PVR Inox is taking steps to increase profitability by cutting down on capital expenditure. The company plans to shut down 70 non-performing screens with net additions of 50-60 new screens in FY25. As per PVR Inox, group chief financial officer Nitin Sood, the company will bring it down by 25% to Rs 450 crore in FY25. In FY24, PVR spent a total capex of Rs 620 crore.
"Over the last 12-18 months, we have repositioned a lot of our existing contracts and have got significant developer contributions to fund part of the growth. We have also renegotiated some of our rentals in most of the new locations that have opened up. We eventually want to evolve into a capex-light model and reduce our capex by 30-50%," he said
As per Sood, out of the 120 screens that the company will add in FY25, about 15-20 will be under the franchise-owned company-operated (FOCO) model in which the developer will put in most of the investment with around 20% of the capital coming from PVR Inox.
"Bulk of the new additions are already under fit-out from previous year. So, FOCO will gain momentum in the coming year and take about four years to become a dominant model. In the next year you could see 20-25% (screens) in the capital light and FOCO model," Sood said
Many of the new screens will be opened in the south amid PVR's expansion plans. Sood also added that it will take some time for the Capex reduction to reach 30-50% range as the screen additions are slowly moving to asset light models.
"As we roll out a new screen portfolio, our landlord partners will co-invest for most of the screens. We will end up sharing food business with the landlord so increasingly more and more deals pivot to higher percentage of revenue sharing as compared to investing upfront capital", Sood said.
Meanwhile, PVR is also planning to shut down around 70 screens with net additions of 50-60 screens in FY25. In FY24, PVR Inox opened 130 new screens and shut down 85 screens with net additions of 45 screens.
"Most of the assets have lived their life. Also, the malls in which the cinemas which are being closed are not performing because of which we are looking at the closures", the CFO said.
The CFO also expects marginal reduction in rent and Common Area Maintenance (CAM) charges.
"We are in discussion with landlords. Where the lock in period is expiring there we have an opportunity to renegotiate rentals but it will not be a large number. Some of the rental cost will get rationalised as we come out of lock in period," Sood said.
In Fy24, PVR Inox's expense on rent increased 14% to Rs 1,192.8 crore in FY24 from Rs 1,042.6 crore in FY23. Meanwhile, the CAM expenses were up 15% to Rs 329.6 crore in the last financial year from Rs 286.9 crore in FY23.
"We will be transitioning to a capital-light growth model for new screen additions. We will be selective in adding new cinema and prioritise expansion efforts in South India. We will monetise Inox real estate inherited from the merger and plan to use the proceeds to reduce debt. Currently, screen portfolio stands at 1,748 screens," said Ajay Bijli, managing director of PVR Inox Ltd, in the Q4 FY24 earnings call.
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