PVR Limited (PVR) Q1 FY23 Earnings Concall Transcript

PVR Limited (NSE: PVR) Q1 FY23 Earnings Concall dated Jul. 21, 2022

Corporate Participants:

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

Ajay Bijli — Chairman and Managing Director

Gautam Dutta — Chief Executive Officer

Nitin Sood — Chief Financial Officer

Analysts:

Abneesh Roy — Edelweiss Financial Services — Analyst

Aaron Armstrong — Ashmore Group — Analyst

Ankur Periwal — Axis Capital — Analyst

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Harit Kapoor — Investec Capital Services India — Analyst

Prateek Poddar — Nippon India Mutual Fund — Analyst

Anurag Dayal — HSBC — Analyst

Piyush Sharma — Right Horizons Minerva Funds — Analyst

Arun Prasath — Spark Capital — Analyst

Presentation:

Operator

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. [Operator Instructions] 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.

Ankur Periwal — Axis Capital — Analyst

Thank you, Peter. Good evening, friends and welcome to PVR Limited Q1 FY23 post results 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, 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.

Ajay Bijli — Chairman and Managing Director

Thank you. I’d like to welcome you all to the earnings call to discuss the unaudited results of quarter 1 FY23. Hope you’ve had an opportunity to review our presentation and results, which have been uploaded on our, as well as on the stock exchange website. I’m happy to share the quarter ended June 30, 2022 was the best quarter in PVRs history with the highest ever revenue EBITDA impact. 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 cinemas during the quarter. This is further bolstered by a strong growth of 23% in average ticket price as compared to Q1 of 2019 and ’20 which is the pre-pandemic period to INR250 and a 32% growth in average food and beverage spend per head as compared to Q1 of 2019 to INR134 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 PVRs 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, Brahmastra and Vikram Vedha. From Hollywood, we have Bullet Train, Paws of Fury, DC League of Super-Pets amongst others. From regional genre, we Vikrant Rona, Liger, Godfather and Ponniyin Selvan. On the F&B’s front, the company recorded the highest monthly average F&B revenue of INR100 plus crore during the quarter with strong underlying growth in SPH, robust growth was the 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 its 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 2 and Tier 3 cities, and we will be entering into nine 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 INR91 crore and was INR1,414 crore as of the end of quarter 1 FY23. As compared to the end of Q4 by FY22 net debt was INR844 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 then, the process of filing our 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 to 7 months, so we seem to be on track. Given performance of the movies in the last few months and a very promising lineup of content, that is up for reserve release during the rest of the year, we’re 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.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]

Our first question is from Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss Financial Services — Analyst

Yeah, thanks. Congrats on very good set of numbers. My first question is on your Slide number 16. So, essentially SPH to ATP ratio, if I see almost every year, you have managed to improve it. So, from 28% it has now become 54% and versus pre-COVID also there is 500 bps jump. So, where do you see this numbers settling because now would you go for a better occupancy and slightly lower ATP so, could this number keep going up in the medium term, in the next two to three years, SPH to ATP?

Ajay Bijli — Chairman and Managing Director

Yes, yes, definitely. Abneesh, you’re always the first person to ask the first question. So, that’s something that intrigues me. But in the meantime, I’ll ask Gautam to answer this question. Because he’s been the force behind taking the percentage of F&B to ticket prices, he has been working relentlessly. So, Gautam, would you like to answer this question, please?

Gautam Dutta — Chief Executive Officer

Yes. So, typically we’ve been at about 50%, 55% now, and we believe that there is still huge room for this to grow. And we are gradually going up every year, as you rightly pointed out. So, we believe that this is really about the glass ceiling, there are still certain cinemas where we could be 80% of the ATP, so this trend has to just now keep growing. We seem to have a great strategy in place where the both quality of food, hospitality and certain promotions which are run around F&B seems to be working very well. And in a couple of years, we can clearly see that the SPH could be matching our ATP.

