World’s 5th largest multiplex chain now also a fast food giant: Should you bet on PVR-Inox?

The company is also a fast-food giant now. It clocked Rs 1,500 crore in F&B sales last year. For context, Westlife Foodworld, which operates McDonalds in North and West, clocked about Rs 2,000 crore annual revenue. Brokerages say box office, F&B sales and advertisement will drive revenue synergies

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In the past few weeks, PVR-Inox has announced the opening of new multiplexes in Chennai, Hyderabad, Nalasopara and Lucknow, as part of its rapid screen expansion plan.

With almost 1,650 screens to its name, the combined entity is now the fifth-largest multiplex chain in the world. It plans to add 200 every year.

Commanding a 30 percent share in net-box office collections, PVR-Inox will have unmatched pricing power. It is now a consumption story that is too big to ignore, analysts believe.

The management has guided for an annual EBITDA (earnings before interest, taxes, depreciation and amortization) synergy of Rs 225 crore over the next 12-24 months. This includes supply-chain integration, reduction of overlapping costs and better negotiation with vendors to improve operating expense structure.

Also Read: PVR-INOX merged unit to focus on F&B operations, screen expansion

Box office, F&B (food and beverages) and advertisement will drive revenue synergies, according to brokerages.

Box office

The management is looking at optimising ticket prices and programming schedule as well as increasing new format entertainment options like concerts and e-sports by leveraging existing infrastructure.

In an analyst concall, the top brass also highlighted plans for beefing up presence in southern India, where the concentration of single screens is higher. Around 44 percent of the new screens will be opened in southern India, they said.

Food and beverages

The combined entity clocked F&B sales of Rs 1,500 crore last year. For context, Westlife Foodworld, which operates McDonalds in North and West, clocked about Rs 2,000 crore annual revenue.

Analysts believe PVR-INOX has enough room for growth in this segment. “The company shall take various steps in order to reduce F&B costs, such as leveraging scale, and reducing wastage and uniform product specification,” according to Nuvama Institutional Equities’ Abneesh Roy.

The management is also focusing on expanding its food-delivery business. “It has set a micro-target of every cinema contributing at least 5 percent of the SPH (spend per head) from home delivery,” said Elara Capital’s Karan Taurani. SPH measures the amount of revenue being earned on a per-customer basis.

Also Read: PVR: Strong quarter lights up show, but is the worst over?

Advertising

The coming together of PVR and Inox will open up the ad market, believe analysts. More advertising time and optimisation of ad rate realisation will lead to value and volume growth. The company also plans more off-screen advertising like events and sponsorships.

“Increasing the advertising time, especially for IMAX, and increasing off-screen advertising will be key focus areas. Utilising technology to generate better consumer insights for brands can be a growth driver in this segment,” Jaykumar Doshi of Kotak Institutional Equities wrote in a note.

Slave to good content

Despite all these synergies, the company remains a slave to good content. Since the pandemic-induced lockdowns, OTT platforms have raised the bar when it comes to movies and shows.

“Subpar content has few takers. We note that PVR-INOX’s EBITDA breakeven occupancy is 18-20 percent, whereas it can potentially make a 24 percent EBITDA margin at peak occupancy of 32.5 percent. Every 100 basis-point dip in occupancy impacts the EBITDA margin by ~150 basis points,” as per Doshi’s calculations.

Also Read: RRR to Baahubali: South Indian cinema gets more and more popular in Jammu and Kashmir

That said, SRK-starrer Pathaan marked a good start for Bollywood in 2023. Industry watchers say the numbers for Tu Jhoothi and Mein Makkar starring Ranbir Kapoor and Shraddha Kapoor have also been upbeat.

Analyst recommendations

Domestic brokerage firm Motilal Oswal has a ‘neutral’ rating on the stock with a target price of Rs 1,570. “Continued uncertainty around acceptability of content, slower recovery in occupancies and the traction of movie releases over OTT platforms are some key monitorables,” it said.

However, foreign brokerage CLSA has a ‘buy’ rating with a target of Rs 2,500 per share. The merger is ripe for occupancies, believes the firm. Nuvama Institutional Equities, too, has retained its ‘buy’ rating with a target price of Rs 2,125.

“PVR has traded at valuations of 14-14.5x on an average on forward EV/EBITDA basis (pre-COCIS), when Hindi content cycle has been favourable. The merged company is now trading at compelling valuations of 9.5x FY25 EV/EBITDA,” said Taurani.

With synergies coming into play, the merged entity could potentially trade at a valuation multiple of 14x, he believes, and has a target price of Rs 2,600 on the stock.

Kotak Institutional Equities has an ‘add’ rating with a target price of Rs 1,541. “The stock performance of PVR-INOX is dependent on where occupancy settles,” it said.

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