PVR INOX Ltd (NSE: PVRINOX) Q2 2025 Earnings Call dated Oct. 15, 2024
Corporate Participants:
Sanjeev Kumar — Executive Director
Kamal Gianchandani — Chief, Business Planning, Strategy
Gaurav Sharma — Chief Financial Officer
Pramod Arora — Chief Executive Officer, Growth & Investment
Analysts:
Ankur Periwal — Analyst
Abneesh Roy — Analyst
Jinesh Joshi — Analyst
Abhishek Kumar — Analyst
Arun Prasath — Analyst
Umang Mehta — Analyst
Naveen Baid — Analyst
Sukant Garg — Analyst
Ketan Athavale — Analyst
Nitin Sharma — Analyst
Palvir Bahia — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the PVR INOX Limited Q2 FY ’25 Results Conference Call hosted by Axis Capital Limited. [Operator Instructions]
I now hand the conference over to Mr. Ankur Periwal from Axis Capital Limited. Thank you. And over to you, sir.
Ankur Periwal — Analyst
Thank you, Neha. Good afternoon, friends, and welcome to PVR INOX Limited Q2 and H1 FY ’25 post result earnings call. The call will start with a brief management discussion on the earnings performance, followed by an interactive Q&A session. PVR INOX management will be represented by Mr. Sanjeev Kumar, Executive Director; Mr. Gaurav Sharma, Chief Financial Officer, and other senior management personnel.
Over to you, Mr. Sanjeev, for the initial comments.
Sanjeev Kumar — Executive Director
Thank you very much. Dear all, I’d like to invite you all to discuss the unaudited results for the quarter and the half year ending September 30, 2024. We uploaded the earnings presentation and the results on our company’s and the stock exchange’s websites earlier today and I hope you had a chance to review them.
Box office collections during the quarter saw a 40% sequential increase driven by a strong bounce back in Bollywood, led by the record-breaking success of Stree 2, now the highest grossing Hindi film of all time. This surge was further boosted by Kalki’s strong performance in both Hindi and Telugu markets as well as exceptional success of Deadpool & Wolverine, which became the highest grossing R-rated movie worldwide, earning 1.3 billion at the global box office. Our strategy of re-releasing older films has been highly successful, contributing nearly 6% of admissions during the quarter. Re-releases offer consumers additional choices during leaner periods for a big screen experience.
The strong box office performance of both new releases and older classics demonstrates that good quality content is the primary factor that drives cinema attendance. This also reaffirms the profound love of Indian audiences for cinematic experiences. We celebrated the National Cinema Day on the 20 September, which saw an overwhelming response. More than 11 multiplex chains and over 4,000 screens across India participated in this initiative and PVR INOX welcomed nearly 1 million guests to our cinemas, making it one of the biggest days of the current fiscal year. Overall, in Q2 FY ’25, we welcomed 38.8 million guests across our cinemas.
In terms of the financial results for the quarter, the following numbers are after adjusting for the impact of Ind AS 116 on lease accounting. Total revenue for the quarter was INR1,642 crores, EBITDA INR207 crores and PAT was at INR22 crores as compared to a revenue of INR2,020 crores, EBITDA INR447 crores and a PAT of INR207 crores in the same period last year.
In the coming quarter, we have several exciting Hindi films. Last week we had Vicky Vidya Ka Woh Wala Video and Devara [Phonetic] performing well at the cinemas. During Diwali in November, we have the highly anticipated multi-starrer release, Singham Again and Bhool Bhulaiya 3. Pushpa 2 is releasing in five languages in the first week of December and is expected to be a mega blockbuster. December also has Baby John, starring Varun Dhawan. From Hollywood we have Venom, Gladiator 2, Kraven the Hunter, Mufasa: The Lion King among others. And in regional languages we have Kanguva, which is again a multi-lingual language release.
We are highly focused on executing our strategy of driving free cash flow generation, improving return metrics and reducing debt. Despite a relatively soft first half in FY ’25, the company generated positive free cash flow and reduced net debt by INR141 crores. PVR INOX continues its strong growth momentum, adding 71 new screens till date in this fiscal, while strategically exiting 42 underperforming screen. For the full year, the company expects to open around 110 to 120 new screens and exit 70 underperforming screens. Our current screen portfolio spans at 1,747 screens across 356 cinemas in 111 cities in India and Sri Lanka.