And to your question of saying does ATP need to be blended down? No, ATP will continue its path and grow and so would SPH. This proportion of SPH to ATP has to keep getting better, that’s the endeavor, that’s the focus and that’s the vision. And we believe that every year, we will only notch up a few percentage as we go forward.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sure. My second question is on ad revenue on an overall basis and on per screen basis, how do you see the normalcy coming back in terms of ad revenue per screen versus pre-COVID? Why I’m asking this is currently still Q1, Q2, we expect huge cut back by advertisers because of the inflation pressure which they are seeing. On the other hand, we are also seeing discretionary sectors come back. So, if you could discuss a bit on the mix of advertisers also versus pre-COVID has that changed anything dramatically? And in terms of normalcy versus pre-COVID ad revenue per screen, when do you see that happening?

Nitin Sood — Chief Financial Officer

So, there is lots of questions that you’ve asked, but let me give you a macro trend here. We believe that the quarter 2, we should be getting our averages lot better than the pre-COVID numbers of the Q1 as against Q1 of last year. So, currently we are in a gap of about 38%, this should be reduced to about 20 odd percent in Q2. By Q3, which is really a festive period and lot of advertisers begin to advertise, we believe that will be within the pre-COVID levels or maybe 5% or 7% lower. And I am very certain that by Q4 we will end up sort of exceeding the pre-COVID numbers. So, that’s going to be the trajectory.

Having said that, yes, there has also been a big churn in the advertisers, those used to come earlier to now. We have seen a lot of traction with new age advertisers who have come in. Some of the FMCG and multinational brands are taking a little more time, and we hope that by quarter 3, they would possibly be back at the cinemas. So, 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. So overall I think quarter 2 is going to be a little under pressure, but the average will get better than what we have achieved in Q1, but Q3 is really where I believe that will be largely in the heating range of pre-COVID numbers.

Abneesh Roy — Edelweiss Financial Services — Analyst

But just to get clarity, if I see your ad revenue in Q3 FY20 it was almost double of what you’ve done in Q1?

Nitin Sood — Chief Financial Officer

Yes.

Abneesh Roy — Edelweiss Financial Services — Analyst

So, you are saying you’ll be ending up pretty close to that? So, you think in two quarters, you can kind of double this number around INR120 crore, INR115 crore, 110 –?

Nitin Sood — Chief Financial Officer

Yes. When it begins to ramp up, this number can really jump up and with some of the big releases which are going to be there around the quarter 3, which I said was the most 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. So, that’s where I feel we will be, in quarter 3, we will be able to get there.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sure. One last question. So, one concern I think 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. So, 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 Hindi movies are not doing well. So, it can be only content. Is there some other issue also?

Ajay Bijli — Chairman and Managing Director

So, there is no issue. This is Ajay Bijli. I think it’s too early, it’s only been three, four months, since the movies have started coming. And basically, I’m not going to write off Hindi movies so soon. There are some big movies lined up. So people just want to watch whatever appeals to them and it just so happens that these two big films did exceedingly well and they have overshadowed other releases, but we’ve got Shamshera coming tomorrow, we have Laal Singh Chaddha, Raksha Bandhan, on a very big weekend in August, which is a 5-day weekend from 11th August, all the way to 15th August. And then, we have Brahmastra coming, we have Vikram Vedha coming.

So, there’s some big movies coming and this is just the big names. And then, you have smaller movies which have always traditionally become steeper hedged in the past. So, there is no — it’s just one quarter is too short timeframe to draw any conclusions that only regional films will dominate and Hindi will not too 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 the Hindi film industry, who are also seeing this happening and they’ll bounce back. No problem whatsoever.

Abneesh Roy — Edelweiss Financial Services — Analyst

Okay. That’s all from my side. Thanks a lot.

Operator

Thank you. Our next question is from Aaron Armstrong with Ashmore Group. Please go ahead.

Aaron Armstrong — Ashmore Group — Analyst

Hi, good afternoon. Thank you very much for taking my question. First question would be around the box office plays and kind of relates to some of the earlier points made. But 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?

