Ladies and gentlemen, good day, and welcome to the PVR Limited Q1 FY23 Earnings 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.
Thank you, Peter. Good evening, friends, and welcome to PVR Limited's Q1 FY 2023 post-result earnings call. The call will be initiated with a brief management discussion on the earnings performance, followed by an interactive Q&A session. Management team will be represented by Mr. Ajay Bijli, Chairman and Managing Director, PVR Limited, Mr. Sanjeev Kumar Bijli, Joint Managing Director, PVR Limited, Mr. Gautam Dutta, CEO, PVR Limited, Mr. Kamal Gianchandani, Chief of Business Planning and Strategy and CEO, PVR Pictures, and Mr. Nitin Sood, CFO, PVR Limited. Over to you, Mr. Bijli, for the initial comments.
Thank you. I'd like to welcome you all to the earnings call to discuss the unaudited results of quarter 1 FY23. I hope you've had an opportunity to review our presentation and results, which have been uploaded on ours as well as on the stock exchange website. I'm happy to share the quarter ended June 30, 2022, was the best quarter in PVR's history with the highest ever revenue, EBITDA, in fact. Please note that the above numbers are after adjusting for the impact of Ind AS 116 relating to lease accounting and are different from the reported numbers which we submitted today to the stock exchange. This robust performance was driven by the strong bounce back in theatrical admissions, with 25 million patrons visiting our cinema during the quarter.
This is further bolstered by a strong growth of 23% in average ticket prices compared to Q1 of 2019 and 2020, which is a pre-pandemic period to INR 250, and a 32% growth in average food and beverage spend per head as compared to Q1 of 2019 to INR 134, which is the SPH. The quarter was marked by the release of some of the biggest domestic hits like KGF 2, which went on to become the second highest grossing domestic movie of all times. Net box office for the KGF 2 alone contributed 23% to PVR's overall box office collection for the quarter, which is the highest ever movie collection by PVR. RRR, which was released in the last week of March, had significant spillover revenue in the last quarter.
Bhool Bhulaiyaa 2, Vikram, Doctor Strange from Marvel, Top Gun: Maverick and Jurassic World Dominion were the other big movies that did well during this quarter. The content pipeline in the months ahead looks promising. Over the next few months, we have several big budget Bollywood movies lined up for release like Shamshera, Laal Singh Chaddha, Brahmāstra and Vikram Vedha. From Hollywood, we have Bullet Train, Force of Fury, DC League of Super-Pets, amongst others. From the regional genre, we have Vikrant Rona, Liger, Godfather and Ponniyin Selvan. On the F&B front, the company recorded the highest monthly average F&B revenue of INR 100+ crores during the quarter, with strong underlying growth in SPH. The robust growth was a result of our team's focused efforts on F&B initiatives.
The company has opened 14 screens across three properties in the last quarter and is fast ramping up its CapEx plan to open a total of 125 screens by the end of the current fiscal. About a third of our new screens addition will be in tier two and tier three cities, and we will be entering into 9 new cities during the year. The entire CapEx will be funded through internal accruals and liquidity available with the company. Our screen portfolio currently stands at 854 screens across 173 cinemas in 75 cities in India and Sri Lanka.
Gross debt during the quarter has reduced sequentially by INR 91 crore and was INR 1,414 crore as of the end of Q1 FY 2023 as compared to the end of Q4 FY 2022. Net debt was INR 844 crore. A quick update on the progress of the proposed merger of INOX Leisure Limited with the company. Both the companies have received no objection certificates from the two stock exchanges, that is BSE and NSE, on the proposed scheme of the merger and are in the process of filing an application for the approval of the scheme of merger with NCLT in the next couple of weeks. I'm told that NCLT process typically takes anywhere between 5-7 months, so we seem to be on track.
Given the excellent performance of the movie in the last few months and a very promising lineup of content that is up for release during the rest of the year, we are expecting full recovery in admissions and advertising income over the next couple of quarters. I believe that this year will be a great year for the company. With these opening remarks, I open the platform for any Q&A. Thank you very much.
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. One moment while the question queue assembles.
Our first question is from Abneesh Roy from Edelweiss. Please go ahead.
Yeah. Thanks, sir. COVID, where is now ATP.
Yes, yes, definitely. I'll Abneesh, you're the first person to ask or always the first person to ask the first question, so that's something that intrigues me. In the meantime, I'll ask Gautam to answer this question 'cause ticket prices has been going up every year, as you rightly pointed out. We believe that this is really about the glass ceiling. There are still certain cinemas where 80% of the ATP. This trend has to just now keep growing. We seem to have strategy hospitality and certain promotions which are run around F&B seem to be working very well. You know, in a couple of years, we can clearly see that the SPH could be matching our ATP. Actually you're Pranav saying, does ATP need to be blended down?
