Gloomy picture: Near-term gains unlikely for multiplex player PVR Inox

Firm may face tough times amid forecast of weak box-office collections

From its highs in December 2023, the stock of the country’s largest multiplex chain PVR Inox is down 22 per cent and is trading at Rs 1,412 a share. A weaker-than-expected December quarter, a muted outlook in the near term and a downward revision in earnings are weighing on the film exhibitor. Even though there aren’t enough growth boosters in the near term, brokerages have maintained an accumulate or buy rating on the stock, given moderate valuations.

The key trigger will be the March quarter performance and the outlook for the company. Some of the concerns related to sluggish box office collections could be reflected in the March quarter performance. Multiplexes (sector) could report a revenue growth of 3 per cent year-on-year (Y-o-Y), but a quarter-on-quarter (Q-o-Q) dip in box office collections due to lack of big-budget movies, gaps in release dates and the exam season.

Elara Securities highlighted that the quarter was below par for the market leader. The brokerage expects a 24 per cent occupancy due to muted footfalls.

“Metrics, such as average ticket price (ATP), may decline 5 per cent sequentially (Q-o-Q), due to higher promotions and discounts, whereas spend per head may grow 5 per cent, due to synergistic benefits and menu innovation, likely providing respite to overall profitability. Ad revenue may decline 15 per cent Q-o-Q, attributed to content performance issues during the quarter and high base festive season quarter,” says Karan Taurani of the brokerage.

The brokerage has a buy rating on the stock with a target price of Rs 1,900 a share.

Sequential trends are subdued for multiplexes due to a lack of quality content, limited big movies and gaps in release dates (in the second half of Q4FY24) or bunched-up releases. Nuvama Research expects PVR Inox to breakeven at the operating profit level on a pre-Ind AS basis and should improve going ahead given the multiple steps taken by the company. While the company reported a net profit of Rs 12.8 crore in the December quarter, it is expected to end the March quarter with a loss of Rs 118 crore. In the year ago quarter (Q4FY23), the company had a loss of Rs 333 crore.

The company is targeting to bring down the rental costs from 19-20 per cent of revenue to 16-17 per cent over the next year and a half. It is also entering into capex-sharing contracts with landlords to increase its return on capital employed. The capital expenditure to be employed in FY25 is expected to be 35-40 per cent lower than FY24. It is eyeing a reduction in screen portfolio to ensure optimal footprint and retention of brand premium. It expects advertising revenues to return to pre-Covid levels on an absolute basis by FY25. What could aid margins and keep costs lower would depend on its ability to achieve post-merger synergies of up to Rs 130 crore for FY25. 

The company is expected to face tough times in the near term, given forecasts of weak box office collections. Prabhudas Lilladher Research highlights that the pipeline for 1QFY25 is not that exciting and if Kalki 2898 AD gets postponed then the overall box office collections for the next quarter can get severely impacted.

The brokerage, however, has an accumulate rating on PVR Inox with a target price of Rs 1,719 as the stock trades at an attractive enterprise value to operating profit valuations of 12 times and 10 times respectively on FY25 and FY26 estimates. 

IIFL Research, too, has cut the company’s occupancy ratio for FY25 from 26 per cent to 25.6 per cent and trimmed the advertising revenue on account of the absence of Bollywood movies starring the Khans in the near term. It has cut PVR Inox operating profit excluding Ind-AS by 13 per cent/9 per cent for FY25 and FY26 respectively. The brokerage has lowered its target price from Rs 1,657 to Rs 1,451.