Ajay Bijli — Chairman and Managing Director

Kamal, would you like to take that?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

Sure. 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. Some of these, 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 another addition to his ever-growing list of successful films and of course, we had KGF and RRR, which surprised everyone on the positive side. So, 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, Kashmir Files, Bhool Bhulaiya, even Jugjugg Jeeyo, which came out recently, they have all done well. And also, we have to keep in mind that KGF and RRR actually performed a lot better in the Hindi version.

And 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 are looking at it from, but we think of them as Hindi films and 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. So, 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.

Aaron Armstrong — Ashmore Group — Analyst

Thank you. And 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?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

That’s a good point. And thanks for adding that question. Definitely, the market share of, I would say larger chains, which had more credibility with the consumers, definitely the market share of such chains have gone up as compared to the pre-COVID period. I wouldn’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, is a moderate part of the overall screen count in India, we reckon its 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. So, from industry point of view, at high level, there hasn’t been a lot of exits.

Aaron Armstrong — Ashmore Group — Analyst

Thank you. Perhaps, I just have one final point, if I may, please. It would be just around the sustainability of the excellent numbers that we’ve seen this quarter and we spoke about pent-up demand, we’ve spoken about very strong slate of film content. Does that kind of feed into an expectation that we could see some softer quarters later in the year? Well, subsequent would have certain quarters which will exceed expectations and there is a possibility that certain quarters could underwhelm in terms of admissions. But 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, 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 I would depress number in terms of quantity. Quality is fantastic. Doctor Strange, Spiderman, Top Gun, all of these films have exceeded the expectations, Jurassic World. But as soon as the quantity goes, studios are still ramping up their production. Same is the case with Hindi films, producers are still ramping up the production. There has been a lot of disruption in terms of shooting over the last two years. So, we could have some surprises as we move forward, but I think at an annual level, for the entire financial year, we are looking at very strong set of numbers in terms of admissions. That’s great. Thank you.

Operator

Thank you. Our next question is from Jinesh Joshi from Prabhudas Lilladher Private Limited. Please go ahead.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Yeah. Thanks for the opportunity. Sir, I have a question on the windowing gap which I suppose it was expected to revert greatly by the end of July. So, has that already happened? That is question number one.

And 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. So, if you can shed some light on this plan, how has been the response to it, that would be really helpful?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

Your first question on Windows, answer is yes. On 1st August, we will revert back to be erstwhile eight-week window, which is what used to prevail the prevalent pre-COVID. So, we will revert to eight- week window on 1st August 2022.

On your second question, with respect to subscription program, I would request my colleague Gautam to share some comments.

Gautam Dutta — Chief Executive Officer

Hi. Actually, on the subscription, we had to go a bit slow, simply because the regulatory authority had some issues regarding payments, recurring payments for over three months. So 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 a certain amount of, as I said, regulatory concern, which has been managed now and we’ll be now going full stream with the Phase 2 of the launch.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Sure, sir. And 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 the higher number of screens in 1Q. So, if you can highlight the reason behind this.

And secondly, in the opening remarks, we mentioned that our debt is down by about INR90 crore odd sequentially. So where exactly do we expect to end the year with on the debt side? So that’s the second question.

Gautam Dutta — Chief Executive Officer

I think the reason for low electricity cost is because of 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. So, I think both those things coupled helped us to keep the costs — the unit consumption under check, but these costs will gradually rise as there is increase in power costs all over, but we will try and keep them under a tight control as much as possible.

Also, on your second question around leverage, I think the operating cash flows of the business continue to remain strong. And since we will be opening a lot of screens this fiscal year, the focus during the next nine months will be to use some of the operating cash flow to fund most of the growth. So, 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.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

So basically, if we are funding our capex via operating cash flow, essentially the debt levels should not rise from here on. So, is that understanding right?

Gautam Dutta — Chief Executive Officer

No, no, they will not rise from here.

Jinesh Joshi — Prabhudas Lilladher Private Limited — Analyst

Sure, sir. Thank you so much.

Operator

Thank you. Our next question is from the line of Harit Kapoor from Investec Capital Services India. Please go ahead.

