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1 Event Update Institutional Equities Film Exhibition Sector 2 May 2017 Baahubali 2 Augurs Well For FY18 Baahubali 2, which was released on 28 April 2017, has beaten all historical records in the Indian film industry by clocking gross box office collection (GBOC, revenue prior to entertainment tax being deducted) globally of Rs5.2bn over three days (Friday, Saturday and Sunday) based on media reports. This includes domestic GBOC of ~Rs4bn and ~Rs1.2bn in overseas markets (of which 60% came from North America). This marks a tremendous start to FY18 for the two film exhibition players, PVR and Inox Leisure, which will benefit from the very high occupancy rate, higher ATP and also higher bargaining power vis-à-vis advertisers. Unlike FY17, which was impacted by insipid content (except for a late flourish from Dangal ), we believe FY18 could be a great year with the start provided by Baahubali 2 and a slate of blockbusters that are likely to be released in the rest of FY18 (Exhibit 2 provides the slate of movies in FY18). We are positive on the film exhibition sector (see sector report Indian Film Exhibition Sector- Oligopolistic Business In Its Infancy; GST To Lift Margins And RoIC). We believe that: (1) Indian multiplex industry is an oligopoly (top four players control ~70% of screens) and will remain so as entry barriers are quite formidable and there are no substitutes. This industry structure will deliver steady revenue growth, and improve margins as well as RoIC over a long period of time. (2) PVR and Inox Leisure (the two large players) can deliver in the next 10 years at least 5%-10% volume/footfall growth (new screen-driven, attracting both singlescreen and new generation customers) per year, respectively, with rise in realisation of 4%-5%. This will result in revenue CAGR of 10%-15% with PAT growing a tad faster. Structurally, expectations of a rise in relevant customer households which can afford this type of entertainment (currently at 8%- 11% of total, in our view) is going to drive demand. Same store/screen sales growth (SSG), in our view, will be realisation-led at 4%-6%. We believe that: (1) These players deserve premium valuations, considering the longevity of earnings compounding and good RoICs. (2) This industry, a highly taxed one, will benefit if the Goods and Services Tax or GST is levied in a benign manner and input tax credit is allowed. (3) Expensive M&A activity in the past five years and consequent weak return ratios are a small price to pay for achieving consolidation in a nascent industry. Over the long run, as organic growth predominates, the benefits of a better industry structure will far outweigh the price paid. We believe the stranglehold over retail real estate (and slow pace of its expansion) to be the key driver of positive industry dynamics. This will lead to a steady increase in capacity, solid pricing power and a high occupancy rate. The key risk to sector earnings tends to be the volatility induced by success of content. This is a very difficult thing to predict. Some movies may look great on paper, but may turn out to be duds at the box office. But increasingly the content risk is being lowered as Hollywood and regional movies (both in their original and dubbed versions) are able to command a greater share of GBOC. Baahubali 2 has a great weekend: Based on media reports, Baahubali 2 was released in 6,500 screens in India (4,000 for the Hindi version) and 2,500 overseas. This should give a strong start to FY18 earnings picture for PVR and Inox Leisure as in the comparable quarter of the previous year the content was not that strong (see Exhibit 2) and the movie is likely to generate GBOC of possibly Rs10bn - a first in Indian cinematic history (see details on other big blockbusters in Indian film industry in Exhibit 1). Originally made in Telugu, it has been dubbed into other Indian languages like Hindi, Tamil and Malayalam. The Hindi version of the movie had a domestic GBOC of Rs1.28bn, beating the previous high for a weekend release Dangal (Rs1.07bn) The largest movies from a GBOC stand point in the Indian film industry have been PK and Dangal (both Aamir Khan starrers, Exhibit 1). PVR/Inox Leisure stocks are up about 57%/43%, respectively, since their demonetisation lows witnessed in January This performance has been driven by market s expectation of a strong 4QFY17 (see our note Growth Story Expected To Continue) and also expectation from a strong film slate for FY18. Inox Leisure stock still has value: After the sharp run-up, we believe the Inox Leisure stock still has some decent upside left to achieve our target price. We believe that Inox Leisure has been trading at a significant discount to PVR in EV/EBITDA terms (56% discount based on our FY19E EBITDA estimate). On operational metrics terms based on 3QFY17 numbers, Inox Leisure s ATP/SPH and advertisement revenue per screen were about 10%/25% and 50%, respectively, lower than that of PVR s. Our view has been that such a large gap between the two, especially on SPH and advertisement revenue per screen, will be to some extent bridged in the coming years as the company tries to address issues connected with its location and advertisement revenue weakness (see our note Location and Advertisement Revenue Weaknesses Being Addressed). Also, based on our research of comparable properties in two cities in micro markets, we believe Inox Leisure and PVR have roughly the same Ticket prices and occupancies (see Exhibit 3) indicating that PVR s lead is because it has more number of screens in the NCR and Mumbai territories, key consumption pockets in India. Girish Pai Head of Research girish.pai@nirmalbang.com

2 Exhibit 1: Biggest blockbusters in Indian cinema and their lifetime GBOC Rank Film Worldwide gross collection (lifetime; Rsbn) Year of release 1 PK Dangal Baahubali: The Beginning Bajrangi Bhaijaan Dhoom Sultan Baahubali 2: The Conclusion** Film Exhibition Sector