Thank you very much. Now I’ll open the platform for any Q&A.
Questions and Answers:
Operator
Thank you. [Operator Instructions] The first question is from the line of Abneesh Roy from Nuvama Wealth. Please go ahead.
Abneesh Roy
Yeah, thanks. My first question is on the re-releases. Two, three sub-questions there. One is, when I see PVR share versus the India share, it’s ranging from 50% to 95% in the three movies where you have given the data. So wanted to understand why we have such a range, maybe because some are only in your screens and may not be widespread. So wanted to understand what is the science behind this? Second is, in a year, how many movies would you be doing in terms of re-releases? For example, October month again the current month, Bollywood scheduling seems again quite weak. So are you planning some re-releases again right now? Third is in terms of variable cost. I understand you have got 6% admissions from re-releases, but in terms of variable cost and occupancy, if you could give some data. Do you make good profits here or it’s more of a marketing exercise to increase the movie overall consumption habit as such?
Sanjeev Kumar
Hi. Kamal, would you like to take that on the re-release strategy first? There is multiple questions.
Kamal Gianchandani
Sure. Hi, Abneesh. Thanks for your question. And Abneesh, your first question, can you please refresh what was the first part of your question?
Abneesh Roy
Yeah. 50% to 95% range between PVR and total. In the three examples which you have given re-releases, the range is between 50% to 95%. So why such a wide range?
Kamal Gianchandani
Re-release is something which has been happening in film business for a very long period of time and usually it’s been tactical. If it’s some actors birthday or if there is some event being celebrated, we tend to have either a festival or we bring back a popular film of that particular actor. But in the last, I would say, eight or nine months, we’ve seen consistent behavior from re-releases where re-releases, quite a few of them, have performed almost like a brand new film. And this, many people found it — I mean, this came in as unexpected. Many people were surprised and they thought it’s a fluke, but it has managed to sustain itself. And initially, because a lot of people didn’t believe in the sort of long-term sustainability of this new trend that was emerging, a lot of exhibitors were not participating in re-releases.
And as you know, PVR INOX has always been experimental. We’ve been more receptive. We like to sort of push the envelope a bit. So we sort of participated aggressively. And which is why the earlier releases, Rockstar, Love Story, Rehnaa Hai Terre Dil Mein, PVR INOX had a disproportionate contribution in the all India because it’s pretty much released in the entire chain of PVR INOX. By the time Tumbbad came out in late August, September, more exhibitors sort of jumped on to the bandwagon. And you see the contribution of PVR INOX in Tumbbad has come back to — has become more sort of closer to what a standard contribution is in the overall box office. So that’s the answer to your first question.
The second one was I think whether this is a sustainable thing or just a marketing initiative…
Abneesh Roy
Given ATP is lower, and my senses occupancy also would be lower. If you could tell us in terms of variable cost, would you be making money here in terms of — will you take that into account?
Kamal Gianchandani
So without getting into specifics, it’s a profitable initiative. You have to appreciate in our businesses, there are weeks which are lean in nature, and therefore, the percentage — occupancy that you do with the film is relative to the kind of period in which you’re playing it, right? So we would not do a re-release in a week in which we’ve got two brand new films which are blockbuster, potentially a blockbuster category film, we would never do a re-release in that week. But in a week where we have soft releases or we have scarce releases, we will come up with a re-release. And therefore, in that context, with that background, if a re-release does good business above the threshold admissions that we normally do, it’s profitable for us. At a variable level, it’s able to give us the contribution which helps us recover our overall fixed cost.
What was your third question? Could you please repeat?
Abneesh Roy
Yeah. It was again related to this only. So who is doing the planning for this? For example, in October month, again, Bollywood looks reasonably weak. So are there more movies planned in October month?
