Multiplex companies: The real blockbusters

Stocks of multiplex firms PVR and Inox are up 63% and 35%, respectively, on growing number of films released in diverse genres and hopes over GST roll-out


PVR will benefit with around 4-5% Ebitda margin expansion, if GST rate is at 18% while Inox will benefit with an approximately 2-4% Ebitda margin expansion, says Emkay Global Financial Services. Photo: Sanjeev Verma/Hindustan Times
PVR will benefit with around 4-5% Ebitda margin expansion, if GST rate is at 18% while Inox will benefit with an approximately 2-4% Ebitda margin expansion, says Emkay Global Financial Services. Photo: Sanjeev Verma/Hindustan Times

More movies, from more genres have done well in recent months and the big winners, as a result, are multiplex firms PVR Ltd and Inox Leisure Ltd. The companies also have the implementation of the goods and services tax (GST) to look forward to. Not surprisingly, shares of both companies have outperformed the Sensex so far this fiscal year. The PVR stock has gone up 63% and that of Inox Leisure by 35%.

PVR will benefit with around 4-5% Ebitda margin expansion, if GST rate is at 18% while Inox Leisure will benefit with an approximately 2-4% Ebitda margin expansion, pointed out analysts from Emkay Global Financial Services Ltd. Ebitda stands for earnings before interest, taxes, depreciation and amortization and is a measure of operating profit.

For the June quarter, even though both companies saw decent consolidated revenue growth, profit declined a bit primarily on account of muted operating performance. Advertising revenue growth was slower than expected. PVR’s advertising revenue increased 13%, slower than in the previous two quarters.

“This was mainly on account of an increase in the share of regional (Sairat) and Hollywood-dubbed (Jungle Book) movies during the quarter,” explains Motilal Oswal Securities Ltd in its post-results update.

Regional and dubbed Hollywood movies attract lower advertising rates compared with Bollywood movies. During the June quarter, a higher proportion of box-office collections came from Marathi movie Sairat and the dubbed Jungle Book. Inox Leisure’s advertising revenue increased by a low 3%. That’s because after ad rates increased in December 2015, markets have not yet adjusted.

The fall in occupancy rates was compensated to some extent by an increase in average ticket prices for both companies. PVR’s operating profit increased 5.4% year-on-year to Rs.117 crore while that of Inox Leisure declined 3.8% to Rs.62 crore. Both companies saw a decline in operating profit margin compared with last year’s June quarter. Despite higher other income and decline in finance costs, PVR’s reported profit after tax declined 1.7% to Rs.43 crore. PVR’s tax outgo was substantially higher. Inox Leisure’s net profit declined 1.3% to Rs.25 crore.

Inox Leisure added five screens in the June quarter and intends to add another 54 screens for FY17 taking the total screen count to 479. PVR expects to take total screens beyond 600 (including DT Cinemas’ screens) in FY17, informs Motilal Oswal.

The content pipeline remains healthy this quarter. Movies such as Jason Bourne, Suicide Squad, Mohenjo Daro and Rustom are expected to do well.

Moreover, new screen additions will add to revenues. The only hitch is that investors seem to be factoring in most of the good news.

Currently, PVR trades at 30 times estimated earnings for fiscal year 2018, while Inox Leisure trades at about 19 times.

The writer does not own shares in the above-mentioned companies.

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