PVR Inox shares hit a 44-month low of Rs 1,154, declining 8 per cent on the BSE in Tuesday’s intra-day trade in an otherwise firm market on growth concerns. The stock price of India’s largest multiplex chain operator has slipped 23 per cent from its previous month high of Rs 1,620, touched on December 5, 2024. It has fallen below its previous low of Rs 1,203.70, touched on June 4, 2024. The stock is trading at its lowest level since May 2021.
This comes in the backdrop of India reporting at least five cases of Human Metapneumovirus (hMPV) on Monday. The virus causes respiratory illness and was recently identified in China and Malaysia as well. Two cases were detected in Karnataka, two in Tamil Nadu, and one in Gujarat. All five confirmed cases have been found in children, the Business Standard reported.
PVR Inox is the market leader in multiplex space in India. Currently, it operates 1,747 screens in 111 cities across India and Sri Lanka. PVR Inox derives its revenue mainly from box office ticket sales, supplemented by high-margin food and beverage sales, on-screen advertising and convenience fees from online bookings.
In one year, PVR Inox has underperformed the market by falling 24 per cent, as compared to the 9 per cent rise in the BSE Sensex.
PVR Inox has long been synonymous with premium movie experiences and innovation in the cinema industry. However, in recent years, the company has encountered several challenges including the COVID-19 pandemic, a weak content pipeline, competition from streaming platforms, rising costs and debt and financial stress that have disrupted its growth trajectory.
The COVID-19 pandemic caused prolonged closures of cinemas, leading to a significant loss in revenues for the company. Even after reopening, audience footfalls remained low due to lingering health concerns and the preference for at-home entertainment. Recovery post-COVID has been slower than anticipated, with the cinema-going habit of many consumers disrupted permanently.
The growing popularity of streaming services like Netflix and Disney+ Hotstar poses a challenge, potentially reducing cinema attendance as viewers shift to at-home streaming options. While PVR’s merger with Inox aimed to create scale benefits and operational synergies, integrating two large entities like PVR and Inox has been complex, with challenges in aligning operations, cultures, and management practices. These have delayed the realisation of anticipated benefits.
Independent and regional single-screen cinemas offering cheaper tickets and concessions have captured a portion of the market, particularly in Tier II and Tier III cities. The high price point of tickets and food and beverage items has also led to criticism by movie-goers, and deterred middle-class consumers, particularly for non-peak screenings, according to analysts.
In the first half (April to September) of the financial year 2024-25 (FY25), PVR Inox had reported a consolidated loss of Rs 114 crore, due to lower operating income. The company had posted profit after tax of Rs 163.3 crore in the same period last fiscal. Total income declined 14.76 per cent year-on-year (Y-o-Y) to Rs 2,850.50 crore from Rs 3,340 crore in H1FY24. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) was down 53 per cent Y-o-Y at Rs 206.90 crore and margin contracted to 12.6 per cent from 22.1 per cent.
The management has reposed confidence that Q3 will be the best quarter of FY25, led by a strong content pipeline as there is significant room for growth in occupancy levels in CY25. The company’s Ebitda margins are expected to improve further, with increased occupancy levels and operating leverage. The management continues to take proactive measures to control its fixed costs, particularly rentals. Additionally, it is also renegotiating rental agreements with developers of poor performing malls.
After undertaking the restructuring exercise, the current screen count for the company stands at around 1,700. Ventura Securities expects the screen count to gain traction and reach around 1,900 by FY27E (total capex of Rs 400-450 crore). The brokerage firm believes that content creators are responding by catering to the changing taste of the audiences and the recent successes of films like Stree-2, Pushpa-2, etc., are suggestive of green shoots with regards to occupancies. In the brokerage’s opinion, the worst is over for the sector. It initiated coverage on the stock with a contranium Buy-call on PVR.
Ventura Securities has conservatively estimated lowest occupancies of 26 per cent, merger average ticket price (ATP) upward revisions of 2-3 per cent compound annual growth rate (CAGR), and food & beverages (F&B) spend per head growth of 6-7 per cent CAGR. Even with these conservative estimates, the company’s revenue is expected to grow at a CAGR of 10.5 per cent to Rs 4,850 crore by FY27E, driven by sales of movie tickets, food & beverages, advertisement Income and convenience fees, the brokerage firm said.
Over the same period, the brokerage firm anticipates PVR Inox’s Ebitda/net earnings to grow at a CAGR of 13.2 per cent/25.4 per cent to Rs 1,200 crore/ Rs 750 crore, respectively. Ebitda and net margins are set to expand by 40 bps to 24.7 per cent and 75 bps to 15.5 per cent, driven by expanded reach and operational efficiencies.
There is a clear management intent to use the free cash flows (FCF) generated to retire the entire debt by FY29E. Consequently, FY27E return ratios ROE/ROIC are expected to improve to 1.8 per cent/27.2 per cent respectively. “Given the recent disappointing performance, our estimates model very conservative assumptions and hence any significant traction can lead to significant upside risk to our estimates. Premium offerings, and faster traction in occupancies coupled with higher than estimated ATP pricing are the primary drivers,” Ventura Securities had said in its initiate coverage report dated December 19, 2024.
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