March quarter boost for multiplex players PVR and Inox Leisure

Higher footfalls and screen additions to keep FY20 growth strong

Stocks of listed multiplex players PVR and Inox Leisure (Inox) were up sharply as compared to the weak broader indices on expectations of a robust March quarter and growth prospects for FY20. Even as the benchmarks ended in the red, Inox was up nearly 10 per cent while its larger peer PVR was up 2.4 per cent. 

Analysts believe the near term outlook for the companies should be strong given higher footfalls due to transmission of cut in goods and service tax (GST) rates and good content. The rate was cut to 12 per cent for tickets priced below Rs 100 while for the rest it was pegged at 18 per cent as compared to 18-28 per cent earlier. 

The spurt in Inox stock was on brokerage upgrades which highlight the strong operating profit growth in FY19 as well as screen additions in the next fiscal. Analysts at CLSA peg the company’s operating profit growth at 35 per cent for FY19 driven by aggressive screen additions, improving footfall monetisation and strong content performance. The per unit profitability is expected to be the highest over the last few years. Going ahead, the company’s plan to add more screen in marquee locations as part of brand building efforts is expected to increase advertisement realisation and boost food and beverage (F&B) spending. On a high base, the company’s advertising revenues for year to date FY19 have grown 26 per cent.  

Given the aggressive screen additions both through the organic and acquisition routes their combined market share (PVR and Inox) has more than doubled over the last seven years to over 21 per cent and is expected to increase further.

While most brokerages are positive on the prospects of the companies, there are some concerns as well. Analysts at IIFL highlight regulatory risks including food and beverage litigation, local body tax imposition and caps on ticket prices in a few states. In addition to these, there is the digital threat, gaming and rising popularity of sports leagues which are entertainment alternatives. The risk on F&B revenues however seems to be reducing due to favourable judgements on similar petitions in Madhya Pradesh, Telangana, and Jammu & Kashmir. PVR has also made price corrections to mitigate the  difference.