Kamal Gianchandani
Yes. We believe, like the trend of South films being dubbed in Hindi, which has become like a sustainable practice or sustainable trend, which is doing very handsome numbers, we believe this — the trend of re-releases is here to stay. We’ve got internally people who are constantly looking at opportunities, and of course, not all re-releases do well at the box office. So you also have to curate content, you also have to be careful. So we have a lot of people internally who are working at these gaps and opportunities. But at the same time, we also keep getting lot of initiatives from the production houses. A lot of producers keep approaching us. For example, Khosla Ka Ghosla!, which is releasing on 18, we were approached by the producer. And of course, we depend on the producers for logistics, prints, availability of sensors and all of those things. So therefore, producers’ initiative, producers’ interest in a re-release is also extremely important. So in many cases, we also get approached by producers. So it’s a bit of both. Like we do a lot of internal planning, but producers also similarly take a lot of initiatives.
Abneesh Roy
Sure. My second and last question will be on Q3. Last year, Q2 was extremely strong and your expressed optimism that maybe Q3 will also be quite close to it. Given how October month is looking a bit weak on the Hindi movies side, is your expectation a bit on the optimistic side given we’ll have two months largely to overcome the very strong Q2?
Kamal Gianchandani
Looking at the line-up and looking at the line of sight in terms of films, we are confident November and December will do smash it numbers. We don’t want to get into specifics for these numbers and I’m not trying to compare Q3 of this year with Q2 of last year. But suffice to say that November and December will do very strong numbers. In October, we are still in the middle of October. Venom is another film which is keenly awaited. We expect Q3 to be quite robust. It will probably be the best quarter in this — I mean, most likely it will be the best quarter in this financial year.
Abneesh Roy
Sure, thanks. That’s all from my side.
Operator
Thank you. The next question is from the line of Jinesh Joshi from PL Capital. Please go ahead.
Jinesh Joshi
Yeah. Thanks for the opportunity. Sir, I have a book-keeping question. So if I remember right, our contract with the BMS ended some time back and now I believe the convenience income is variable in nature and ideally it should move in tandem with the box office performance, if I’m not mistaken. Now in this quarter, we saw a 25% fall on a Y-o-Y basis in our net box office collection, but the convenience income was down by only 5%. So has there been any revision in rate with the BMS this time around?
Gaurav Sharma
Hi, Jinesh. This is Gaurav here. Let me take that question. The BMS contract was renewed last year itself and we have a four year term with BMS and that will expire by 2027. [Technical Issue] as compared to 25% drop in box office because during the quarter what had happened was BMS sold their ticketing business to Zomato. And as part of that transaction [Technical Issue] between PVR INOX and Paytm where IT integration services and support was provided by PVR INOX in the integration and transfer of their ticketing business to Zomato. And we’ve received some one-time payment on account of that IT integration process which has been accounted for in the quarter two convenience fee. As a result, the convenience fee in quarter two is higher or the drop is lower compared to the box office drop in revenues.
Jinesh Joshi
Got that. Sir, second book-keeping question is on the rent expense which is flat on Y-o-Y basis despite a 2% increase in the weighted average screen count. So if you can share the reason behind it? And also our film hire cost is down on Y-o-Y basis. So has there been any change in terms of our agreement with the distributors during the quarter? And the related follow-up is that for re-releases, do we pay a similar film hire cost or is it lower?
Gaurav Sharma
On the film hire terms, there is no change in the contract terms. The drop compared to last year’s quarter two [Indecipherable] this year it’s because of the revenue share that got figured in both rentals as well as film hire charges last year — sorry, only on the renters, but in film hire charges last year in quarter two there were films which did very well, so we had to pay out some bonuses. As a result, last year, both FHC as well as the rentals to the landlords were higher compared to this year. In addition to that, we are also keeping a very close eye on our rental costs. We have taken a lot of initiatives in renegotiating rentals and properties where there was underperformance and that is also reflected in the rental cost reduction.
Jinesh Joshi
And the re-release part, if you can just highlight that?
Gaurav Sharma
On the re-releases, I think Kamal had mentioned earlier, without getting into specific details, the film hire charges that we pay to the producers on older films that are re-released are lower compared to what we paid to for a newer film. And therefore, the gross margins there is higher. But at the same time, the average ticket price is also lower, while in terms of percentage gross margin, it is higher, but maybe comparable in terms of absolute value.