No. proportion gets to it.
Per screen basis, how do you see the normalcy coming per screen versus pre-COVID? Why I'm asking this is currently still Q1, Q2, we expect huge cutback by advertisers because of the inflation pressure which they are seeing. On the other hand, we are also seeing discretionary sectors come back. If you could discuss a bit on the mix of advertisers also versus pre-COVID, has that changed anything dramatically? In terms of normalcy versus pre-COVID ad revenue per screen, when do you see that happening?
There's lots of questions that you've asked, but let me give you a macro trend here. We believe that quarter two, we should be getting our averages lot better than the pre-COVID numbers or the Q1 as against Q1 of last year. Currently we are in a gap of about 38%. This should be reduced to about 20-odd% in Q2. By Q3, which is really a festive period, and lot of advertisers begin to advertise, we believe that we'll be within the pre-COVID levels or maybe 5 or 7% lower. I am very certain that by Q4 we will end up sort of exceeding the pre-COVID numbers. That's gonna be the trajectory.
Having said that, yes, there's also been a big churn in the advertisers, those used to come earlier to now. We are seeing a lot of traction with new age advertisers who've come in. Some of the FMCG and the multinational brands are taking a little more time, and we hope that by quarter three, they would possibly be back at the cinemas. That's largely what it is. Retail clients are showing a quicker turnaround, and we are seeing that while the RO size is small, but they are kind of coming back to cinemas much faster. Overall, I think quarter two is gonna be a little under pressure, but the average will get better than what we have achieved in Q1.
Q3 is really where I believe that we'll be largely in the hitting range of pre-COVID numbers.
Just to get clarity, if I see your ad revenue in Q3 FY 2020, it was almost double of what you have done in Q1. You're saying.
Yeah.
You'll be ending up pretty close to that. You think in two quarters you can kind of double this number to around INR 120-
Uh, uh-
INR 115 crores, 110
Yeah. When it begins to ramp up, this number can really jump up. With some of the big releases, which are gonna be there around quarter three, which I said was the most, you know, a quarter where the maximum footfall also gets in. I believe that we will be in around a very good range of what we had done pre-COVID. That's where I feel we will be. In quarter three we'll be able to get there.
Sure. One last question. One concern I think a lot of investors are having is on the performance of the main Hindi movies, which is extremely important for you in terms of box office. When do you see it fully reviving? What is the issue here? I understand the usual answer of content, but we are definitely seeing South Indian movies doing consistently well and while Indian Hindi movies are not doing well, so it can't be only content. Is there some other issue also?
There is no issue as such, Ajit, actually. I think it's too early. It's only been three, four months since movies have started coming and, you know, basically I'm not gonna write off Hindi movies so soon. There are some big movies lined up. People just want to watch whatever appeals to them. It just so happens that these two big films did exceedingly well and they have overshadowed other releases. We've got, you know, Shamshera coming tomorrow. We have Laal Singh Chaddha, Raksha Bandhan on a very big weekend in August, which is a five-day weekend from eleventh August all the way to fifteenth August. Then we have Ram Setu coming, we have Vikram Vedha coming. There are some big movies coming and these are the big names.
You have smaller movies which have always traditionally become sleeper hits in the past. It just took one quarter is too short a timeframe to draw any conclusions that, you know, that only regional films will dominate and Hindi will not do well anymore. We have to let the whole year pan out, and I don't see any problem whatsoever because there's some prolific filmmakers and directors and actors, even in the Hindi film industry who are also seeing this happening and they'll bounce back. No problem whatsoever.
Okay, that's all from my side. Thanks a lot.
Thank you. Our next question is from Aaron Armstrong with Ashmore Group. Please go ahead.
Hi. Good afternoon. Thank you very much for taking my question. First question would be around box office, please, and kind of relates to some of the earlier points made. Can you talk about the box office growth and the revenue growth that we've seen this quarter, and whether that reflects pent-up demand and very good slate of movie content? Or does it more reflect PVR gaining market share and consolidation of the industry? Just kind of where you would place the emphasis on those two.
Kamal Gianchandani, would you like to take that?
Sure. You know, firstly, I think the performance of Q1, and if I was to also include March 2022, the performance in these four months reflects partly the pent-up demand. It also reflects and it also puts the debate that whether people would come back to theaters, whether the consumer appeal of movie theaters has gone down, streaming has taken away a lot of eyeballs. That debate has been put to rest, and that's reflecting in these four months' admissions. It's also the quality of films. You know, some of these films which came out were exceptional films. Marvel came out with Doctor Strange. Warner came out with Batman in March. Mr. Sanjay Leela Bhansali came out with, you know, another addition to his ever-growing list of successful films.
