happened, and hopefully, starting next year, this would all now start to yield a great, you know, results for the company.
Alok, you want to add something?
No, just Gautam, I think, touched each and every aspect. Just to put it in a nutshell, that every line item of the PNL is being looked at with a very fine-tooth comb. A lot of work is being done on heat, light, and power, so energy conservation is one big, I would say, area where we are looking at and ensuring that we conserve energy. We are using economies of scale for various AMCs and R&M, you know, products. So, in every line item, just to say what Gautam has mentioned, that we are looking at and we are ensuring that, synergy benefits are there for the company.
So, coming to the PVR Pictures part of your question, we've had a muted first nine months, but we are expecting a strong fourth quarter, and we are likely to finish on a high note. As far as this financial year is concerned, we've allocated more capital for this business, and you can be rest assured that next year, you would not just see a jump in the top line, but you would also see a healthy jump as far as the bottom line goes.
I would not get into specific numbers or divulge any sensitive information on our strategies, but we are working very hard in ensuring that PVR Pictures can be scaled up, and so that we can derive the synergies between exhibition.
Now, with this combination of INOX and PVR, the synergies between exhibition and distribution, they can be exploited to the hilt. We are working very hard in that direction. You would see a lot of results going forward next year.
Thank you so much for the detailed answers.
Thank you. Due to time constraint, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you, sir.
I'd just like to thank everyone for taking out time for this call, and if we've not been able to answer any of your questions, then I would request you to please write to Gaurav or me, and we shall be happy to talk to you one-on-one basis. Thank you.
On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.