Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA/Stable/Crisil A1+’ ratings on the long-term bank facilities and debt instruments of PVR INOX Limited (PVR). Crisil Ratings has also withdrawn its rating on NCDs worth Rs 50 crore and the long-term principal-protected market-linked debentures worth Rs 100 crore, as requested by the client, and in line with the policy of withdrawal.

 

The reaffirmation factors the expectation that operating margins will rebound and sustain at above 11%, over the medium term, resulting in improvement in return on capital employed (ROCE) over 11-13% for fiscal 2026. The improvement is expected on the back of stronger content pipeline and steps taken by company for improving operating efficiency such as re-releases, alternate content screening, live sports screening, passport programme, etc. and focus on optimising the operating cost. The company fared lower occupancy of 23.9% during the first nine months of fiscal 2025, as against 26.6% in fiscal 2024, due to the lingering impact of the 2023 Hollywood strike, postponement in release of certain Hindi titles, and gap in the release calendar. This led to operating margins of 9.8% for the first nine months of fiscal 2025. Delay in ramp up will be a key rating sensitivity factor.

 

The reaffirmation also factors that company would continue a deleveraging path. Net debt has reduced to Rs 996 crore as on December 31, 2024, from Rs 1,294 crore as on March 31, 2024, and may decline further to less than Rs 800 core by fiscal 2026, to balance variability in operating performance.

 

The reaffirmation also reflects the strong market position with an established brand, expectation of improvement in operating efficiency, led by synergistic benefits and premiumisation, and the above-average financial risk profile. These strengths are partially offset by exposure to content risks inherent in the film exhibition business and rising competition from alternate media and broadcasting mediums.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of PVR; its subsidiaries, PVR Pictures Ltd, PVR Lanka Ltd and Zea Maize Pvt Ltd. The entities, collectively referred to as PVR, are engaged in the same business, under common promoters.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position with an established brand: PVR is the largest multiplex player in India, with 1,745 screens across 111 cities as on December 31, 2024. The second largest player in this segment is one-fourth the size of PVR. The merged entity has a geographically diversified screen portfolio across India. Going forward, the company will continue to benefit from its strong and established market position, via optimisation of the screen portfolio and better pricing power with stakeholders.

 

• Improving operating efficiency, aided by benefits of synergy and scale: Operating metrics will continue to improve, aided by synergy benefits, post-merger with INOX in January 2023, and increase in scale in the film exhibition business. This includes continued optimisation of operational parameters such as reduction of operating cost per screen and renegotiation of rental agreements.

 

The company is actively reducing upfront capital expenditure (capex) by transitioning to new capital-efficient growth models such as FOCO (franchise-owned and company-operated – 100% investment by the developer) and asset-light (40-80% investment by the developer). Gross addition of 100-120 screens annually would be mostly undertaken through the new model. The company is likely to incur overall capex, including addition of new screens, maintenance of existing ones, and IT-driven initiatives, of Rs 400-500 crore for fiscal 2026

 

• Above-average financial risk profile expected to improve further over the medium term: Financial risk profile is characterised by reduction in net debt from Rs 1,294 crore as on March 31, 2024, to Rs 996 crore as December 31, 2024. Further, Crisil Ratings expects that net debt will continue a reducing trajectory going forward.

 

Ebitda (excluding other income) has reduced to Rs 386 crore in the first nine months of fiscal 2025 and Rs 387 crore for calendar 2024, compared to Rs 712 crore in fiscal 2024, largely due to tepid performance of film content. Going forward, Ebitda (excluding other income) should improve, aided by a stronger content pipeline and steps taken by the company to strengthen the operating efficiency.

 

Weaknesses:

• Exposure to risks inherent in the film exhibition business: The film exhibition business remains inherently susceptible to fluctuations in profitability, due to variability in performance of content. Such fluctuations impact multiplex players, given their high fixed cost, and high dependence on occupancy, which is driven by success of films. Extent of fluctuation in operating margin has increased post pandemic, vis-à-vis pre-pandemic, when even films with poor reviews delivered an average box office collection, supporting occupancy. The harsher impact of weak content on occupancy post-pandemic has made the film exhibition business much riskier.

 

• Rising competition from alternative media and broadcasting mediums: Other forms of entertainment and new content distribution platforms, including over-the-top, have emerged as competitors for content distribution, especially for small- and medium-budget movies and longer form content. This trend will pose challenges in sustaining profitability and growth for PVR. Hence, material changes to consumption patterns from current levels by audiences over longer term will be monitorable.

Liquidity: Strong

Cash and cash equivalents were around Rs 664 crore as on December 31, 2024. Cash accrual is expected to be healthy over Rs 500 crore for fiscal 2025, against term debt obligation of Rs 420 crore. Commercial paper of Rs 150 crore will be due for redemption in fiscal 2026. Fund-based limit of around Rs 247 crore remained unutilised  as on December 31, 2024. Capex plans will be funded prudently via debt and internal accrual such that debt does not increase materially.

Outlook: Stable

Crisil Ratings believes PVR will continue to benefit from its established market position and brand equity, while the financial risk profile should remain supported by healthy cash accrual.

Rating sensitivity factors

Upward factors

• Sustained increase in occupancy levels, leading to higher revenue and sustenance of operating margin above 18% and RoCE at 30%
• Sustained improvement in the financial risk profile

 

Downward factors

• Delayed traction in improvement of occupancy, with profitability and / or ROCE remaining lower than 11% and 12% respectively
• Delayed deleveraging than expected

 

Environment, social and governance (ESG) profile

Crisil Ratings believes the ESG profile of PVR supports its strong credit risk profile.

 

The media and entertainment sector has a low impact on the environment because of low greenhouse gas emissions in core operations and lower generation of hazardous waste. The sector has a social impact because of its large workforce. PVR has continuously focused on mitigating its environmental and social impact.

 

Highlights:

• The company has been investing in rooftop solar photovoltaic grid, which is under implementation in 15 locations.

 

• As part of its corporate social responsibility (CSR) initiatives, PVR is constantly working in areas such as climate change and health and safety for women and children.

 

• The board of directors comprises 50% independent directors with a split in positions of chairman and chief executive officer, a healthy investor grievance redressal mechanism and extensive disclosures.

There is growing importance of ESG among investors and lenders. PVR’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high shareholding of foreign portfolio investors in the company.

About the Company

PVR was established in 1995 as a 60:40 JV between Priya Exhibitors Pvt Ltd and Village Roadshow Ltd (VRL), a world leader in the multiplex business. In 1995, PVR took a single-screen cinema hall, Anupam, in Saket, Delhi, on lease and converted it into a four-screen multiplex, which started operations in 1997 as PVR Anupam, and was the first multiscreen cineplex in India. As part of its global business strategy, VRL exited the JV in 2002.

 

In November 2012, PVR acquired Cinemax, strengthening its presence in west India. Cinemax operated in 39 locations with 138 screens. This acquisition made PVR the largest multiplex operator in India.

 

In May 2016, it completed the acquisition of 32 screens (29 operational and 3 upcoming) from DT Cinemas for Rs 433 crore.

 

In January 2017, Warburg Pincus LLC acquired a 14% stake in PVR—9% from current shareholders (Multiples Private Equity Fund I Ltd) and 5% from the promoters.

 

In August 2018, PVR acquired SPI Cinemas, adding 76 screens to its portfolio. In January 2023, the Mumbai Bench of the National Company Law Tribunal approved the proposed scheme of amalgamation of INOX with PVR, and the merger became effective as on February 6, 2023.

Any other information: Not Applicable