Strong content pipeline, asset light model to drive gains for PVR Inox

From its lows in mid–August, the stock of the country’s largest multiplex operator is up over 18.5 per cent outperforming the benchmark Sensex, which delivered gains of up to 7.4 per cent during this period. After a muted June quarter, the improving sentiment for the stock is on account of a strong movie pipeline which should reflect in the collections in September and December quarters as well as deleveraging expectations.

The September quarter had several blockbusters including Kalki 2898 AD, Stree 2, Deadpool & Wolverine, and Raayan among others. While PVR’s bollywood/regional/hollywood market shares are at 40 per cent, 20 per cent and 60 per cent, respectively, Anand Rathi Research expects a sequential improvement in occupancy and average ticket prices starting Q2. The company reported Q1 occupancy of 20.3 per cent and average ticket prices stood at Rs 235. Revenue growth in the quarter is expected to improve 20 per cent on a sequential basis with operating profit margins at 10-12 per cent.

Most brokerages believe that the content pipeline in the December quarter will help the company surpass the performance in Q2FY24, its best quarter till date. Abhisek Banerjee and Jayram Shetty of ICICI Securities believe PVR Inox is likely to benefit from a strong content line-up in Q3FY25 with highly anticipated movie releases such as Pushpa 2, Bhool Bhulaiyaa 3 and Singham Again among others.

The quarter has five mega budget movies, including regional movies which will be released during the festive season. The company may also benefit from rising advertising spends, as advertisers seek to capitalise on higher footfalls.

The company is looking at reducing its debt by taking the asset-light approach and reducing the capital expenditure intensity in the business. It is entering into joint ventures with developers to invest in new screen capex and is aiming to reduce overall capex in FY25 by 25 per cent as compared to FY24.

It is also being selective about screen additions and is opening 120 new screens in FY25, prioritising expansion efforts in the under penetrated south India market. About 10 per cent and 20-25 per cent of gross screen additions for FY25 and FY25, respectively, would follow the management fee or the revenue sharing model. While management fee is pegged at 9 per cent of net collections, the revenue sharing model would entail the developer paying for about 70-80 per cent of the capex.  

In addition to the content pipeline, measures to pare debt (by monetising three properties in Mumbai, Pune and Vadodara), and improve operational efficiencies by adopting an asset-light model augur well for earnings growth outlook and stock re-rating, say Shobit Singhal and Pranay Shah of Anand Rathi Research.

While the brokerage has retained its buy rating with a target price of Rs 2,065 a share, ICICI Securities has reiterated a buy call on the stock with a target price of Rs 2,250. At the current market price, the target prices suggest returns in excess of 21 per cent.