BackPVR delivers good show in Q2 but outlook remains uncertain
Considering that September and October haven't been particularly great, investors are treading on uncertain territory right now
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Shares of multiplex companies—PVR Ltd and Inox Leisure Ltd—have been market favourites, what with investors already sitting on 27-35% gains so far this fiscal year. Both companies celebrated a fabulous June quarter helped by successful performance of movies such as Tanu Weds Manu Returns, Fast & Furious 7, Piku, Avengers and so on. September quarter results were good too, though some may be disappointed that they didn’t turn out even better.
Nevertheless, PVR’s 19% year-on-year consolidated revenue growth to ₹ 475 crore is hardly a reason to whine. Revenue growth was helped by strong box-office performance, and good growth from the food and beverage segment. Movies such as Bajrangi Bhaijaan, Baahubali-The Beginning, Welcome Back, Drishyam and Mission Impossible had a good run at the box office. Average ticket price (ATP) for comparable properties increased 4% to ₹ 188. Rival Inox Leisure too saw 4% ATP growth to ₹ 168. PVR’s and Inox Leisure’s footfalls increased by 14% and 18% to 17.3 million and 12.1 million, respectively. Occupancy rates were better too.
_web.jpg "Graphic: Ahmed Raza Khan/Mint")
As a result, PVR’s operating profit margin expanded 470 basis points compared with last year to 19% while that of Inox Leisure improved 213 basis points to 15.9%. A basis point is one-hundredth of a percentage point. Understandably, the measure remained sequentially lower. Robust other income helped market leader PVR report net profit of ₹ 41 crore against ₹ 20.5 crore for Inox Leisure, the second largest company in the sector.
In the days to come, expansion plans will support revenue growth. PVR intends to add 45-50 new screens for the rest of the year and currently operates 477 screens. Inox Leisure plans to add about 42 screens taking the total screens to 435 by year end.
Still, PVR’s shares closed 5% lower than its intra-day high on Tuesday when broader markets were flat. PVR and Inox Leisure trade at 24 times and 20 times, respectively, for next year’s estimated earnings. That’s not cheap.
Sure, going ahead, the content pipeline is strong with releases including Prem Ratan Dhan Payo, Tamasha and Bajirao Mastani lined up. However, the nature of the multiplex business is such that it’s very difficult to predict how successful movies will be.
Considering that September and October haven’t been particularly great, investors are treading on uncertain territory right now. Small wonder Inox Leisure shares have shed 15% since its September quarter results announcement on 23 October. Investors would find some comfort as and when movies start performing well in the current quarter, traditionally considered the best.
The writer does not own shares in the above-mentioned companies.
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