Why PVR Inox may see a lacklustre Dec quarter

PVR Inox’s shares have risen nearly 30% from their 52-week lows seen in May
PVR Inox’s shares have risen nearly 30% from their 52-week lows seen in May

Summary

  • PVR Inox’s focus on leveraging scale and technology means screen economics should only improve. So should return on capital employed, say experts

The December quarter (Q3FY24) is likely to be devoid of fireworks for PVR Inox Ltd, thanks to the ICC Men’s Cricket World Cup 2023.

The release dates of many big movies got pushed due to the tournament, which started on 5 October and ended on 19 November, hurting PVR Inox's occupancy and profitability. This is even though the multiplex operator screened specific cricket matches to compensate for lesser movie releases.

Elara Securities (India) noted that occupancy levels in October–November have been closer to 20%, which is a mere 60% recovery versus pre-covid levels.

“Exhibitors break-even (Ebitda level) at about 18-19% occupancy levels and such a performance will negatively affect profitability in Q3FY24," said Elara Securities in a report on 1 December. For perspective, PVR Inox’s occupancy stood at 32.3% in Q2.

Still, all is not lost for the exhibitor. December has begun on an upbeat note. Ranbir Kapoor starrer Animal is creating a buzz. Sam Bahadur is another movie that is likely to help Q3 earnings. Upcoming films such as Dunki, Salaar – Part 1 and Aquaman are also expected to boost occupancy levels.

PVR Inox has also introduced PVR Inox Passport scheme recently. It is a monthly pass where the audience can watch 10 movies for 699. Having said that, investors will closely watch the extent to which these strategies will help fill more seats.

Notably, movies such as Leo, and Tiger 3 had a decent run at the box office even during the Cricket World Cup. “These are telltale signs that cinema-going habit is back," said analysts at JM Financial Institutional Securities in a report on 4 December.

Moreover, only a portion of the merger synergies have been rolled out. By Q1FY25, PVR Inox expects all synergies to be realized and this would lead to an operating margin improvement of 200 basis points. In Q2, the Ebitda margin stood at about 22%. “The company’s focus on leveraging scale and technology means screen economics should only improve. So should return on capital employed," said JM’s report.

Even as PVR Inox’s shares have risen nearly 30% from their 52-week lows seen in May, they have remained largely flat in 2023 so far. Significant short-term gains in the stock seem unlikely with the subdued outlook for Q3.

 

 

 

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