PVR-Inox gears up for strong December with Animal, Dunki, Sam Bahadur, other movie releases; shares may see 30% upside
A slew of upcoming movie releases in December is likely to boost occupancy at PVR-Inox multiplexes after a muted start to the third quarter of FY24. Along with strong December occupancy, a gradual recovery in ad revenue and ramp up in margin-accretive segment would drive operating income of the company, analysts said.
Nuvama Institutional Equities has reiterated a ‘Buy’ rating on PVR-Inox shares with a target price of ₹2,210 apiece, implying an upside of 30% from Wednesday’s closing price.
The company’s December occupancy looks strong with the upcoming movie releases, including ‘Animal’ (starring Ranbir Kapoor), Dunki (starring Shah Rukh Khan), Salaar Part 1 (starring Prabhas), Sam Bahadur (starring – Vicky Kaushal) and Aquaman and the Lost Kingdom.
The third quarter of FY24 started on a muted note with few movies released from October to mid-November (due to the Cricket World Cup). However, movies such as Leo (gross ₹350 crore), Fukrey 3 (net ₹95.5 crore), Tiger 3 (net ₹270 crore) and 12th Fail (net ₹50.68 crore) had a good run at the box office during this period.
With the World Cup done and dusted, Nuvama Equities expects occupancy to rebound in December. Its channel checks indicate strong numbers for ‘Animal’ ( ₹60 crore-plus on day 1). Moreover, it expects the content slate to pick up over coming months.
Moreover, at an occupancy level similar to that of the pre-pandemic era of around 32%, PVR Inox delivered a 433 bps higher EBITDA margin of 21.4% in Q2FY24 versus 17.1% in FY20.
“We expect margin to expand further driven by recovery in ad income (which would aid EBITDA margin expansion of 50–150bp), slower growth in fixed cost/screen compared with revenue/screen, and incremental synergy benefits of ₹820–1,010 million. As much as 60–70% of synergies have been realised till Q2FY24,” Nuvama Institutional Equities said in a report.
The gradual recovery of ad revenues, which currently stand at around 70% of FY20 per screen level, are expected to further expand margins by 50–150 bps over coming years. The company is exiting less profitable properties—closed 33 screens in H1FY24, and expects to exit ~60 screens in FY24, it noted.
Additionally, as of H1FY24, PVR INOX has reduced net debt by ₹327.6 crore. The company has plans to reduce financial leverage.
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“With its primary focus on the movie exhibition business, the combined entity (PVR+INOX) will continue to ramp up margin-accretive segments such as F&B revenues and Advertisement revenues, which in our view will drive the EBITDA expansion for the business. Aggressive expansion and focus on innovation to deliver growth for the business over the longer term,” Nuvama Equities said.
The brokerage believes by Q1FY25, all merger synergies are likely to be rolled out and operating margin would improve by about 200 bps once synergies are fully realised.
All in all, the content pipeline for December and FY24 at large is robust. With strong footfalls, ad revenues (highest margin business for multiplexes and yet to reach pre-covid levels) are poised for a much-needed and strong recovery, it said.
PVR Inox share price has gained over 7% in the past one month, but the stock is largely flat year-to-date (YTD).
At 10:40 am, PVR Inox shares were trading 0.65% higher at ₹1,709.90 apiece on the BSE.
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