Stocks of multiplex companies, PVR and Inox Leisure, have been clear outperformers in the past one year, despite slowing consumption in the country and controversy over allowing outside food into cinema halls. In the past three months, the two stocks have risen around 11-29 per cent compared to the nearly 5 per cent and 9 per cent rise in the Nifty FMCG index and the BSE Sensex, respectively. The sturdy performance by both these companies in the September quarter (Q2) clearly explains this outperformance. Going ahead investors can expect a good upside in the stocks with a likely strong December 2019 quarter (Q3) due to strong box office collections.
A report by Emkay Research shows that two movie categories - Bollywood and Hollywood - have done extremely well during the first two months of Q3. While the net box office collections (NBOC) by Bollywood movies are up by 13 per cent year-on-year, Hollywood movies have recorded a more than two-fold jump in their NBOC during the said period.
This in itself indicates that the healthy footfall trend witnessed in the September quarter would continue even in Q3. Analysts at Emkay expect PVR and Inox to report double-digit growth in footfall in Q3. A good collection in December would provide further upside. The chances of further improvement in footfalls are high given good collections by recent Bollywood releases in December (Panipat and Pati, Patni aur Woh).
In the September quarter, as shown in the adjacent chart, both these companies clocked nearly 40 per cent year-on-year growth in footfalls.
What driving consumers’ preference to multiplexes or movie watching is the attractive price points. According to Jinesh Joshi, analyst at Prabhudas Lilladher, “Multiplexes are the most cost effective 'out of home leisure' alternative when compared with other entertainment options.” For instance, PVR’s average ticket price during April-September 2019 was Rs 202. This augurs well in the current situation as some experts believe that during times of stress, people look at such options for entertainment.
Strong footfalls, in turn, would also propel food and beverage (F&B) business. While movie tickets account for 53-56 per cent of the revenues of PVR and Inox, F&B’s share is 26-27 per cent. Advertising and other operating income account for the rest. However, how the advertising revenue growth pans out at a time when many consumer companies are facing volume growth pressure is something the Street will be eyeing closely.
Also, there is some scepticism on screen additions due the ongoing real estate slowdown. However, both the companies are on track to achieve their screen addition targets, says Jinesh Joshi. While PVR has guided for around 80 screen additions for FY20 (42 screen have been added till mid-October), it is 70-71 for Inox (27 screens have been added till date in FY20). According to updates from Inox’s analyst meet, which was conducted on last Friday, the industry will add around 200-300 screens each year.
Overall, the multiplex stocks offer good investment opportunity given the growth outlook and attractive valuations. The current FY21 estimated enterprise value to EBITDA of PVR and Inox stands at 11 times and 9 times, which is still 5-15 per cent discount to their respective historical 1-year forward average valuations.
Analysts’ target price for both the stocks, as per Bloomberg, shows a 16-19 per cent upside from the current levels.