In the world of multiplexes, content rules. And, in this March quarter, investors have much to look forward to, simply because multiplex companies had much to offer. In fact, expectations of a blockbuster March quarter, thanks to strong box-office collections, have set shares of PVR Ltd and Inox Leisure Ltd on fire. In March alone, the two stocks have risen by about 10% and 19%, respectively.
Exhibitors are likely to report strong revenue growth as Hindi box-office collections surged 46% in the March quarter year-on-year to ₹1,171 crore, wrote Karan Taurani, analyst at Elara Securities (India) Pvt. Ltd, in a report on 29 March. Of course, investors will do well to watch how other streams of revenue, such as food and beverages, and advertising, fare.
Box-office collections were driven by movies such as Simmba, Gully Boy, Total Dhamaal, Uri: The Surgical Strike, Badla and Luka Chuppi. Some analysts expect Inox Leisure’s relatively lower base to help its growth numbers, considering that it was impacted more than PVR by the ban on the screening of Padmaavat in some states in the fourth quarter of FY18. Plus, Inox Leisure’s screen additions are expected to be better.
As we enter a new fiscal year, the movie pipeline looks satisfactory. For investors, how these movies perform will be paramount. Going ahead, screen additions are a key monitorable.
Meanwhile, Bollywood movie producer Ronnie Screwvala recently filed a complaint against four multiplexes, including PVR and Inox Leisure, with the Competition Commission of India (CCI). He alleged that virtual print fee (VPF) paid to exhibitors was an anticompetitive charge.
According to Emkay Global Financial Services Ltd, the estimated VPF revenue of PVR and Inox Leisure—at ₹27 crore and ₹23 crore, respectively, for FY19—could be at risk if CCI rules in favour of Screwvala, which would result in an Ebitda (earnings before interest, tax, depreciation and amortization) reduction of the same amount, as it has no costs attached to it.
Needless to say, investors will do well to follow developments on that front closely. As of now, the rise in the Inox Leisure and PVR stocks indicates that investors are capturing a good share of the optimism on box-office collections. Currently, PVR and Inox Leisure shares trade at about 13 times and 11 times FY20 enterprise value/Ebitda, respectively, according to Bloomberg data.