Jinesh Joshi
Understood. Sir, one last question from my side. I think some time back there was some news article in the media which stated that the Tamil Film Producers’ Association has called for a temporary halt on all film-related activities from November 1. Any idea whether this will be implemented or you expect some kind of a solution to be figured out by them?
Kamal Gianchandani
It turned out to be a media speculation. No such halt to the production has taken place in Tamil Nadu. Films are being produced and being shot at the regular pace. So it was just pure media speculation.
Jinesh Joshi
Understood. Thank you. Thank you so much, sir. And all the best for Q3.
Operator
Thank you. The next question is from the line of Abhishek Kumar from JM Financial. Please go ahead.
Abhishek Kumar
Yeah, hi. Good afternoon, and thanks for taking my question. This quarter, in many ways, represent a typical, probably a period for us where couple of months were very strong, one month was relatively soft. We did re-runs, etc. And still, after all that, the occupancy for the quarter was 25.7%. So is that the new normal that we should look at in the movie exhibition business, because obviously, we can’t expect every quarter to be like Q2 of last year or Q3 of this year? So just your view on what should be the new normal for occupancy? And if it has to go up on a sustainable basis, what would it take for the occupancies to move up?
Sanjeev Kumar
Kamal, would you like to take that?
Kamal Gianchandani
Sure. So firstly, in terms of occupancy percentage, we hope and all the effort the entire PVR INOX team puts is in the direction of raising this occupancy, improving this occupancy percentage. So while it’s a good percentage, it’s something which, especially given the backdrop of COVID, we’ve come a long way, but we believe there is a lot of headroom to grow and we are not sort of pausing and being satisfied with this percentage.
The reason I say there is headroom to grow is because post-COVID, the back end — the production side of our business was, I won’t say disrupted, disrupted is a strong word, but it was definitely disturbed. A lot of producers who were regularly churning out films took a pause and a lot of people went into that zone where they became quite unsure whether they should make A film or B film or a C film. And there was a lot of sort of the green lighting process went through a lot of churn because the consumer taste was changing, box office had become more unpredictable. But in the last, I would say, 15, 18 months, there is more semblance to the box office, it’s becoming more and more like what we used to experience pre-COVID. And currently, the challenge that we face is with the quantity of films, quantity of, I would say, wise releases. But in terms of quality, in terms of admission per film, we are pretty much back at 2019 level.
So in terms of audiences coming and patronizing films of their choice, we are back to 2019 level. And therefore, producers are very confident. They’re enjoying a good run at the box office. A lot of producers are also laughing all the way to the bank because of the success that they’re seeing at the box office. But at the same time, the quantity is still not back in shape, it’s still not back at the level at which it used to be in 2019. So that’s an area where we are hoping over the next 12, 15 months, we will see a lot of improvement. The quantity of wide releases, good quality big budget films or mid-budget films. That number will increase. And hopefully, that will help us increase the percentage occupancy.
Abhishek Kumar
Okay. That’s helpful. So just picking up on that, based on your conversation, do you think that the pipeline for next year by studios, etc., is looking better compared to what it has been so far this year in terms of just the quantity?
Kamal Gianchandani
Certainly, certainly. Both in case of Hindi, regional Indian films and also in case of Hollywood. Hollywood, as you know, was disrupted because of this strike. That’s behind us. And therefore, the number of wide releases that you will see globally, including India, would be much more than what you have seen in 2024 and ’23. And in Hindi, we see a lot of producers who are on a pause mode, they’ve become active. And we see — looking at the — I mean, the line of sight will become much more clearer by the end of the year, by the time we get to December and January. But just basis what we know now, whatever is releasing in 2025, we feel quite excited.
Sanjeev Kumar
And just kind of additions to what Kamal said, one is the fact that you need to view the H1 of this year without any big starrer films getting released. So next year, hopefully, we’ll get these blockbusters back even in the H1. Number two, the way this year is panning out and the way we are working on re-release strategy and the alternate content is something that will be hugely fine-tuned by the time we hit April of ’25. And we believe that this also has its own little churn and a science to it, which I think we are learning.