Harit Kapoor — Investec Capital Services India — Analyst

Yes. Hi, good evening. Just had two questions. The first one on the rent side. So, if you take the rental number is INR2.1 million, plus INR1 million, to INR0.5 million, that’s about INR2.6 million per screen. We’ve seen a roughly 26% kind of increase in rental cost as well as 18% in CAM, I think over the three-year CAGR, is about 4.5% on comparable properties. Just wanted to get your sense about whether this INR2.6 million is something that we have to now expect on a going-forward basis because this is the kind of pent-up increase if you’ve seen over a three-year period, which will imply that rent to revenue will be a little higher than what your pre-COVID number was. So how do we think about this?

Nitin Sood — Chief Financial Officer

Yes. First of all, our rentals will continue to grow with — on a contracted basis, roughly 4% to 4.5% CAGR. But our revenue growth is much stronger than that. So, I don’t know 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 either remain same or be a bit lower because the revenue growth is stronger than the rental growth right now.

Harit Kapoor — Investec Capital Services India — Analyst

No, I meant for this year. So, this year so far, I mean if you look at FY — if you look at quarter 1 here at 23%, which is compared to quarter one ’20, I think you are at 20%, 21%. So that number is higher. I think from — is this like a rebasing and then from there it starts to come off ’24 onwards? Is that the way to look at it?

Nitin Sood — Chief Financial Officer

No, I think that’s not the correct way of reviewing this because Q1 revenue still does not reflect full recovery in admissions, still does not reflect full recovery in advertising revenue. So, in that respect, I think you should look at the rental number on annual basis, even in for Q1, on INR1,000 crore revenue, our rent is about INR180 crore, which is about 18%. So, there is — from a rent to revenue ratio perspective, there is no material change.

Harit Kapoor — Investec Capital Services India — Analyst

Okay. I’ll take that offline. The second question was on the personnel cost side also, you mentioned that there is an expected move up on account of incremental region session. This quarter you kind of manage that at similar levels, which is down 2%. I think you had made a comment that you will try and keep it in the similar ballpark as pre-COVID. So just wanted to know, any change in that thought process given the recent kind of, as I said in wage inflation, as well as the increments which you’re talking about?

Nitin Sood — Chief Financial Officer

Yes. I think our personnel cost per screen will move up by about 9% to 10% from existing levels on account of wage inflation, which is minimum wage increase and increments for people over the existing levels but on an absolute level, if you look at the amount of headcount reduction that we’ve managed to squeeze in, we intend to sustain that. There will be very limited increases in the headcount savings that we’ve managed to achieve, but — and if you look at a three-year period and then compare and factor in the inflation for three years, it is significantly lower as compared to the revenue growth that we have seen.

Harit Kapoor — Investec Capital Services India — Analyst

My last question was on, you mentioned that admits are not yet back fully, this seems like a fairly normal quarter where you had some big hit films as well. Obviously, you’ve had a very, very good overall revenue performance led by ATP and SPH as well. I understand that occupancies are a little lower, but wouldn’t you think that this is as normalized as it could get from our footfalls perspective, anything I’m missing there?

Nitin Sood — Chief Financial Officer

No, I think it would be slightly premature for us to come to that I think we’ve not had a full run-off operations. There is still a large segment of people who’ve not shown up at the cinema. Our sense is, it will take a few months for the full recovery to play out as more things get released across theaters, as more genre of films released across theaters, whether it is Hindi films or big tent poles like Avatar which will draw consumers back to cinema.

So, the full recovery will take on another six months to play out, our sense is by December of this year, where you’ve had a big run up films, effectively recovery should take out 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. So, for that to play out, you have to give it time and see a full recovery. So, our sense is by end of December, we should be hopefully be able to see some of that.

Harit Kapoor — Investec Capital Services India — Analyst

Okay. That’s it for me. Thanks, and all the best.

Operator

Thank you. Our next question is from Prateek from Nippon India Mutual Fund. Please go ahead.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Yes. Hi. Just wanted to check, with this re-basing of rent, which has happened plus the 5% rev share, 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?

