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PVR Inox – Market leader in the movie exhibition business


Company Name – PVR Inox Limited (PVR)


Current Share Price – INR 1,710 (August 18, 2023)


Market Cap – INR 16,770 cr


 

1. What is interesting about the stock?


Multiplexes play a role in urban cultural and social life. They are a place for people to come together to watch movies, socialize, and create memories. They can also be used to host special events, such as film festivals and premieres. Overall, multiplexes are an important part of the entertainment industry and the economy. They provide a variety of benefits to moviegoers, businesses, and communities. Multiplexes are often located in shopping malls or other high-traffic areas, which makes them easy to reach. This generates foot traffic for other businesses in the vicinity.


PVR Ltd is the chain of multiplexes founded by Mr. Ajay Bijli in 1995 and became the largest chain of multiplexes with a strong presence across the country and Sri Lanka operating 903 screens across 181 cinemas in 78 cities before the merger. It had grown using both the organic and inorganic routes to reach such a scale.


Inox Leisure was the second-largest player in the multiplex business before the merger. It operated 693 screens in 163 cinemas across 73 cities growing again through organic and inorganic routes.


PVR Inox Ltd is the market leader in terms of multiplex screen count in India. It was created with the merger of PVR Ltd and Inox Leisure Ltd, which was announced in Mar ’22 and completed in Feb ’23. Currently, it operates 1,707 screens in 114 cities in India and Sri Lanka totaling ~3.6 lakh seats, covering almost the entire country.

Source: PVR Inox Investor Update Q1 FY24


PVR Inox Pictures is the Company’s film production and distribution arm. The success of this arm is important for the Company to maintain its standing and attract consumers given that OTT platforms like Netflix, Amazon Prime, and Zee-Sony are also investing significant amounts to acquire content.


PVR is likely to do well because of the following reasons:

  • Strong content slate – the Company’s business is driven by good quality content. Franchise-led stories, original content, and technology backed by big budgets have improved the quality of cinema in India. A good content slate will ensure a higher occupancy rate and increased footfall in the theatres.

  • Higher F&B revenues – increased footfalls and occupancy lead to higher food and beverages revenues, where the margins are much higher. The Company has been increasing its offerings in the F&B space and introducing options in the INOX branded multiplexes primarily. This is likely to yield better spending per head.

  • Better advertising revenues – the Company has been affected by lower footfalls during the Covid-19 pandemic and this has led to a reduction in ad revenue commitments by corporates. As occupancy rates go up, these corporates are increasing their ad spending in the cinemas, and therefore, revenues from this line of business are likely to improve.

  • Ability to raise prices – after the merger, the Company controls the largest number of screens in high-income catchment areas of NCR and Mumbai. The Company has also started experimenting with premium formats and differential pricing in both ticket prices and F&B to test the price elasticity of the consumers in these areas.

  • Higher negotiating power – the Company has greater negotiating power with studios and other film producers given its wide reach and increasing penetration in even tier II and tier III cities. As the multiplexes are anchor tenants in a lot of malls, their ability to negotiate good deals with mall developers is also very high.

2. Key Historical Financials


  • PVR and Inox merged on February 6, 2023

  • The business was severely impacted by COVID-19 and is in recovery mode since then. However, Company still made losses in FY23 and Q1FY24

  • CFO/EEBITA (Cash flow conversion) is healthy for FY23

  • The interest coverage ratio is poor at 1.8x

3. What is my view on company valuation?


The Company has been running in losses since Covid-19 impacted business in FY21 and hence, all the ratios are currently negative. However, business parameters like occupancy rate, average ticket price, and F&B spend per head are all showing improvement as customers are starting to flock back to the multiplexes. With the merger synergies kicking in, the Company will likely turn around in the next 3-4 quarters. The average historical P/E for the Company has been 50x. Long-term investors should track the Company and can build positions in it at the time of significant corrections in the stock price.


4. What are the risks to the investment analysis?


Risks to the analysis are:

  • Content is king. If the quality of content or consumer preferences change, it can cause a drop in footfall

  • The advent of OTT and increased spending on content by players like Netflix, Amazon Prime, and Zee-Sony is likely to dent footfalls

  • The multiplex experience has become expensive and any drop in discretionary spending can affect the business adversely

  • Aggressive promotions by competitors can reduce realization for both movie tickets and F&B for the Company

 

About the Author


I have over 19 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.


Disclosure


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.


I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.


I have used publicly available information while writing this article.


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