And as Kamal had just explained, about 80-odd re-released films were marketed to our audiences in H1 alone. And this number would surely be upwards of about 140, 150 by the time the year end. So technically, next year, this is another line that we would have got created. Re-releases would be one and the alternate content would be the two. And coupled with the fact that some of the big starrer which were completely missing this year, your Ranbir Kapoor, your Ranveer Singh, Shah Rukh Khan, Salman Khan, all of these guys have been — not really had any single release this year and they all probably will be back next year.
Abhishek Kumar
That’s very encouraging. One last question on your operating leverage. Has it kind of run its course? By that what I mean is, if the occupancy stays where it is, is this the level of margins or fixed costs that we should expect for our models going forward? Thank you.
Gaurav Sharma
Abhishek, taking a lot of steps to control our costs, especially the fixed costs. And the biggest line item in our fixed cost is occupancy costs, rental and CAM, which is driven by the contracts. But even there, wherever properties are underperforming or are located in malls which are not doing well, we are picking up conversation with developers to negotiate rentals. Rest of the costs on the fixed side, whether it is utilities, overheads, employee costs, we are trying to control as much as possible. And that’s one area which the management team is very much focused on. So yeah, I think that’s what I can tell you without getting into detailed numbers.
Abhishek Kumar
Sure. That’s helpful. Thank you, and all the best.
Operator
Thank you. The next question is from the line of Arun Prasath from Avendus Spark. Please go ahead.
Arun Prasath
Good evening. Thanks for the opportunity. My first question is on the F&B spends. If you look at this metric for last four to five quarters, they are more or less — this number is more or less stable. So have we reached kind of a maximum that we can extract out of the footfalls via the — without the price increase? Is it from here the day forward is to only the price increase or how we should think about it on this line item?
Sanjeev Kumar
No, there is a long way to go still. We believe that our SPH has a huge headroom to grow. The H1, really, you’re right, has been a bit staggered in terms of when you compare it with last year, but there are reasons around it. There were huge blockbuster films last year and that too Hollywood films, which drove SPH brilliantly well because Hollywood normally gets high propensity customers to our — the top-line of the cinema. So because of Hollywood films, because of the fact that we have had muted ATPs, SPH has largely been in line with that.
Apart from that, we’ve also done Cinema Lover’s Day, which has also sort of brings down the SPH drastically for that month because roughly about 10% of the total month footfall hits the cinemas on one day. So having said that, we believe that there is a huge headroom. There is a lot of innovation that is happening. We are also looking at different formats within F&B to be able to take the group forward. But this year, clearly, given the fact that last year we grew fairly sharply, there will be a little bit of a pressure on SPH. But come next year, I think this will really explode.
Arun Prasath
Okay, understood. Fair enough. And secondly, you spoke about the closing of the non-performing screens. Can you help us understand? Obviously, we will be closing only, say, obviously for the malls which are dilapidated [Phonetic], you will be closing no matter what is the rental. In those cases where the closure is because of the mall screen, but you would close it because of the non-performance. That part of the operation is that closure is done or still it is an ongoing process?
Sanjeev Kumar
I think the strategy on the closure of underperforming screens is mainly because we are a mature company with almost 20, 25 years of operations. A lot of cinemas are now which were opened maybe 15, 20 years back, are located in malls which have lived their life. So as a regular process, we will evaluate our entire portfolio every year. And we will — the endeavor is to improve profitability of the business and exit properties which are consistently not doing well because of the mall issue or the location issue or the catchment has become over-penetrated. So I think while this year we have identified about 70-odd screens for exit, but going forward, maybe about 1%, 2% of our portfolio will undergo a churn where we will replace older screens with newer locations, newer properties in those locations.
Arun Prasath
Okay. Actually, what I was trying to understand is what percentage of our underperforming screens is yet to be renegotiated for any rentals other than the mall, that is a closure of the mall or other than the location issues? And apart from that, is there any scope? We have say still some 30%, 40% of properties which is not under — it’s not renegotiated, but that will lead to a better rental cost control going forward. That kind of a commentary can you just give some understanding for us?