Nitin Sood — Chief Financial Officer

So, SPH, there will be no change at all and largely, we feel that 30% growth can easily be maintained. On ATP is really a function of what kind of films get released. So, if we do not have a mega-blockbuster or a tent pole film then ATPs could be depressed by about INR10 or INR10, INR12, but nothing very significant. But given the flow whenever we will have big films we’ll be able to record similar ATP growth as well.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Okay. This is really helpful. And secondly, if you were to break down the admits recovery between metros, Tier 1, Tier 2, can you just give us a flavor where is the slack or the de-growth coming from or which pocket is contributing to the highest de-growth?

Nitin Sood — Chief Financial Officer

Kamal, would you like to take that?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

Sure. The recovery — the Tier 1, Tier 2 have had similar recovery, but there are pockets within Tier 1 which are under have under well in terms of admissions. You could attribute it to the kind of films which have done well because these films were targeting the lowest 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 theatres. 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 cine goers are showing slightly inferior recovery. But also, like Nitin mentioned, these are still early days and we’ll have to give it another five to six months to form a firm view on which are the areas which have underperformed and which are the areas which have done better. But yes, that’s our very high-level sense of what’s happening in the marketplace at this point.

Prateek Poddar — Nippon India Mutual Fund — Analyst

And Kamal, let’s say this continues after six months, what do you do to get the admits back? In the sense these continue to see negative or decline in footfalls, right, on a like-for-like basis, what do you do to get the footfalls back?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

So, the way we see it and would be’s are there on 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 — like I mentioned earlier, be consumer sentiment or the consumer preference for theater-going is very much intact. Producers were experimenting a lot with different models, different distribution models. I mean in some cases they were going direct to streaming, in some cases, atleast in 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 erstwhile 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, Spiderman 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 picked 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 this constant war or inflation or other worries which we have in the economy and they are finding cinemas still as the best platform to get this escapism and the success of films that perform, the quantum of and the scale of success is clearly showing that this possibility of this year underperforming is fairly remote.

So 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, but 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 shape recovery, a very sharp bounce back. At the end of the year, that’s what we want to finish with.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Thanks for this. Really helpful. And lastly, just wanted to check. Can you call out quarter one FY23 industry box office collections? Is it possible?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

For industry-wise, you are asking?

Prateek Poddar — Nippon India Mutual Fund — Analyst

Yes.

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

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. But the data that we have is that the gross box office of the industry and I’m sharing gross box office. Not the admission, is roughly INR5,700 crore, which is slightly better than what the industry did in 2019 and this considering the backdrop that the whole of January got spoiled because of Omicron and then, half of February was impacted because of Omicron. So, even with that constraint you know finishing the first six months with INR5,700 crore box office is a fairly aggressive achievement. A lot of pent-up demand, a lot of very close to KGF, RRR. But those are the numbers. So first six months about INR5,700 crore better than 2019.

Prateek Poddar — Nippon India Mutual Fund — Analyst

Thanks. Thanks for this and all the best for the future.

Operator

Thank you. Our next question is from Anurag Dayal from HSBC. Please go ahead.

Anurag Dayal — HSBC — Analyst

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 is come down to around 210 or below that in this quarter. So, what’s the reason behind it? Is it because you’re moving more into smaller towns and opening smaller property? Some light into this and how to see it going forward?

Nitin Sood — Chief Financial Officer

Yes, I think the new properties that we have opened have average lesser number of screen. Some of the premium properties that we’ve opened like Maison or a new Director’s Cut in Gurgaon etcetera. They are more premium with the much smaller auditorium count, more premium in terms of facilities. So, yes 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 at that particular year your averages reflect that way. Also, we’ve shut down few cinema which were old and dilapidated, we’ve also exited two properties. So, that’s the sum total of the ratio.

And also to add what Nitin said, we are adding more premium screens in our circuit and except for IMAX and PXL, all the premium formats are largely operating in slightly smaller audi sizes. So, whether it’s the 4DX whether it’s the play out, whether it’s other formats as well, a Luxe and Director’s cut they all operate on slightly smaller audi sizes, and which technically brings the average a little down.

