Analysts put PVR-Inox on a pedestal amid bumper releases, merger synergies

At the bourses, shares of this multiplex operator have soared 14 per cent in a month, as against a 1.6 per cent fall in the S&P BSE Sensex

A series of blockbuster releases in recent weeks has drawn investor attention towards PVR-Inox. On the stock exchanges, shares of the multiplex operator have soared by 16 per cent in a month, in contrast to the 1.6 per cent drop in the S&P BSE Sensex.

Analysts, too, have grown optimistic about the stock’s fortunes in the near term, owing to the robust box office (BO) collections of movies such as Gadar 2, Jailer, and OMG 2 (collectively amounting to Rs 1,370 crore in global BO collections), a healthy cinematic pipeline, and the realisation of merger synergies between PVR and Inox.

“The July-September quarter (second quarter, or Q2) of 2023-24 (FY24) witnessed a strong start, with movies like Oppenheimer, Barbie, Mission: Impossible — Dead Reckoning Part One, Gadar 2, OMG 2, and Jailer performing well at the BO. With more movies in the pipeline for 2023, PVR-Inox is likely to benefit from big-ticket releases as audiences return to cinemas,” says Deepak Jasani, head of retail research at HDFC Securities.

Siddhesh Mehta, a research analyst at SAMCO Securities, reiterates a bullish stance on the stock, asserting that the resurgence in footfall, growth in average ticket price, merger synergies, and positive Q2 outlook bode well for PVR-Inox.

Raking in profits

According to latest reports, the Sunny Deol-starrer Gadar 2 has amassed a gross BO collection of Rs 604.6 crore worldwide, while OMG 2 and Jailer collected Rs 201 crore and Rs 564.3 crore worldwide, respectively.

Approximately six more movies are scheduled to be released in the remaining part of the second quarter, including Kushi, Jawan, The Nun II, SRI, The Great Indian Family, and Salaar.

In the April-June (first quarter, or Q1) of FY24, films from regional, Bollywood, and Hollywood industries performed well, in contrast to the previous year (Q1 of 2022-23, or FY23) when footfall recovery was primarily driven by regional films like K.G.F. Chapter 2 and RRR.

PVR-Inox’s revenue grew by 14 per cent quarter-on-quarter (QoQ) in Q1FY24, with the average ticket price (ATP) and food and beverage spending per patron increasing by 3 per cent and 9.2 per cent QoQ, respectively.

Screen economics also remained robust in Q1, despite lower occupancy levels (25 per cent in FY23 compared to the pre-pandemic occupancy of 32 per cent).

Analysts at JM Financial believe that PVR-Inox managed to offset the impact of reduced occupancies through higher ATP, increased spend per head (SPH), and reduced operating expenses per screen.

Looking ahead, the management indicated that the accumulation of ATP synergies and SPH will manifest in the upcoming quarters if big-budget movies perform well in Q2FY24.

In a recent note, UBS analysts estimated a 17 per cent/15 per cent QoQ rise in both revenue and earnings before interest, tax, depreciation, and amortisation (Ebitda) for Q2FY24, alongside a 10 per cent increase in screen addition costs.

“The frequency of movie releases across languages is likely to pick up around mid-October 2023 for the festival season, following a slight lull during the first two weeks of October 2023. We believe that a substantial number of Bollywood movie releases during this period will favour PVR-Inox,” the brokerage firm added, maintaining a ‘buy’ rating on the stock, with a target price (TP) of Rs 2,150 per share.

Meanwhile, ICICI Securities has upgraded its revenue, adjusted Ebitda, and profit after tax estimates for PVR-Inox for FY24/2024-25E by 15 per cent/7 per cent, 48 per cent/12 per cent, and 62 per cent/20 per cent, respectively.

“The stock had corrected meaningfully from its historical multiples due to investor concerns regarding the relevance of movie exhibition amidst the over-the-top disruption. We believe these concerns are unwarranted and maintain a ‘buy’ call,” the brokerage firm added, setting a TP of Rs 2,240 per share.