Sanjeev Kumar
So as I said, Arun, I think this is a continuous exercise. We evaluate our entire portfolio on a regular basis. While we are not chasing any target in terms of closures, but whenever we are identifying locations which are not doing well, we are picking up discussions with the landlords or the mall developers to renegotiate the rentals or figure out some operating efficiencies to turn around that location. Having said that, I think going forward, it’s going to be a continuous exercise. There is no specific percentage of closures or there is no specific property that we are wanting specifically to exit.
Arun Prasath
And finally, you spoke about a lot of emphasis on increasing the screen presence in South. South is obviously beyond the top cities. If you look at the Tier 2, Tier 3 cities, the supply of mall may not keep in place. So how we are planning to address this supply issue? Because obviously, we will need some kind of a developer support to increase our screen share in South.
Sanjeev Kumar
Yeah. So wherever the malls are coming in, where we are going in, you addressed it right in terms of — your question is right in terms of suggesting that there are not too many malls coming up in the interiors of smaller towns in South. But this is changing very fast, from Cuddalore to other small cities like Tirunelveli, many, many, many small cities in South are now coming up with shopping centers or malls which are housing cinemas and that is where we are going. Besides that, we are also using the push factor to reach out to developers in these small towns, suggesting them for malls wherein we can house the cinemas looking at the economic viability of the complete shopping center. And that is working favorably for us.
Arun Prasath
And these new shopping malls or shopping centers, this will be a satellite model for us?
Sanjeev Kumar
Most of them would be a satellite model for us.
Arun Prasath
So developer has to contribute a substantial capex?
Sanjeev Kumar
Yeah. The developer has to contribute substantial capex and he’s getting returns in either as in the form of rental or in the revenue share where he is able to make-up in case the center does well.
Arun Prasath
Right, understood. Thank you, sir. All the best.
Operator
Thank you. [Operator Instructions] The next question is from the line of Umang Mehta from Kotak Securities Limited. Please go ahead.
Umang Mehta
Yeah. Thank you, sir, for the opportunity. Just continuing the last question. So what is the new screen guidance for next year F ’26 and the capex guidance for the same? And what would be the mix of FOCO and management properties within that plan?
Pramod Arora
The first question, we shall be roughly going at 100 screens per annum, give and take 20 screens. It could be 80, it could be 120. That is the screen count that looks year-after-year for the next few years. In terms of the FOCO, which is franchisee-owned company-operated, we are looking at about 15% of the screens coming up in FOCO, which is franchisee-owned company-operated, about 35% to 50% coming up in the asset-light model and balance would be again a structured lease model.
Umang Mehta
Understood. Then maybe Gaurav could help. So in terms of capex, should we expect decline from INR475-odd crores, which we expect this year given that mix of asset-light is fairly high?
Gaurav Sharma
Umang, this year, our endeavor is to do about INR400 crores of capex. In the first half, we have done about INR205 crores. So we are well within our target for the year. Next year, as Pramod said, the mix of asset-light or capital-light screens and properties will increase. As a result, our share of capex outflow for new screen additions should ideally come down. But we will not be able to give you exact guidance of what we are targeting next year. We will do that as part of our AOP planning by the end of this year. But overall, I think we should be in the ballpark of INR400 crores to INR500 crores. As a strategy, we will allocate slightly more capex on renovation. There are high value, high performing properties where the payback periods are much faster and the risk is much lower. So some incremental capex allocation will be towards the renovation side.
Umang Mehta
Understood. Makes sense. And just the second question which is not related to your core business, but on the food delivery business of PVR Cafe. Anything you can share on that? Any current scale, plans to scale it up or anything on that?
Sanjeev Kumar
So that’s on course. We still need a lot of work to be done on that because when we work with Zomato and Swiggy, there we realized that given the fact that cinemas are on the third floor, our deliveries tend to get a bit delayed. The workers need to come to the third floor to collect. So while in South, we are doing some business around home delivery because a lot of cinemas we manage to get the food down to the box office where it’s very easily collectible. But overall, I would say that we still have to crack this model fully and perhaps set-up dark kitchen under the name of PVR Cafe to be able to deliver. Delivering from cinema will always give us an incremental food sales or an SPH, but it could only be limited to an X amount and we need to re-look at the delivery model completely there.