Of course, we had KGF and RRR, which surprised everyone on the positive side. It was a mix of pent-up demand. It was a mix of the fact that this whole debate came to an end. The consumer appeal for movie theaters is very much intact, and it's also the quality of content. I would also like to add another point to the earlier question from the panelist, where there is a concern about some of the Hindi films underperforming, and Mr. Bijli summed it up and he answered it comprehensively. I would only add one point to it, that Hindi films have done well. Gangubai, The Kashmir Files, Bhool Bhulaiyaa, even Jugjugg Jeeyo, which came out recently, they have all done well.
Also, we have to keep in mind that KGF and RRR actually performed a lot better in the Hindi version. Whether you would categorize them as a Hindi film or would you consider them as a Kannada or a Telugu film is a matter of debate, depends on which angle you're looking at it from. We think of them as Hindi films. The way we look at it is that if RRR, KGF, which are films essentially dubbed in Hindi, can do so well, imagine when a Hindi film in the original version with a popular actor or with multiple popular actors, the film which will connect to audience, imagine the limit, the upper limit for those films. Imagine the potential for those films.
We see it as a big positive, and those were the three elements why we think content has done well, these four months have done so well for us.
Thank you. Perhaps on the market share side of things, would you say that your market share is now higher than it was pre-COVID? Any kind of consolidation signs or smaller operators exiting the market?
That's a good point and thanks for adding that question. Definitely the market share of I would say larger chains which have more credibility with the consumers, definitely the market share of such chains has gone up as compared to the pre-COVID period. I won't comment on consolidation at this point because we are in the midst of a merger. But your question on whether smaller chains are exiting, well, I mean, to be honest, at a very macro level, at a very high level, the number of people who have exited the business is a fairly small number. It's a moderate part of the overall screen count in India.
We reckon it's less than 10%, and it's mostly those cinemas which were underperforming or which were not contributing with any meaningful box office, even at, even during pre-COVID. Those are the ones who have exited. From industry point of view, at high level, there hasn't been a lot of exit.
Thank you. Pat, to tag on one final point, if I may please, would be just around the sustainability of the excellent numbers that we've seen this quarter. We've spoken about pent-up demand. We've spoken about a very strong slate of film content. Does that kind of feed into an expectation that we could see there's some softer quarters later in the year?
Well, you know, the subsequent quarters would have certain quarters which will exceed expectations, and there is a possibility that certain quarters could underwhelm in terms of admissions. To be honest, the way we see it, the way we look at the lineup that we have in the third quarter and the fourth quarter of this current financial year, we feel fairly confident that this could turn out to be a year which will end up with admissions, aggregate admissions, which are a lot better than what we did in 2019/20. We feel extremely buoyant looking at the lineup and the response that we've got from the audiences. That said, you know, our business is of hits and misses, and I think it's best to look at it on annual basis rather than on quarter-to-quarter basis in terms of admissions.
There are segments like Hollywood films which have a depressed number in terms of quantity. Quality is fantastic. Doctor Strange, Spider-Man, Top Gun, all of these films have exceeded the expectation, Jurassic World. As far as the quantity goes, studios are still ramping up their production. Same is the case with Hindi films. Producers are still ramping up their production. There has been a lot of disruption in terms of shooting over the last two years. We could have some surprises as we move forward, but I think at an annual level, for the entire financial year, we're looking at very strong set of numbers in terms of admissions.
That's great. Thank you.
Thank you. Our next question is from Jinesh Joshi from Prabhudas Lilladher Private Limited. Please go ahead.
Yeah. Thanks for the opportunity. Sir, I have a question on the windowing gap, which I suppose was expected to revert to 8 weeks by the end of July. Has that already happened? That is question number one. Secondly, if I'm not mistaken, we recently piloted one program, which allows subscribers to watch movies on weekdays by paying some monthly subscription fee. If you can shed some light on this plan, how has been the response to it, that would be really helpful.
Your first question on windows, answer is yes. On first August, we will revert back to the erstwhile 8-week window, which is what used to prevail, be prevalent pre-COVID. We will revert to 8-week window on first August 2022. On your second question, with respect to subscription program, I would request my colleague, Gautam, to share some comments.
Hi. Actually on the subscription, we had to go a bit slow simply because the regulatory authority had some issues regarding, you know, payments, recurring payments for over three months. There were certain negotiations and certain clarity required from the regulator. We are planning to go and launch this in a big way. We've already sort of piloted this project. However, on the recurring payment plan, there was certain amount of, you know, as I said, regulatory concern, which has been managed now. We'll be now going full steam with the phase two of the launch.
