PVR & Inox Re-Emerge as Out-of-Home Entertainment Options

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Howdy Toasters!

In today’s issue of the Morning Toast, we discuss:

Multiplexes re-emerge as genuine out-of-home entertainment options
Federal Bank (FB) continues transformation into new generation private bank
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An education concept to keep you chugging along

It’s showtime! Multiplexes re-emerge as genuine out-of-home entertainment options; What’s happening at PVR & Inox and what can we infer? 🧐

Increased rate of vaccination in the last couple of months has meant that ~32% of the eligible population of the country is fully vaccinated, with expectations of ~51% to be vaccinated by end of the year
Post easing of the effects of the second wave (physical & mental), consumer revenge spending has taken centre stage –
- Consistent m-o-m rise in domestic air travel, number of flyers rising by 41% in Sep21 vs July21
- Hotel occupancies have increased by ~52% in Aug21 vs 47% in July21
- Net passenger bookings for railways for the first 8 days of Oct21 were up ~74% vs the same period in 2019 (last comparable year)
Most importantly, PVR’s footfalls have touched ~68% of 2019 levels for recently released non-Bollywood movies (Hollywood + Punjabi cinema), despite the ceiling in capacity
Increased rate of inoculation, consistent drop in daily Covid-19 cases, and renewed consumer confidence in outdoor activities augurs extremely well towards the re-emergence of multiplexes as genuine out-of-home entertainment options, more so after a hiatus of ~15 months

Interesting! What’s the content line-up? What are state wise capacity restrictions? And are there any global comparisons to make? (Great q’s bro) 😎👍

Bollywood is raring to go, especially after such a long pause – in Nov-December alone, the industry is expected to release 6 big ticket flicks, with another 8 lined up for the first 3 months of next year
Of the 14 films planned for release in the next 5 months, >60% feature stars whose pre-Covid releases crossed INR 1 Bn in Net Box Office Collections; think the likes of Akshay Kumar, Salman Khan, Aamir Khan, Ajay Devgan, Ranveer Singh, Katrina Kaif, Alia Bhatt, releasing more than one movie (back-log coming into perspective)
Taking global box office collections into consideration, Top-10 films have reached 40% of 2019 levels (23% excluding Chinese releases), indicative of a growing desire & preference to go-out & consume content
All states have permitted cinemas to resume operations, with different specifications & limitations, with most states allowing 50% capacity; key to highlight is a direct correlation between vaccine % and capacity allowances, which are likely to decide further course of action (see image below)

Nice! Stock-specific information? Final thoughts? 🤔

Cinemas are treading slowly towards normalcy, with all states permitting re-opening, increased vaccination rates & several big budget films lined up for release (different to the period between 1st & 2nd wave, when A-List actors avoided releases)
The last 15 months have brought new consumption trends to the fore, yet with a revert back to normal (decreasing count of WFH), and a genuine lack of out-of-home entertainment options, cinema chains are likely to see a return to business as usual in the near term
Cognisance of a dual preference and increasing confidence in consumers returning to movie theatres, is Disney deciding on exclusive theatrical releases vs simultaneous OTT releases with a content window of 30-45 days

Stock Perspective? 👀

Listed multiplex players include PVR India & Inox, with both stocks recording >50% + moves in last last 6 months; the stocks reacted positively to the news of Maharashtra allowing for re-opening (18% & 20% screen % for PVR & Inox)
PVR has recorded a 68% recovery % for the country, with Southern & Northern states (greater capacity %) stronger in comparison to East & West (should change, now that Maharashtra is open for business)
While size, scale, b/s and valuations differ between the two names, from a growth/business perspective, both are likely to benefit in the near term

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Federal Bank (FB) continues transformation into new generation private bank; What do we know and what should you make of it? 🧐

India’s favourite South based bank delivered overall credit growth of 9% YoY (which is also a six quarter high); retail credit growth remains extremely strong, coming in at 11% YoY, led by new products including mortgages & vehicle loans
Current Account Savings Account (CASA) Ratio for the bank stands at an all time high of 36% (fair few all time highs :P), reflecting in the lower cost of deposits and thus better Net Interest Margins (3.2%, up 0.05% QoQ)
A strong CASA ratio is reflective of the trust in the Bank, and drastically reduces cost of growth, thereby directly helping bring up the margin profile (see CASA ratios at other Banks to get a sense on overall business franchise)
The Bank has successfully formed new credit card partnerships with Rupay / Visa, deleveraging itself and reducing concentration risk; FB was previously caught in the crossfire between MasterCard & RBI (RBI has barred new issuance of any new MasterCard Cards due to data regulatory issues)

Interesting! Bottom Line? NPAs? 🤔

The Bank recorded healthy uptick in slippage ratio (tracks loans that move into stressed pool, with likelihood of repayment low), 1% vs 2.3% in Q1, coupled with significant recoveries from the slipped pool of Q1
Covid-19 specific restructuring came in higher for the quarter (when compared to forecasts), amounting to 2.6% of loans (vs 2% in Q1FY22)
Higher than required amounts being set aside to tide over COVID related transient issues has been constant across the financing landscape (think: HDFC, ICICI undertaking similar measures)
The Bank presently holds INR 4.5 Bn of restructured provisions, which would amount to 0.3% of loans thereby ensuring steady asset quality across the board

Nice! Final thoughts? How’s the stock been? 😏

The bank continues to report healthy, consistent and in-line bottom line numbers, driven by contained provisions and one-off recoveries from legacy book
The management has guided for ~1% RoAs & 11-14% RoEs over FY22-24E driven by better margins, led by evolving product portfolio, veering towards greater retail share through Commercial Vehicle financing, MFIs, personal loans & card business (heavily digitally sourced & executed)
The bank has built out a commendable fintech franchise, forming partnerships with 50+ fintechs to digitise processes and source loans, heavily bringing down cost of business (thus aiding margins)
The stocks performed extremely well in the short-term, up ~38% in the last 6 months, yet trades at a discount to its bigger peers

We covered the stock in July, click here to get a recap, pre-results.

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What else caught our eye? 👀

Airtel becomes the 2nd telco to opt for AGR dues moratorium

Airtel has opted for the 4- year adjusted gross revenue (AGR) dues moratorium and became the 2nd telco after Vodafone Idea to do so.
The company is expected to free up Rs 40,000 cash outgo which can later be used in the upcoming 5G spectrum.

Smartphone gonna be more affordable now! Thanks to Reliance Jio

Reliance Jio on Monday confirmed the launch of JioPhone Next, which claims to be the world’s most affordable smartphone, around Diwali.

14% employment rise in the third quarter of 2021

The surge in the job opportunities in Q3 is led by sectors like engineering, manufacturing and technology.

Tuesday, 26th October: ABB, Ambuja Cement, Axis Bank, Bajaj Finance, Birlasoft, Canara Bank, Cipla, Dr Lalpath Labs, Jindal Stainless, Kotak Mahindra Bank, Nippon Life, Persistent Systems, PI Industries, Sanofi India, Torrent Pharma,

Wednesday, 27th October: Adani Enterprises, Adani Ports, Bajaj Auto, Cummins India, Dalmia Bharat, Indusind Bank, ITC, KEC International, KEI Industries, L&T, Lupin, Maruti Suzuki, Oracle Financial Services, Poonawala Fincorp, SBI Life, Shri City Union, Tata Chemicals, Titan Industries, Torrent Power, United Breweries, United Spirits, Zee Entertainment