Anurag Dayal — HSBC — Analyst

Okay. Sir, a follow-up on this is, I understand its around 12% of screens are premium right now, so how you see it going forward? How much I mean ballpark would go the next five years?

Nitin Sood — Chief Financial Officer

Sorry, Anurag, can you repeat your question.

Anurag Dayal — HSBC — Analyst

Yes, I’m talking about the share of premium screens is around 12% currently. So, how you see it going forward for the next five years, could be higher, how much — something, is there any target which you have in mind?

Nitin Sood — Chief Financial Officer

Yes. I think we are focused on creating more and more experiential cinema offering. I think our sense of it will keep inching up, but I think over a long period of time, the next five years, this number could potentially look like 18% to 20% from 12% levels.

Anurag Dayal — HSBC — Analyst

Thanks a lot. I have another question is basically what I have read is you are exploring franchisee route for screen additions kind of asset light model. So, what is the thought process behind it? And if you can give some insight on how the mechanics of franchisees, cinema work, for you guys I mean, any directional in terms of how much it is higher or lower in terms of capex and opex? So, anything insight will be very helpful for that.

Nitin Sood — Chief Financial Officer

No, I think it’s slightly premature for us to talk about that. Once we launch a few screens and you open a few screens, we’d like to talk a little more about that. I think currently, we are focused on doing 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. So when we get there, I think and we’ve opened a few screens, we’d like to talk a little more about it. I think slightly premature for that.

Anurag Dayal — HSBC — Analyst

Thanks. Thanks for answering my questions.

Operator

Thank you. Our next question is from Piyush Sharma from Minerva India. Please go ahead.

Piyush Sharma — Right Horizons Minerva Funds — Analyst

Yes. 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 leave. And I think become three weeks for international delivery and domestic producers of its struggle, if its historically with that. You see this changing going forward?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

Piyush, this is Kamal. I’ll take this question. I must say that you’re quite glued on because we still see constrain which only people in the industry would know. Answer to your question is improved considerably both non Hindi Indian producer, as well as Hindi film producers have become extremely proactive. They are preparing, they’re finishing films much in advance. And not just in advance to be able to deliver it to IMAX and many other service providers so, that we can format it in that particular — they can process and even make it ready for that particular format, but 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. So 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 last minute R&D before they go out and relive and of course naturally formatting process into these format is no problem anymore.

Piyush Sharma — Right Horizons Minerva Funds — Analyst

Great. Secondly, now while ticket receipts can be directly attributed to premium versus regular formats and that’s easy to do. Would it be possible to get some sense of how concession revenues broken down between premium versus non-premium screens roughly?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

So, to answer your question, first and foremost in terms of SPH to ATP ratios, this ratio is lot more healthier, when we talk about premium screens. Now, we honestly do not have a way to figure out concessions — candy sales in a cinema where all formats feed out of the same concession. I am talking largely in context of the Luxe audi or the Gold Class auditoriums which has a separate counter. There our SPH to ATP ratios are about 70% and and even the actual SPH numbers hover around INR350 – INR400 per person.

But 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 and premium auditoriums wherever consumer is paying a little more as ATP or ticket pricing tends to even come consumes more food. So, clearly a premium format helps to build a better candy sales number.

Piyush Sharma — Right Horizons Minerva Funds — Analyst

Okay. That’s helpful. Then, just very quickly looking at Slide 12 is a box office ATP in admits stacked versus fiscal first quarter ’20. Possible to share the ATP movement on comparable properties versus like this?

Nitin Sood — Chief Financial Officer

I think, there is no big difference in the ATP movement in comparable properties. I think it’s largely in the same ratio.

Piyush Sharma — Right Horizons Minerva Funds — Analyst

Okay. And very quickly, if I can slide just one more, just next slide in Slide 13, you’ve got language wise contribution. So, this is clearly not original content contribution but if you were to hypothetically recreate this original content, fair to say that Hindi would have dropped not just on 47% to 46% but much sharply lower?