Sure, sir. Secondly, I have one question on the bookkeeping side. If I look at our electricity and utility charges, they are lower by about 4% when I compare it with the pre-pandemic days. Now, this is despite the fact that we are operating with a higher number of screens in one week. If you can highlight the reason behind this. Secondly, in the opening remarks, you mentioned that our debt is down by about INR 70 crore sequentially. Where exactly do we expect to end the year with on the debt side? That's the second question.
I think the reason for low electricity costs is because of, you know, the tight control that we've kept at operating level on some of the unit consumption. Also, some of the states, we've got reliefs from the government which are temporary in nature. I think both of things coupled, you know, helped us is to keep the costs, the unit consumption under check. These costs will gradually rise, as there is increase in power costs all over. We will try and keep them under a tight control as much as possible.
Also, you know, on your second question around leverage, I think the operating cash flows of the business continue to remain strong. You know, since we will be opening a lot of screens this fiscal year, the focus during the next nine months will be to, you know, use some of the operating cash flow to, you know, fund most of the growth. It's difficult to say what our net debt numbers will look like. We want to sustain those numbers because we want to reinvest all the operating cash flows into growth and that will be the focus for us this year.
Basically, if we are funding our CapEx needs via operating cash flow, essentially the debt levels should not rise from here on. Is that?
No, no, they will not rise from here. They will not rise from here.
Sure, sir. Thank you so much.
Thank you. Our next question is from the line of Harit Kapur from Investec Capital Services India. Please go ahead.
Yeah. Good evening. Just had two questions. The first one on the rent side. If you take, you know, the rental numbers, 2.1 plus 1 to 0.5, that's about INR 2.6 million per screen. We've seen a roughly 26% kind of increase in rental costs as well as 18% in CAM, I think over a 3-year case or even about 4.5% in comparable properties. Just wanted to get your sense about, you know, whether this INR 2.6 million is something that we have to now expect on a going forward basis because this is the, you know, kind of pent up increase that you've seen over a 3-year period.
which will imply that, you know, rent to revenue is a little higher than what your pre-COVID number was. You know, how do you think about this?
Yeah, first of all, our rentals will continue to grow with, on a contracted basis, roughly 4%-4.5% CAGR. Our revenue growth, you know, is much stronger than that. I don't know why, when you say that our rent to revenue ratio will keep rising, I'm not able to get that because rent to revenue ratio should actually, you know, either remain same or will get lower because the revenue growth is stronger than, you know, the rental growth right now.
No, I meant for this year. This year so far, I mean, if you look at FY, if you look at quarter one, we're at 23%, which is compared to quarter one 2020, I think we're at 21%. That number is higher. I think. Is this like a rebasing and then from there it starts to come off in 2024 onwards? Is that the way to look at it?
No, I think that's not the correct way of reviewing this, because, you know, Q1 revenue still does not reflect full recovery in admissions, still does not reflect full recovery in advertising revenue. In that respect, I think you should look at the rental number on an annual basis. Even in Q1, on INR 1,000 crore revenue, our rent is about INR 180 crore, which is about 18%. You know, there is from a rent to revenue ratio perspective, there is no material change.
Okay. Maybe I'll take that offline. The second question was on the personnel cost side also. You've mentioned that, you know, there is an expected move up on account of increments and wage inflation. This quarter you kind of managed it at similar levels. It is down 2%. I think you had made a comment that, you know, you'll try and keep it in the similar ballpark as pre-COVID. So just want to know any change in that thought process, given the reasons to kind of, as I said, you know, wage inflation as well as the increments at the top level?
Yeah, I think our personnel cost per screen will move up by about 9%-10%, you know, from existing levels on account of wage inflation, which is, you know, minimum wage increase and increments for people over the existing levels. On an absolute level, you know, if you look at, you know, the amount of headcount reduction that we've managed to squeeze in, we intend to sustain that. You know, there will be very, you know, limited increases in the headcount savings that we've managed to achieve. You know, if you look at a three-year period and then compare, you know, and factor in the inflation for three years, it is significantly, you know, lower as compared to the revenue growth that we are seeing.
My last question was on, you know, you mentioned that, you know, admits are not yet back fully. You know, this seems like a fairly normal quarter where, you know, you had some big films as well. Obviously you've had a very good overall revenue performance led by ATD and FGS as well. I understand that occupancies are a little lower. Wouldn't you think that this is as normalized as it could get from a footfalls perspective? You know, anything I'm missing there?
No, I think it will be slightly premature for us to, you know, come to that. I think we've not had a full run of operations. There is still a large segment of people who've not shown up at the cinemas. Our sense is it will take a few months for the full recovery to play out as more films get released across theaters, as more genre of films release across theaters, you know, whether it is Hindi films or big tentpoles like Avatar, which will draw consumers back to cinemas. The full recovery will take, you know, another 6 months to play out. Our sense is by December of this year, you know, where you have had a big run of films, you know, effectively recovery should take shape fully.