3 Exhibit 2: Comparison of movie release slate of FY17 and FY18 FY17 FY18 Quarter Movie name Star cast Movie name Star Cast The Jungle Book Neel Sethi Jagga Jasoos Ranbir Kapoor, Katrina Kaif, Sayani Gupta, Adah Sharma Housefull 3 Akshay Kumar, Abhishek Bachchan, Riteish Deshmukh, Jacqueline Fernandez, Lisa Haydon, Nargis Fakhri, Nikitin Dheer Smurfs: The lost village Joe Manganiello, Demi Lovato, Jack Mc Bryer 1Q Fan Captain America Civil War Shah Rukh Khan, Waluscha de Sousa, Sayani Gupta, Shriya Pilgaonkar Chris Evans, Sebastian Stan, Robert Downey Jr. Fast and Furious 8 Baahubali - The conclusion Vin Diesel, Jason Statham, Dwyne Johnson, Charlize Theron, Eva Mendes Prabhas, Rana Daggubati, Tamannaah Bhatia, Anushka Shetty, Vivek Tiwari, Ramya Krishnan, Nassar Sairat Akash Thosar, Rinku Rajguru Half Girlfriend Arjun Kapoor, Shraddha Kapoor 2Q Sachin -A Billion Dreams Toilet - Ek Prem Katha Tubelight Sachin Tendulkar Akshay Kumar, Bhumi Pednekar Salman Khan, Zhu Zhu, Sohail Khan Sultan Salman Khan, Anushka Sharma Mubarakan Anil & Arjun Kapoor Rustom Akshay Kumar Bhoomi Sanjay Dutt, Aditi Rao Hydari Pink Amitabh Bachchan, Tapsee Pannu Secret Superstar Aamir Khan, Zaira Wasim, Meher Vij Kabali Rajinikanth, Radhika Apte The Ring Shah Rukh Khan, Anushka Sharma Dishoom Varun Dhawan, John Abraham Baadshaho Ajay Devgn, Emraan Hashmi, Vidyut Jammwal, Ileana D'Cruz, Esha Gupta Simran Judwa 2 Dangal Aamir Khan Golmaal Again Kangana Ranaut, Sohum Shah Varun Dhawan, Tapsee Pannu, Jacqueline Fernandez Ajay Devgn, Parineeti Chopra, Neil Nitin Mukesh, Tabu, Shreyas Talpade, Tusshar Kapoor Ae Dil Hai Mushkil Ranbir Kapoor, Anushka Sharma, Aishwarya Rai Bachchan 2.0 Rajnikanth, Akshay Kumar, Amy Jackson 3Q M.S. Dhoni -The Untold Story Sushant Singh Rajput Padmavati Deepika Padukone, Shahid Kapoor, Ranveer Singh, Aditi Rao Hydari Dear Zindagi Shahrukh Khan, Alia Bhatt Tiger Zinda Hai Salman Khan, Katrina Kaif Shivaay Ajay Devgn, Sayesha Dutt Ranbir Kapoor, Sonam Kapoor, Anushka Sharma, Dia Mirza, Paresh Rawal, Manisha Koirala, Vicky Kaushal, Rohit Sharma Dangal Aamir Khan Raees Shah Rukh Khan, Mahira Khan, Mohammed Zeeshan Ayyub, Nawazuddin Siddiqui, Atul Kulkarni, Sunny Leone 4Q Kaabil Jolly LLB 2 Hrithik Roshan, Yami Gautam, Ronit Roy, Rohit Roy Narendra Jha Akshay Kumar, Huma Qureshi, Annu Kapoor Badrinath Ki dulhania Varun Dhawan, Alia Bhatt Sarkar 3 Phillauri Amitabh Bachchan, Jackie Shroff, Manoj Bajpayee, Yami Gautam, Ronit Roy, Amit Sadh Anushka Sharma, Diljit Dosanjh, Suraj Sharma 3 Film Exhibition Sector

4 Exhibit 3: Performance of PVR and Inox Leisure screens in Mumbai and Delhi for Baahubali 2 on the release date prime time show Mumbai Number of seats Ticket Price Seats Occupied Occupancy (%) WAATP Overall Occupancy PVR Cinemas, Oberoi Mall, Goregaon (8:00) % % % INOX, Inorbit Mall, Malad (7:45) % % % PVR phoenix market city, Kurla (8:00) INOX R-City Ghatkopar (7:30) % % % % % % % % Delhi Number of seats Ticket Price Seats Occupied Occupancy (%) WAATP Overall Occupancy PVR Naraina (7 PM) % % % Satyam Cineplex, Patel Nagar (7:46) % % % PVR 3CS, Delhi (7:30) % % % Satyam Nehru Place (7:45) % % % INOX Eros One (7:15) % % 4 Film Exhibition Sector

5 Disclaimer Stock Ratings Absolute Returns BUY > 15% ACCUMULATE -5% to15% SELL < -5% This report is published by Nirmal Bang s Institutional Equities Research desk. Nirmal Bang group has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. Reports based on technical and derivative analysis may not match with reports based on a company's fundamental analysis. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication. Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) is a registered Member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited. NBEPL has registered with SEBI as a Research Entity in terms of SEBI (Research Analyst) Regulations, (Registration No: INH to ). NBEPL or its associates including its relatives/analyst do not hold any financial interest/beneficial ownership of more than 1% in the company covered by Analyst. NBEPL or its associates/analyst has not received any compensation from the company covered by Analyst during the past twelve months. NBEPL /analyst has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market-making activity of the company covered by Analyst. The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision. Access all our reports on Bloomberg, Thomson Reuters and Factset. Team Details: Name Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Girish Pai Head of Research girish.pai@nirmalbang.com / 18 Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com , Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com /8101, Michael Pillai Dealing Desk michael.pillai@nirmalbang.com /8103, Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park, Lower Parel (W), Mumbai Board No. : /1; Fax. : Film Exhibition Sector