Inox Leisure narrows its valuation gap with PVR post Q4FY18 results
If Inox Leisure continues to deliver on its advertising revenues, there is scope for the gap in valuations to narrow further. Especially since the PVR stock is unlikely to get re-rated materially
Inox Leisure Ltd’s shares have risen almost 12% since it announced its earnings on Monday. In contrast, the PVR Ltd stock is up only 1.5% since its results were declared on Friday.
What explains this?
Inox’s Ebitda at Rs43.9 crore was 20% higher than consensus estimates, while PVR’s Ebitda of Rs94.4 crore was about 13% more than estimates, according to Bloomberg. Ebitda is short for earnings before interest, tax, depreciation and amortization, and is a measure of profitability.
Inox’s high advertising revenue growth of 59% helped it report decent overall numbers. PVR’s advertising revenues increased by 37%.
But apart from its relatively better results, Inox is also playing catch-up on the valuation front with PVR. Currently, its shares trade at 27 times estimated earnings for fiscal year 2019, against 38 times FY19 estimated earnings for PVR.
PVR is said to enjoy a better brand recall and, being the market leader, fetches a higher premium as against Inox. PVR enjoys higher Ebitda margins and average ticket prices, helped by its larger presence in the better consumption pockets in the country.
If Inox continues to deliver on its advertising revenues, there is scope for the gap in valuations to narrow further. Especially since the PVR stock is unlikely to get rerated materially. Its valuation is already discounting a healthy performance going forward, pointed out Emkay Global in a report on 4 May.
In any case, investors haven’t gained materially from these stocks so far this year, with returns only being equal to that of the BSE 500 index.
Higher average ticket prices and screens additions will fetch more revenues and they should be watched. For FY19, PVR wants to add more than 90 screens and Inox Leisure is looking to add 55 screens. Both companies have missed their screen addition guidance in the last fiscal year. Some analysts reckon PVR’s screen addition guidance is ambitious and investors should take it with a pinch of salt.
Lastly, what is paramount for multiplex companies is movie content. For PVR and Inox Leisure, content performance wasn’t exceptional during the March quarter but it was satisfying nonetheless. Movies such as Padmaavat and Sonu Ke Titu Ki Sweety performed well on the box office during the quarter. The going, however, may not be smooth. For one, the content pipeline is not so hot. Second, the base June 2017 quarter is high owing to the release of Baahubali 2: The Conclusion. Sure, things might start to look up after the June quarter. That means in the interim, these stocks are not exactly the blockbusters that investors are hoping for.
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