Because, we must also understand that in a country like India, there is a very large segment of people who show up at the theaters only once or twice a year. For that to, you know, play out.
You have to give it time and see a full recovery. Our sense is by end of December, we should hopefully be able to see some of that.
Okay. That's okay. Thanks and all the best.
Thank you. Our next question is from Pratik from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi. Just wanted to check, you know, with this rebasing of rent which has happened plus the 5% revshare, how should I think about SPH and ATP, especially in quarters which are dull or where there are more hits or more misses, sorry, other than hits?
SPH, there will be no change at all. Largely we feel that a 30% growth can easily be maintained. On ATP is really a function of, you know, what kind of films get released. If we do not have a mega blockbuster or a tentpole film, then ATP could be depressed by about INR 10 or INR 12, but nothing very significant. Given the flow, whenever we will have big films, we'll be able to record similar ATP growth as well.
Okay. That's really helpful. Secondly, if you were to break down the admission recovery between metros, Tier 1, Tier 2, can you just give us a flavor where the slack or the rigor is coming from or which pocket is contributing to the higher GDP growth?
Kamal, would you like to take that?
Sure. Even the recovery, the Tier 1, Tier 2, have had similar recovery, but there are pockets within tier one which have underperformed in terms of admissions. You could attribute it to the kind of films which have done well because these films were targeting the lowest common denominator. They appeal to a certain sensibility, and as a result, certain pockets which tend to be affluent, have shown results which are inferior as compared to certain other pockets. That's one. Number two, like Nitin touched upon, briefly in his commentary, there is a large number of people who come to our theaters once a year. There is also sizable number of people who come only twice.
We from various analytics that we do, we are observing that a lot of those people have not yet come back to theaters.
Mm.
Which means cinemas which are more dependent, cinemas which have more frequent moviegoers in their catchment, they are showing superior recovery and catchments which have less number of frequent cinegoers are showing slightly inferior recovery. Also, like Nitin mentioned, these are still early days, and we'll have to give it another 5-6 months to form a firm view on which are the areas which have underperformed and which are the areas which have done better. Yeah, that's a very high level sense of what's happening in the marketplace at this point.
Kamal, let's say this continues after six months. What do you do to get the people back?
No. The way we see it, you know, all possibilities are there on the table. You're right. I mean, there could be certain quarters which underperform. But the way we see it, at a very high level, the earlier sentiment or the consumer preference for theater going is very much intact. Producers who were experimenting a lot with different models, different distribution models, I mean, in some cases they were going direct to streaming, in some cases, at least in the U.S., producers, distributors were releasing it simultaneously with theatrical, even on streaming. All of that has stopped now. Windows are back.
Producers have come to a conclusion, and I think even streaming platforms recognize and respect the fact that the first-run model of following windows being respectful to windows is the right way of creating value for the entire ecosystem. Also, when we look at the films which have been lined up and the kind of response that we've seen for KGF, Spider-Man earlier, in November last year, films like Pushpa, which released with pretty much no marketing, not a very known popular face in the Hindi belt, the kind of performance we've seen. Even films like Rocketry, which picks up later. What we are seeing is that the consumer sentiment is to escape. People want to escape from news. People want to escape from, you know, this constant war or inflation or other worries which we have in the economy.
They are finding cinema still as the best platform to get this escape mode.
The success of films that have performed, the quantum of, and the scale of success is clearly showing that this possibility of this year underperforming is fairly remote. Your question, sorry, I gave an elaborate answer, but your question, what will we do? I mean, I would not get into that because that is all sensitive strategic information. Frankly, from our prism, the way we look at the whole situation, we don't see that situation panning out this year. This year looks like we're going to have a V-shaped recovery, a very sharp bounce back. At the end of the year, that's what we're going to finish with.
Thanks for this. Very helpful. Just wanted to check, can you call out quarter one FY 2023 industry box office collections? Is it possible?
Oh, industry-wise you're asking?
Yes.
I can tell you that in the first six months, I don't have the breakup for Q1 and, I mean, Q4 of last year and Q1 of this year. The data that we have is that, the gross box office of the industry, and I'm sharing gross box office, not the admissions-
Mm-hmm.
It is roughly INR 5,700 crores, which is slightly better than what the industry did in 2019. This considering the backdrop that the whole of January got spoiled because of Omicron, and then half of February was impacted because of Omicron. Even with that constraint, you know, finishing the first six months with INR 5,700 crore box office is a fairly aggressive achievement. A lot of pent-up demand, a lot of credit goes to KGF, RRR, but those are the numbers. First six months, about INR 5,700 crores, better than 2019.