Umang Mehta
Got it. Got it. Very helpful. Thanks a lot, and all the best.
Operator
Thank you. The next question is from the line of Naveen Baid from Nuvama Asset Management. Please go ahead.
Naveen Baid
Yeah. Thank you for the opportunity, sir. This is also in line with what the previous speaker had asked. What should be model in terms of sort of annual occupancy ratios since this is mostly become eight to nine month kind of a business model with IPL every year and some of the other event and T20 World Cup every second year and 50 over World Cup every four years and many other sporting events. What should we work with in terms of annual occupancy rate something that the company is targeting?
Gaurav Sharma
We’re not targeting any annual occupancy rate because it’s very difficult in our business to say how the film can perform. It’s also dependent on supplier films and their performance. While — therefore, it will be very difficult for us to provide you a guidance on what you should model in your assumptions for occupancy. But as Kamal was referring at the beginning of the call, in financial year ’26, we have a very strong line-up of films. Some of the biggest blockbusters from some of the biggest stars is lined up across Hindi as well as Hollywood and regional films. So on the basis of line-up, I think our feeling is that next year could be possibly a very strong year in terms of occupancy levels. Very difficult to comment on exact numbers, but I think I would restrict to that.
Kamal, you would like to add anything?
Kamal Gianchandani
No, I think you’ve covered it well. I would only add to what Gaurav is saying that this point that you raised about World Cup and IPL or some other sporting event or some other global event which could impact the release schedule in India, see, it’s a function of number of the quantity of films that get produced and which are ready for release. If that quantity goes up, producers would tend to come out and compete with these global or local events as they have done in the past, as they used to do pre-COVID. So once the quantity of films, good quality or wide release films goes up, you would find that they would also start releasing it during IPL, during World Cups, during other events and they’ll figure out a way to co-exist with them.
Naveen Baid
Okay. That’s helpful.
Operator
Thank you. The next question is from the line of Sukant Garg from Equible Research Private Limited. Please go ahead.
Sukant Garg
Hi. So my question is related to the JV that we are pursuing with Devyani International. First one. And my second question is regarding PVR Cinemagic. So I heard news around four months back that there is a new range of cinemas and screens that’s launched by PVR called PVS Cinemagic, but that’s been suspended in a very short span of time. So is there any particular reason for that?
Gaurav Sharma
Sorry, can you repeat your question on the food court exactly you’re speaking?
Sukant Garg
So my first question is the state of the JV with Devyani International. When it is going to be launched? When it’s expected to be launched? And my second question is regarding PVR Cinemagic, which I heard that there is a new set of screens being launched by PVR around in May ’24 called PVR Cinemagic, but it is suspended in a very short span of time. Why so? So is there any particular reason for that?
Pramod Arora
Okay. So let me take the second question first. Cinemagic has not been suspended. Those four screens are changing the interior. We’re doing some changes after we’ve got some feedback from the guests. So just to assure you that Cinemagic has not been suspended and we’ll be opening it soon. So that’s first. Secondly, with Devyani, our joint venture is concerned, it’s on track. And we are hoping to open the first food court in December. So that’s — we are working towards it. That’s our endeavor. And we all are working to ensure that the first food court opens by December.
Sukant Garg
Just to follow-up on that. For PVR Cinemagic, are we planning to expand that also in other parts of the country or it is just going to be remaining very specific concept as a experimental exercise?
Sanjeev Kumar
Yeah. Cinemagic would expand to different parts of the country wherever the demographics permit us to do so. It’s conceptually a little different from the other cinemas. [Indecipherable]
Sukant Garg
Thank you. Thank you very much. That’s all from my side.
Operator
Thank you. The next question is from the line of Ketan Athavale from RoboCapital. Please go ahead.
Ketan Athavale
Hello, sir. Thank you for the opportunity. I just wanted to [Technical Issue]
Operator
Sorry to interrupt you, sir. I request you to use the handset, please.
Ketan Athavale
Yeah, I’m on handset. Am I audible now? Hello.
Sanjeev Kumar
We can’t hear you.
