PVR-INOX’s Strategic Shift: Shutting 70 Non-Performing Screens and Monetizing Real Estate Assets

In a significant shift in strategy, leading multiplex operator PVR-INOX is set to close 70 underperforming screens during the fiscal year 2025 (FY25). This move is part of the company’s broader effort to ensure profitable growth, optimize its operations, and reduce financial burdens. As part of this new approach, PVR-INOX will also explore the monetization of non-core real estate assets in prime locations such as Mumbai, Pune, and Vadodara, according to its latest annual report.

Rationalizing Screen Portfolio for Profitable Growth

PVR-INOX’s decision to close non-performing screens is a critical component of its strategy to streamline operations and focus on profitability. Despite plans to add 120 new screens in FY25, the company is simultaneously taking a hard look at its existing portfolio, intending to close between 60 to 70 screens that are not meeting performance expectations. This closure comes on the heels of a similar move in FY24, where PVR-INOX shuttered 85 underperforming screens across 24 cinemas.

The multiplex operator is now turning its attention to regions where the demand for films is high but where it has been underrepresented. Notably, 40% of the new screen additions in FY25 will be concentrated in South India, a region identified by the company as having significant growth potential due to the relatively low number of multiplexes compared to other areas of the country.

Transition to a Capital-Light Growth Model

To further enhance its profitability, PVR-INOX is transitioning to a capital-light growth model, reducing its capital expenditure (capex) on new screens by 25-30% in FY25. The company plans to achieve this by shifting towards a franchise-owned and company-operated (FOCO) model. This approach will involve partnering with developers to jointly invest in new screens, thus easing the financial burden on the company while still allowing for expansion.

The move towards a capital-light model reflects a broader trend in the industry, where companies are increasingly looking for ways to grow without taking on significant debt or capital expenditures. By reducing its capex and relying more on partnerships, PVR-INOX aims to maintain a healthy balance sheet while continuing to grow its presence in the multiplex market.

Monetization of Real Estate Assets

As part of its efforts to become a net-debt-free company in the foreseeable future, PVR-INOX is evaluating the monetization of its non-core real estate assets. These assets, located in prime urban areas like Mumbai, Pune, and Vadodara, represent significant value that the company could unlock to reduce its debt. The company’s net debt stood at Rs 1,294 crore in FY24, and it managed to reduce this by Rs 136.4 crore during the same period. The monetization of real estate assets could be a crucial step towards further reducing this debt and improving the company’s financial health.

Financial Performance and Outlook

PVR-INOX’s financial performance in FY24 and the first quarter of FY25 highlights the challenges the company faces. In FY24, the company reported a revenue of Rs 6,203.7 crore but also posted a net loss of Rs 114.3 crore, marking the first full year of operations after the merger of PVR and INOX. The June quarter of FY25 saw the company’s consolidated net loss widen to Rs 179 crore, a significant increase from the Rs 82 crore loss in the same quarter of the previous fiscal year. This loss was attributed in part to the postponement of film releases due to general elections, which impacted box office revenues.

Despite these challenges, PVR-INOX achieved a 10% growth in ticket prices and an 11% increase in food and beverage (F&B) spend per head in FY24, driven by merger synergies and operational efficiencies. However, the company’s consolidated revenue from operations in the first quarter of FY25 fell to Rs 1,190.7 crore, down from Rs 1,304.9 crore in the year-ago period, while total expenses rose to Rs 1,457.5 crore.

Focus on Merger Synergies and Profitability

A key focus for PVR-INOX in the coming years will be the continued integration of the PVR and INOX merger, which has already yielded substantial synergies. According to Managing Director Ajay Kumar Bijli, 80-90% of the targeted synergies were achieved in FY24, and the company remains committed to restoring pre-pandemic operating margins, enhancing return on capital, and driving free cash flow generation.

CFO Gaurav Sharma emphasized that even though the company is cutting down on capital expenditure, it remains committed to growth, with plans to open almost 110-120 new screens in FY25. At the same time, the company will continue to focus on exiting non-performing screens to ensure that its portfolio remains profitable.

PVR-INOX’s strategic shift towards a more capital-efficient growth model, combined with the closure of non-performing screens and the potential monetization of real estate assets, reflects its commitment to enhancing profitability and reducing debt. As the company navigates the challenges of the post-pandemic market, these steps will be crucial in maintaining its leadership position in the Indian multiplex industry while ensuring long-term financial stability.