Nitin Sood — Chief Financial Officer

Yes. That’s correct, because the Hindi language contribution of KGF and RRR and Vikram had been quite decent. And it’s absolutely fair to say that if you were to remove that and count it as a regional content, then this ratio would be much lower.

Piyush Sharma — Right Horizons Minerva Funds — Analyst

All right. Perfect. Thank you so much, Nitin and Kamal and everyone else. Thanks.

Nitin Sood — Chief Financial Officer

Thanks.

Operator

Thank you. Our next question is from the line of Arun Prasath from Spark Capital. Please go ahead.

Arun Prasath — Spark Capital — Analyst

Yes. Thank you. Thanks for the opportunity. I joined a bit late, so apologies if the question is repetitive in nature. What I am trying to understand Kamal and Nitin is that I’m looking at this quarter compared to the first part of FY20. And I see that the screens growth 3-year CAGR is close to 3, 3.5 percentage whereas the rental expense and common area maintenance grown by more than 8% to 12%, is it because the developers sort of trying to charge higher rents to offset the losses they had during the COVID or how should we read this numbers? That’s my first question.

Nitin Sood — Chief Financial Officer

That’s not the case. You have to factor in a 3-year inflation and cost. We’ve gone back to paying full contracted rental. Our rental CAGR growth on an annual basis about 4.5% per annum. And if you look at the Slide number 18, we have given a breakup of how the rental costs have evolved. Our rental cost across comparable properties is up 18% to 19%, out of which 14% is on account of a 3-year rental escalation which is kicked in on a regular contracted rent. And the balance 5% is revenue share linked so, because we’ve done great revenues, we’ve also shared as per our contracts or percentage of that with the landlord. So, that’s primarily the reason. There is no claw back or any such thing.

Arun Prasath — Spark Capital — Analyst

So, this run rate should continue. There is one-off or anything like that. This should continue as we move forward?

Nitin Sood — Chief Financial Officer

Correct.

Arun Prasath — Spark Capital — Analyst

I also missed, I’m not sure if anyone asked, I must have missed the commentary on the ad revenues per screen, which looks like it is still yet to recover completely to the pre-COVID levels. What is your sense and outlook on this revenue side?

Nitin Sood — Chief Financial Officer

Yes. This, as I have just spoken will take some time. And we hope that by quarter 3, we would be within the heating range of the pre-COVID number. Currently it’s down we should recover in terms of percentage in quarter 2, but the full recovery would technically be closer in quarter 3 or one could safely say in quarter 4, we may end up exceeding the pre-COVID number. But quarter 2, we are still going to be lagging behind.

Arun Prasath — Spark Capital — Analyst

All right. Just reading across the commentary from other sector especially FMCG, what used to be the contribution from FMCG to your ad revenues? Is it like — are you seeing — are you getting dragged down because of their spend is lower or some any other category, which is not yet back to the mark, some category-wise commentary would be very helpful?

Nitin Sood — Chief Financial Officer

FMCG of course, was contributing close to about 15% to 17% of our total revenue, that’s taking time. And the second big category, which was contributing which is Telecom and hand sets which have also slowed down simply because of imports to India and the short of those chips, and they have lesser products to sell. So, these are the two, which has taken a bit of a dent and we believe that the way — and we’ve been really having a lot of communication with the brand managers there and we believe that quarter 3, 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 a big way at the cinema. So yes.

Arun Prasath — Spark Capital — Analyst

Very, very helpful comment. Thanks. That’s it from my side. Thanks.

Operator

Thank you. Our next question is from Abneesh Roy from Edelweiss. Please go ahead.

Abneesh Roy — Edelweiss Financial Services — Analyst

Yes, 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 competency. Are you seeing any traction from the B2C side of customer? And similarly on the Popcorn and the V cafe or your presence say in Swiggy, how is the scale up, if you could discuss that?