Thanks. Thanks for this, and all the best for this.
Thank you. Our next question is from Anurag Dayal from HSBC. Please go ahead.
Yeah, hi. Thanks for taking my question. First question, basically is about seats per screen. So as per my calculation, I could see the seats per screen has been coming down. Used to be around 220 odd, which has come down to around 210 or below that in this quarter. So what's the reason behind it? Is it because you are moving more into smaller towns and opening smaller properties? Shed some light on this and how do you see it going forward? There's also been moderation.
Yeah. I think the new properties that we've opened you know have average lesser number of screens. Some of the premium properties that we've opened, like Maison or you know a new Director's Cut in Gurgaon, et cetera, they are more premium with a much smaller auditorium count, more premium in terms of facilities. So yes you know the average seat count on the new screen portfolio is close to that number about 200 odd screens per seat. Depending upon how the mix is evolving you know at that particular year your averages reflect that way. Also you know we've shut down a few cinemas which were old you know and dilapidated. We've also exited a few properties. So that's the sum total operation.
Also to add what Nitin said, we are adding more premium screens in our circuit. Except for IMAX and PXL, all the premium formats are largely operating in slightly smaller auditorium sizes. Whether it's the 4DX, whether it's the Playhouse, whether it's other formats as well, Lux and Director's Cut, they all operate on slightly smaller auditorium sizes, which technically brings the average a little down.
Okay. Just a follow-up on this is, I understand it's around 12% of screens are premium right now. How you see it going forward? How much, in a ballpark, it could go in the next five years, say?
Sorry, Anurag, can you repeat your question?
I'm talking about the share of premium screens is around 12% currently. How you see it going forward over the next five years to be higher? How much? Something target. Is there any target which you have in mind?
Yeah. I think we are focused on creating more and more experiential cinema offerings. I think, our sense is it'll keep inching up, but I think, over a long period of time, say next five years, this number could potentially look like 18%-20% from 12% levels.
Thanks a lot. I have another question. It's basically what I have read is you are exploring a franchisee route, you know, for screen additions, a kind of asset-light model. What is the thought process behind it? If you can give some insight on how the mechanics of franchisee cinema work for you guys. Anything, any directional in terms of how much it is, higher or lower in terms of CapEx and OpEx. Anything insight will be really helpful for that.
No, I think it's slightly premature for us to talk about that. Once we launch a few screens and we open a few screens, we'd like to talk a little more about that. I think, currently we are focused on doing a lot of screens the way we are doing. Obviously, the focus is to reduce the CapEx per screen, and that we are constantly working on, but we haven't launched a full-scale franchisee model as yet. When we get there, I think when we've opened a few screens, we'd like to talk a little more about it. I think slightly premature for that.
Thanks. Thanks for answering the questions.
Thank you. Our next question is from Piyush Sharma from Minerva India. Please go ahead.
Yeah. Hi, good afternoon. First off, just wanted to better understand the IMAX formatting challenge for domestic content. Now, IMAX typically requires content, I guess, two weeks before release, and I think becomes three weeks for international delivery. Domestic producers have struggled, at least historically, with that. Do you see this changing going forward?
Piyush, this is Kamal. I'll take this question. I must say that you're quite clued on because this is a constraint which only people in the industry would know. Answer to your question is, it has improved considerably. Both non-Hindi Indian film producers as well as Hindi film producers have become extremely proactive. They are preparing, they are finishing their films much in advance. Not just in advance to be able to deliver it to IMAX and many other service providers so that they can format it in that particular, they can process and, you know, make it ready for that particular format. Also a lot of producers are doing screenings to get feedback on the film and then make changes in the film if they find the feedback relevant.
Answer to your question is, yes, things have improved a lot, and producers are finishing up, wrapping up films much in advance, and then they're leaving enough time to do a lot of, you know, last minute R&D before they go out and release. Of course, naturally, you know, formatting, processing for these formats is no problem anymore.
All right, great. Secondly, now while ticket receipts can be directly attributed to premium versus regular formats, and that we will do, would it be possible to get some sense of how concession revenues are broken down between premium versus non-premium screens roughly?
To answer your question, first and foremost, in terms of FPH to ATP ratios, this ratio is a lot more healthier when we talk about premium screens. Now we honestly do not have a way to figure out, you know, concession, you know, candy sales, in a cinema where all formats feed out of the same concession. I'm talking largely in context of the Luxe auditoriums or the Gold Class auditoriums, which has a separate counter. There our FPH to ATP ratios are about 70%. Even the actual FPH numbers hover around INR 350-INR 400 rupees per person.