Gaurav Sharma
No, you are not.
Ketan Athavale
Okay. I will come back in the queue.
Operator
Thank you. The next question is from the line of Nitin Sharma from Seabuck [Phonetic] Private Limited. Please go ahead.
Nitin Sharma
Yeah. Thanks for taking my question. Firstly, can you please point out how many of these closed screen in the first half include premium format? And then I have a follow-up.
Sanjeev Kumar
So there is no premium format. These are all old screens, 15 years’ old, 10 years’ old screen. They are all mainstream regular screens.
Nitin Sharma
Understood. And secondly, is there a level of gross debt you aim to achieve by end of this year or the next year?
Gaurav Sharma
Can you please repeat?
Nitin Sharma
Yeah. Is there a target debt level that you want to achieve by end of this year or the next?
Gaurav Sharma
Yeah. I think our capital allocation strategy is clear that whatever free cash flow that we generate from the business after meeting our capex requirement will go towards debt reduction. And that’s what you can see in this first half as well. While our gross debt levels have been same, our net debt levels have come down. We have build-up reserves to take care of contingencies. Our idea is to reduce overall gross debt levels in the next couple of years by a significant number.
Nitin Sharma
Understood. Thank you.
Operator
Thank you. The next question is from the line of Palvir Bahia from Halo Global Asset Management. Please go ahead.
Palvir Bahia
Hi. [Technical Issue] Hello?
Operator
Yeah, ma’am.
Palvir Bahia
Yes. I just wondered, how do you think about profitability? Just going back to an earlier question, you’re at sort of 25%, give or take [Indecipherable] really good quarter. I appreciate what you’re saying about next year, but again, that’s very much reliant on the supply of new films and the success of those. In terms of how you’re modeling your business, how should we and how do you think about the sort of ongoing profitability? What is break even for your business? And does it really come down to occupancy for you to generate sustained profitability going from here? And what are the levers do you have to give us confidence that you can sort of sustainably be profitable on a continued run rate from here?
Gaurav Sharma
Yeah. I think on profitability, if you look at our second quarter at a 25.5% occupancy, we did roughly 30% with our margin, which is similar to what we did in financial year ’24 where we had 25% occupancy and 13% operating margins. I think as the occupancy levels go up, which we feel should go up in the quarter three, quarter four and next year, because of operating leverage, the improvement and operating margins will be more.
When you compare — when you look at our quarter two earnings last year where we had a 32% occupancy, we did roughly 22% EBITDA margins. So I think that’s the range where we are operating. A lot of synergy benefits are already baked into the business. As the occupancy levels improve, we will see a substantial increase in operating margins of the business. It’s very difficult to model the occupancy numbers because it’s highly dependent on the line-up of films and the performance of films which are released. But on the fixed cost control side, we are very, very focused towards controlling all the controllable fixed costs and trying to renegotiate centers wherever the opportunity exists.
Palvir Bahia
Okay. Thank you. It’s difficult as analyst to try and just put an occupancy number which is higher given the trend at the moment. And we’ve had — I appreciate, we’ve had a lot of disruptions year, COVID, the election, but there’s still a lot of hope. [Technical Issue] and you’re getting a lot of questions from us. Thank you for your time.
Operator
Thank you. [Operator Instructions] The next question is from the line of Ketan Athavale from RoboCapital. Please go ahead.
Ketan Athavale
Hello, sir. Am I audible now?
Sanjeev Kumar
Yes, we can hear you.
Ketan Athavale
Yeah. I just wanted your pre-Ind AS EBITDA guidance.
Gaurav Sharma
Sorry, can you repeat?
Ketan Athavale
I just wanted your pre-Ind AS EBITDA guidance.
Gaurav Sharma
Sorry, Ketan, we don’t provide guidance on EBITDA numbers. So I don’t think we’ll be able to address that question.
Ketan Athavale
Okay, okay. Thank you.
Operator
Thank you. Ladies and gentlemen, we’ll take this as the last question. I would now like to hand over the conference to the management for closing comments.
Sanjeev Kumar
Thank you so much everyone for joining this call. We really appreciate your time.
Operator
[Operator Closing Remarks]