Emkay Global Recommends PVR INOX as a Strong Buy with Target Price of ₹1850

Positive Outlook for PVR INOX

Emkay Global Financial is optimistic about PVR INOX and has recommended a “buy” rating on the stock with a target price of ₹1850 in their report dated October 7, 2024.

Box Office Recovery After Covid

Since the pandemic, PVR INOX’s stock has been closely linked to box office earnings and upcoming movie releases. After a slow start in the first half of 2024, box office collections have improved and are expected to rise further in the third quarter of FY25. Notable trends include:

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1. Big-budget films with unique content are attracting more viewers.
2. Franchise movies are performing better.

The upcoming movie lineup looks promising, suggesting stronger box office results, even as we recognize ongoing challenges in the industry. To boost profitability, management is focusing on cost control, though these efforts might take time to show results. Adjustments have been made to projected earnings for FY25-27, with minor changes of 0-2%, while the target multiple has been raised to 12x (up from 11.5x) due to a better content pipeline, leading to an updated target price of ₹1850.

Improving Movie Pipeline

Box office earnings in the first half of 2024 were weak due to:

1. Fewer movie releases in Bollywood and Hollywood.
2. A lack of big-budget films.
3. Several movies releasing on the same day, competing with one another.

However, box office collections improved in the second quarter, mainly driven by regional films, where PVR INOX has a smaller market share. Among Bollywood films, “Stree 2” stood out as the highest-grossing Hindi movie ever. The third-quarter movie pipeline looks much stronger, especially with many franchise films that have done well recently. Key upcoming Indian franchise films include “Singham Again,” “Bhool Bhulaiyaa 3,” “Dhadak 2,” “Metro In Dino,” “Pushpa 2,” and “Sitare Zameen Par,” along with several Hollywood films. The Hollywood lineup is also improving as the effects of the writers’ and actors’ strike diminish. Management expects the third quarter to be the highest-grossing of FY25 due to strong upcoming releases.

Adapting in a Post-Covid World

PVR INOX’s audience numbers have not yet returned to pre-Covid levels because of:

1. Increased use of OTT platforms.
2. Higher ticket and food & beverage prices.
3. The rise of social media, which influences movie choices based on reviews.

This has resulted in fewer trips to theaters. To adapt, management is implementing strategies to improve profitability, including more careful plans for adding new screens compared to previous merger announcements. Loss-making screens are also being closed regularly. On the revenue side, management is introducing special deals on tickets and food, screening alternative content, and launching a movie passport program to encourage more theater visits. The multiplex chain is shifting to a more capital-light model, partnering with developers to share the investment costs for new screens. These efforts aim to increase foot traffic in theaters while distributing risks with mall developers, but their effects may not be visible for a few years.