Multiplex stocks: in need of more hits

The March quarter is typically a lean one for cinema exhibition companies in India, with examinations spoiling the party. There’s the World Cup, too, this time, which is expected to affect footfalls in this quarter. Also, there haven’t been many hit movies in this quarter so far. Those reasons could well mean that the financial results of PVR Ltd and Inox Leisure Ltd for the current quarter aren’t going to be as good as the December quarter.

add_main_imageHowever, since expectations are running low, it may not surprise investors much. Moreover, from a long-term perspective, investors are sitting on handsome gains. Stocks of both PVR and Inox Leisure have delivered phenomenal returns in the past three years, easily beating the Sensex.

The year 2014 was a rather slow one as far as performance of movies is concerned till PK became a big blockbuster, exceeding expectations and boosting the last quarter performance of multiplex companies. Content is supreme for the fortunes of the cinema exhibition business and it goes without saying that investors should follow that measure for these stocks.NextMAds

Otherwise, when footfalls are lower, some consolation can come from better average ticket prices (ATP). Fortunately, the outlook on ATP seems better. The sector has seen consolidation in recent years with PVR acquiring Cinemax and other such deals. The consolidation is leading to concentration of the market in the hands of three to four larger firms who would in turn be in a position to take an ATP hike, said ICICI Securities Ltd in a note last month. “We expect PVR’s ATPs to grow at a 4.2% FY14-17E compounded annual growth rate to reach ₹ 186 by FY16E,” adds ICICI Securities. In the December quarter, PVR’s ATP increased by 5% year-on-year to ₹ 184 and Inox’s ATP by 7% to ₹ 175.

Further, Inox and PVR will be adding more screens, which should fetch additional revenue. At the time of announcing their December quarter results, Inox and PVR had 365 and 462 screens, respectively. After the end of the current fiscal year Inox plans to add 169 screens. PVR intends to add about 70 new screens every year. Besides screens additions, Inox and PVR are also expected to benefit from a revival in discretionary spends as and when that happens.

The writer doesn’t own shares in the above-mentioned companies.