Sector Update – Media: Multiplexes – resilient segment…

Multiplexes remain our preferred space in the media segment while broadcasters continue to see near term growth challenges. On the multiplexes front, the box office collection continues to be healthy, albeit Hindi big budget/starrer movies have disappointed sans “Bhool Bhulaiyaa 2”. We see continued healthy traction in box office collection led by strong content line up and also see combined entity of top two multiplexes a key beneficiary of scale – in terms of expansion, revenues and margins profile. Our top bets in media are in the multiplex space viz. PVR (BUY rating; target price: | 2,240) and Inox Leisure (BUY rating; target price: | 670).

Broadcasting – ad challenges amid inflationary trend
We note that broadcasting segment saw ad growth challenges in Q4FY22 as FMCG companies – a key advertiser, had cut back on ad volumes owing to input price pressure. Furthermore, some near term headwinds in ad revenue is likely due to pull out of free to air channels from DD Free Dish. On the subscription front, NTO 2 implementation push continued to keep subscription revenues muted. With Trai working on consultation around NTO 2.0, the industry is expecting some easing of norms around pricing of channels. While commodity cooling off has been seen, FMCG segment ad will hold key for growth ahead. Similarly, broadcasters also continue to juggle on building OTT platform as well as spending big on movie production. While we see eventual consolidation, OTT scale up to drive growth ahead, the near term challenges remain.

Multiplexes – Hindi movies yet to fire!
One of the major concerns for multiplex industry has been relative underperformance by big budget/starrer Hindi movies post-Covid resumption. We highlight that in Q4FY22, major big budget/starrer Hindi movies like Samrat Prithviraj, Dhaakad, Jayeshbhai Jordaar, Runway 34, Jersey flopped. While failures are attributed to “Boycott” sentiments in social media, we believe logical attribution is content quality as viewers’ expectations, amid huge OTT consumption in last two years, have increased. We also note that on the other hand content of movies like Bhool Bhulaiyaa 2 (| 184+ crore collection), Gangubai, Kashmir Files have driven their success. Nonetheless, Q4 top contributor to collections were KGF 2 (~| 435 crore – Hindi), Bhool Bhulaiyaa 2 (| 184+ crore collection), Doctor Strange & residual collections of RRR in April. Also, Vikram (in Tamil) did stupendous business. Thus, we expect net box office collections in Q1FY22 to be only marginally lower than pre Covid (Q1FY20) despite strong movies like Avengers: Endgame, Kabir Singh, Bharat, De De Pyar De like hits in the base. With strong content line-up in H2CY22, we expect strong collection momentum to continue and believe pre-Covid run rate will be attained quicker than expected.

Prefer Inox, PVR as top picks…
We expect combined entity of PVR, Inox to have superior bargaining power across the value chain given the scale boosting the revenues, costs and expansion pace (looking to add 2000+ screens in next seven years as combined entity) with bigger balance sheet. On revenues, the low hanging segment would be advertisement as well as wider F&B offering ramping up SPH for combined entity. Furthermore, they would have higher leverage in convenience fee deals (when it comes for renewal in FY24) and distribution revenues opportunities. The box office recovery to pre-Covid levels also seems visible. Thus, we remain constructive on both PVR and Inox Leisure in the multiplex space. ICICI Securities