Gautam Dutta — Chief Executive Officer

Sorry. Your first question, I couldn’t get. So, we see its actually showing up some very encouraging number and we are — while the numbers relatively could be small, but it’s very consistent and growing. We do about INR30 lakhs odd revenue every month. So, that’s growing and very, very encouraging. Even on M Pop, which is our microwave popcorn, this has been one big I think boon off the COVID time and some of the SPH that you see is because of the volume of M Pop, which is being sold at the cinema and this is a wonderful product because consumers buy, we add it in our SPH, but these popcorns are not consumed at the cinema. So, at one end we are kind of servicing their hunger by selling them more products. We are also beginning to supply them foods, which they can take home. So on both ends it’s kind of doing a brilliant job. So, M Pop is doing very, very well. And this is Pan India its 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 but we’ve realized one thing that this business will at best contribute positively in some locations and deliver a certain SPH contribution towards cinema. But if you look at it as a standalone business may not be very sizable ever.

Abneesh Roy — Edelweiss Financial Services — Analyst

In Swiggy, Zomato, part of business, any plans for setting up say Cloud kitchen, because I think that is a bit more relevant? And would 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, but if you evaluate on a standalone business, are you looking at any investment or this is just more of a pilot project?

Gautam Dutta — Chief Executive Officer

Yes, I think we have to rethink the whole piece because we also realized we need a larger network. And I think we will have to reimagine this post the merger as well as our network of cinemas will go up significantly in lot of markets. So, and 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, but I think we’ll have to rethink the whole piece, how to make it relevant. I think next year would potentially be the right time to do it as we have a much larger network of cinemas across cities.

Abneesh Roy — Edelweiss Financial Services — Analyst

And globally do multiplexes in any country do this kind of business, delivery?

Kamal Gianchandani — Chief of Business Planning and Strategy and Chief Executive Officer of PVR Pictures

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.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sure. And last question was on essentially closure of some of the tough properties or which have lived that life. So, any more color you can give in terms of say next one year, two 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 and so, could you discuss any numbers next one year, two year how many such properties can happen?

Nitin Sood — Chief Financial Officer

So if you look at it, we have a typically long leases and when the leases come to an end typically we continuously evaluate this on an ongoing basis. And during the last two years, three years from June 19 till now we’ve shut down 39 screens, out of which 23 the leases expired, we did not renew, its in the line and the balance 16 screens we shut down. We believe, as of now bulk of our portfolio, I would say, 95% -96% percent of our portfolio is absolutely prime and doing exceedingly well. I think, there will be 2% to 3% of the portfolio, which is in malls, which probably have outrun their life, but they cinemas continue to still do well. And over a lifecycle, we continue to evaluate this on an ongoing basis. If I’m getting into new markets into brand new shopping malls and building my market presence and the existing cinema has lost team or that more has become irrelevant, we take those calls to move out and shut down those locations and properties, but 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.

Abneesh Roy — Edelweiss Financial Services — Analyst

And one follow-up on cinelines. So, I understand it was just 2% to 3% of your impact on numbers, but 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 will have some obviously expansion plan also, so, if you could address both parts, are you getting some part of the demand back because now it’s not part of network? And second do you see them as a competition in terms of longer-term because of their expansion?

Nitin Sood — Chief Financial Officer

No, I think it’s good for the industry that we have more and more operators because 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, but it is good that the country adds more and more screens and it’s good to have somebody who’s willing to put capital to add more cinema screens apart from us. On cineline like we’ve said it is — it was not a very big portion of our portfolio, less than 2% of our overall revenues, and you know 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 relevant screen. Some of them had outlived their lives placed by new cinemas.

So, we believe that this churn, this is like any other regular churn that will keep happening in our portfolio, every year we’ll keep shutting down one or two properties, which will stay not relevant and keep replacing them with new screens that we will end up opening in those markets. So, we don’t see that to be any major concern.

Abneesh Roy — Edelweiss Financial Services — Analyst

Okay. That’s quite helpful. That’s all from my side. Thank you.

Operator

Thank you, ladies and gentlemen, that was the last question for today. And now, I would like to hand the conference over to Mr. Nitin Sood for closing comments.

Nitin Sood — Chief Financial Officer

Now I’d just like to thank everyone for taking out time for our earnings call. And if you have any follow-up questions, feel free to write to me. Thank you.

Operator

[Operator closing remarks]