Overall, when you look at any property which does have a premium format, even if it feeds out of the same concession, the ratios are much healthier. Premium auditoriums, wherever consumer is paying a little more as ATP or ticket pricing tends to even come and consume more food. Clearly a premium format helps to build a better candy sales numbers.
Okay, that's helpful. Just very quickly looking at Slide 12, you've got box office ATP and admissions tagged versus fiscal first quarter 2020. Possible to share the ATP movement on comparable properties versus like this?
I think ATP. There is no big difference in the ATP movement in comparable properties. I think it's largely in the same ratio.
Okay. Very quickly, if I can slide just one more. Just next slide in slide thirteen, you've got language-wise contribution. This is clearly not original content contribution. But if you were to hypothetically recreate this in original content, fair to say that Hindi would have dropped not just from 47% to 46%, but much sharply lower?
Yeah, that's correct. Because, you know, the Hindi language contribution of KGF and RRR and Vikram have been quite decent. It's absolutely, you know, fair to say that if you were to, you know, remove that and count it as a regional content, then this ratio would be much lower.
All right. Okay. Thank you so much, Nitin and Kamal and everyone else. Thanks.
Thanks. Thank you. Our next question is from the line of Arjun Prasad from Spark Capital. Please go ahead.
Yeah. Thank you. Thanks for the opportunity. I joined a little bit late, so apologies if the question is repetitive in nature. What I am trying to understand, Kamal Gianchandani and Nitin Sood, is that I am looking at this quarter compared to the first quarter of FY 2020. If I see that the screens growth 3-year CAGR is close to 3%-3.5%, whereas the rental expense and common area maintenance has grown by more than 8%-10%. Is it because the developers sort of now trying to charge higher rent to offset certain losses they had during the COVID? Or how should we read these numbers?
That's not the case. You have to factor in a three-year inflation in cost. We've gone back to paying full contracted rentals. Our rentals year growth on an annual basis is about 4.5% per annum. If you look at the slide number 10, slide number 18, you know, we've given a breakup of how the rental cost has evolved. Our rental cost, you know, across comparable properties is up 18%-19%, out of which 14% is on account of a three-year, you know, rental escalation, which is kicked in on a regular contracted rent. The balance 5% is revenue share link. You know, because we've done great revenues, you know, we've also shared, as per our contracts, a percentage of that with the landlord. That's primarily the reason.
There is no, you know, clawback or any such thing.
This run rate should continue. There is no law or anything like that. This should continue as you move forward.
That's correct. Correct.
I also missed, I'm not sure if anyone asked, I missed the commentary on the ad revenues per screen, which looks like it is still expected to recover completely to the pre-COVID levels. What is your sense and outlook on this revenue front?
Yes, this, as I have just spoken, will take some time, and we hope that, by quarter three, we would be within the hitting range of the pre-COVID number. Currently, it's down. We should recover in terms of percentage, in quarter two. The, you know, the full recovery would technically be closer in quarter three, or one could safely say in quarter four, we may end up exceeding the pre-COVID number. quarter two, we are still gonna be lagging behind.
All right. Just reading across commentary from others, especially FMCGs, what used to be the contribution from FMCG to your ad revenues? Is it like, are you getting dragged on because their spend is lower, or any other category which is not yet back to the mark? Some category-wise commentary would be very helpful in coming.
FMCG, of course, was contributing close to about 15%-17% of our total revenues. That's taking time. The second big category which was contributing, which is telecom and handsets, which have also slowed down simply because of imports to India and the shortage of those chips and they have lesser products to sell. These are the two which has taken a bit of a dent, and we believe that and we've been really having a lot of communication with the brand managers there. We believe that quarter three, because that's the festive time, they're all kind of gearing up for making sure that India has enough and more supply, is when these guys will come back into advertising in a big way at the cinema. Yeah.
Very, very helpful comment. Thanks. That's it from my side.
Thank you. Our next question is from Abneesh Roy from Edelweiss. Please go ahead.
Yeah, thanks. I had few follow-up questions. First is on some of your new or smaller businesses like the cleaning service which you had launched during COVID. Is it more of a marketing exercise? I understand you do have some level of core competence or maybe a lot of core competence. But are you seeing any traction from the B2C side of customer here? And similarly, on the popcorn and the WeCafe or your presence, say, on Swiggy, how is the scale-up? If you could discuss that.
Sorry, your first question I couldn't get it.
Mm-hmm.
V-Pristine is actually showing us some very encouraging number. While the numbers in relatively could be small, but it's very consistent and growing. We do about INR 30 lakhs odd revenue every month, so that's growing and very, very encouraging. Even on PVR PopMagic, which is our microwave popcorn, this has been one big, I think boon of the COVID time. Some of the SPH that you see is because of the volume of PVR PopMagic which is being sold at the cinema. This is a wonderful product because consumers buy. We add it in our SPH, but these popcorns are not consumed at the cinema. At one end, we are kind of servicing their hunger by selling them more product.
