Kotak cuts target price of PVR Inox to Rs 1,500 a share, maintains ‘add’ rating

Kotak Institutional Equities in its latest note cut the target price of PVR Inox to Rs 1,500 from Rs 1,700 but maintained the ‘add’ rating with expectations of a subdued fourth-quarter earnings. The brokerage also expects the upcoming general election in April-May and the ICC T20 World Cup in June are likely to influence fiscal 2025 first quarter pipeline and collections.

Given the weak first half of 2025, it cut FY24-26 revenue and EBITDA forecasts by 3-4 percent and 12-14 percent.

Box office earnings were low in the fourth quarter because there weren’t many great movies, especially in Bollywood. Kotak predicts that PVR and INOX will have 32.6 million people visiting their theatres, with an average ticket price of Rs 237 and an average spend per head of about Rs 129. However, the growth in the first quarter will look better compared to last year because last year’s numbers were low.

Kotak believes that PVR and INOX now need fewer people in their theatres to break even, dropping from 24 percent to around 20-21 percent because of factors such as yearly increases in ticket prices and spending per head, which have been helped by price hikes and better use of INOX’s movies since the merger. Also, they’ve been controlling costs better, with expenses per screen going down for things like staff, electricity, and CAM. However, rental costs per screen have gone up, even though the overall revenue per screen has decreased.

Since it’s unlikely that theatres will go back to how they were before the pandemic, Kotak thinks PVR and INOX should negotiate lower rents for theatres where they pay more than 20 percent of their revenue in rent, especially in places like North and West India. This would help stabilise profits during slow times.

“We expect (1) PVR INOX to grow screen count at a 5.5 percent CAGR over FY2025-34 to 3,000-plus; (2) occupancy to improve to 30 percent and stagnate at that level; our assumptions imply footfalls to see a 4.6 percent CAGR to 248 million in FY2034; (3) ATP/SPH to record 2.4 percent/4.1 percent CAGR; and (4) EBITDA margin to expand to 20 percent (FY2034),” Kotak said in its latest note.