PVR, Inox: Blockbuster show to continue

Strong content line-up and aggressive expansion of screens to drive growth of these companies

Even as the markets have been sliding since March, leading multiplex companies PVR and Inox Leisure's stocks have outperformed recently scaling their all-time highs. While the recent gains came on the back of the robust show these companies posted in the September quarter, turn led by a good movie slate, there is potential for further upsides, believe analysts. There are reasons for the optimism.

The under-penetrated movie screening market in India is one and offers significant scope of expansion to both. The two already in   expansion mode and plan to add about 60 screens each to their total this financial year. They are also looking to boost the spending per head (SPH), the amount a customer spends on an average towards food and beverages (F&B).

  These companies are looking at improving the average ticket price (ATP) in high street multiplexes as well. All these efforts will aid their revenues and profitability. Importantly, the content line-up remains strong with movies such as Prem Ratan Dhan Paayo, Spectre, Tamasha, Bajirao Mastani, Dilwale, Airlift and The Revenant, among others. Analysts believe these will aid higher turnout in the multiplexes in the second half of this financial year. The FY17 Hindi movie pipeline too looks good. Obviously, a weaker show by any of these movies will impact footfall and there could be some disappointment. But, increasing footprints of their multiplexes should provide some support to revenues.

For PVR, the largest multiplex chain with 477 screens, followed by Inox at 393, most of its properties are in premium locations. Which increases the scope to improve ATPs and F&B revenues. PVR sees significant scope to improve F&B revenues via innovations and aims to compete efficiently with quick service meals, its biggest competitors in food courts. PVR believes its latest acquisition of DT Cinemas will add Rs 40-50 crore to  annual Ebitda (earnings before interest, tax, depreciation and amortisation) and will be integrated by January 2016. The company also plans to reduce its net debt of about Rs 600 crore by using  surplus cash flow. In this backdrop, most analysts remain positive on the stock even as it trades at 22.5 times FY17 estimated earnings.

While Inox trades 17 times its FY17 earnings, a 24 per cent discount to PVR, analysts believe the discount should be lower at 15-20 per cent. This discount has already come down from 31 per cent in July, which suggests that if Inox is able to increase its ATPs and bring these closer to that of PVR the valuation gap should reduce further, boosting Inox’s stock returns (led by earnings growth plus valuation gains).