Is PVR-Inox stock worth buying after Adipurush flopped on box office?

In a research note, ICICI Securities analysts expect Q1FY24E of PVR-Inox likely to be muted from a revenue standpoint, given the subdued performance of ‘Adipurush’.

As per the Bollywood Reviewz website, on the 16th day, Adipurush collected ₹1.25 crore across India, while overall it netted around ₹1.5 crore worldwide.

Since its release on June 16, Adipurush netted ₹292 crore in all languages across India, while grossly the collection is around ₹344.6 crore as of July 2nd, as per the website. Worldwide, the movie’s producer figure is around ₹450 crore, while the gross trade figure collection is to the tune of ₹406.05 crore.

Despite the bittersweet reaction from citizens, Adipurush as of now is holding the 18th spot in the top Indian Movies Worldwide Box Office List.

The brokerage highlighted that 600k tickets for the movie ‘Adipurush’ was pre-booked at PVR Inox and it managed to collect a net of ₹1.05 billion over the first weekend.

Nevertheless, the brokerage’s analysis indicates that the concerns regarding the impact of digital mediums (‘watching OTT content at home’ substituting ‘going to theatres’) and the ability of Hindi movies to draw audiences into theatres are not warranted.

And despite ICICI Securities expecting a muted growth in revenue terms for PVR-Inox in Q1 of FY24 due to Adipurush’s lacklustre performance, yet, the brokerage believes that some indications of merger synergies such as – improving ATP and SPH for the merged entity – should start flowing through.

It added, “We also believe improvement in content quality should start reflecting in higher occupancy levels in theatres from Q2FY24E as we note a stronger content lineup for the quarter.”

According to the brokerage, given an improving content lineup in Q2FY24, which includes movies like ‘Rocky Aur Rani Ki Prem Kahani’ (28th Jul’23), ‘Animal’ (11 th Aug’23), ‘Gadar 2’ (11th Aug’23) and ‘Jawan’ (7th September’23), a turnaround in Hindi cinema is quite likely. ‘72 Hoorain’ (7th Jul’23), which we think is on similar lines as ‘The Kashmir Files’ & ‘The Kerala Story’ can prove to be a sleeper hit.

It also needs to be noted that the contribution of PVR Inox to gross box office collections (GBOC) of English movies has been increasing. In Q4FY23 PVR Inox accounted for close to 60% of Hollywood GBOC in India, up from 25% in Q3, a steep jump aided by the merger.

ICICI Securities analysts believe this indicates that PVR Inox is the preferred movie theatre for English moviegoers given the ambience and service quality. Also, English movies are more relevant for premium screens in view of better graphics and relevance for premium audiences.

Therefore, the brokerage believes improving the share of Hollywood GBOC could also be margin accretive over the medium term for PVR-Inox. Movies like Rajnikanth starrer – ‘Jailer’ (10th Aug’23) – could potentially propel box office performance further.

That is why, the brokerage is optimistic about PVR-Inox stock despite the subdued performance of Adipurush as the pipeline in the remaining quarters of FY24 looks attractive.

On the valuation, the analysts said, ” We see the content pipeline for PVR Inox improving from Q2FY24E and occupancy levels improving in tandem, hence, we expect a mean reversion of valuation multiples to historical averages. We have factored in 9.2% revenue growth (pro-forma) for FY24E with 560 bps EBITDA margin (pro-forma) expansion.

Accordingly, the analysts said, “Our target price is Rs1,950 (prior: Rs2,100) with an unchanged multiple of 16x FY25E EBITDA. In our bull case, we see the stock trading at Rs2,200 and in our bear case – at Rs1,150, implying a risk-reward skew of 3.56:1. Re-iterate BUY.”

Among the key risks for PVR-Inox would be — occupancy improvement to pre-covid level delayed beyond FY25E and merger synergies/efficiencies of scale not playing out.

Last week, on BSE, PVR-Inox’s share price closed at ₹1,376 apiece marginally down on Friday. In June month, PVR-Inox’s shares declined by nearly 4% on this exchange. Year-to-date, the drop is over 20%.

Updated: 02 Jul 2023, 08:54 PM IST