We are also beginning to supply them a food which they can take home. On both ends, it's kind of doing a brilliant job. PopMagic is doing very well. This is pan-India. It's not just a region-specific thing. Overall, it's contributing to every cinema in every region in a very positive way. Our initiative around Zomato and Swiggy is I would say not so encouraging. We are kind of learning a lot as we move forward. This is a different ballgame, and we are also realizing that it needs a different mindset to be able to come out winners within this program. We're not giving up. We are still working with
Our partners, Zomato and Swiggy, to see how we can make this bigger. We've realized one thing that this business will at best contribute positively in some locations and deliver a certain SPH contribution to a cinema. If you look at it as a standalone business, may not be very sizable ever.
In Swiggy, Zomato.
Um-
Yeah.
Yeah.
No.
Go ahead.
In Swiggy, Zomato part of business, any plans for setting up, say, a cloud kitchen? Because I think that is a bit more relevant. Do you have any number in mind as to how much of, say, initial investments or, say, losses in this part of the business? Because I do understand it does get cross-subsidized by your current infra. If you evaluate on a standalone business, are you looking at any investment or this is just more of a pilot project?
Yeah, I think we have to rethink the whole piece because we also realize we need a larger network. I think we will have to reimagine this, you know, post the merger as well as our network of cinemas will go up significantly, you know, in a lot of markets. You're right, I think it will just not be about adding cloud kitchens. I think we'll have to rethink the whole business plan of how to make it relevant, which may require some investments. That's not the concern. I think we'll have to rethink the whole piece, how to make it relevant. I think, you know, next year would potentially be the right time to do it as we have a much larger network of cinemas across cities.
Globally, do multiplexes in any country do this kind of business delivery?
Not at all. Not even one. I think across the board, I would say, PVR took this charge. No one else has ever tried this before.
Sure. Last question was on essentially closure of some of the tough properties or properties which have lived their life. Any more color you can give in terms of, say, next 1 year, 2 year, how many properties you see undergoing this kind of evaluation? Because in retail this is quite common, right? That always churn keeps happening, and malls also become dead. Could you discuss any numbers? Next 1 year, 2 year, how many such properties can happen?
No. If you look at it, you know, we have typically long leases, and when these leases come to an end, typically we continuously evaluate this on an ongoing basis. During, you know, the last two years, three years from June 2019 till now, we've shut down 39 screens, out of which, you know, 23 the leases expired, we did not renew for Cineline, and the balance 16 screens we shut down. We believe as of now, bulk of our portfolio, I would say 95-96% of our portfolio is absolutely prime and doing exceedingly well. I think there will be 2-3% of the portfolio, which is in malls, which probably have outrun their life, but they still cinemas continue to still do well.
you know, over a life cycle, we continue to evaluate this, you know, on an ongoing basis. If I am getting into a new market, into brand-new shopping malls and building my market presence and the existing cinema has, you know, lost steam or that mall has become irrelevant, you know, we take those calls to move out and shut down those locations and properties. I don't think that number is, quite honestly, any significant number. It will be not more than 1% or 2% of the portfolio, and that's part of our annual exercise.
One follow-up on Cineline. I understand it was just 2-3% of your impact on numbers. In those markets, are you able to get some part of the demand back because now your partner is kind of competing against you and of course they'll have some, obviously, expansion plan also. If you could address both parts. Are you getting some part of the demand back, because now it's not part of network? Second, do you see them as a competition, in terms of longer term because of expansion?
No, I think it's good for the industry that we have more and more operators because, you know, there will be cinema opening opportunities all over the country. Some we will find viable to do, some we may not find viable to do. It is good that the country adds more and more screens. It's good to have somebody who's willing to put capital to add more cinema screens apart from us. On Cineline, like we said, you know, it was not a very big portion of our portfolio, less than 2% of our overall revenues. Our cinemas in West have actually done quite well this quarter. In fact, only 50% of those screens that we were operating in Cineline properties were, you know, a relevant screen.
Some of them have outlived their lives and that got replaced by new cinemas. We believe that, you know, this churn, this is like any other regular churn that will keep happening in our portfolio. Every year we'll keep, you know, shutting down one or two properties which will stay not relevant and keep replacing them with new screens that we'll end up opening in those markets. We don't see that to be any major concern.
Okay. That's quite helpful. That's all from my side. Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. Now I would like to hand the conference over to Mr. Nitin Sood for closing comments.
No, I'd just like to thank everyone for taking out time for our earnings call. If you have any follow-up questions, feel free to write to me. Thank you.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.