In the September quarter, as shown in the adjacent chart, both these companies
clocked nearly 40 per cent year-on-year growth in footfalls.
What driving consumers’ preference to multiplexes or movie watching is the attractive price points. According to Jinesh Joshi, analyst at Prabhudas Lilladher, “Multiplexes are the most cost effective 'out of home leisure' alternative when compared with other entertainment options.” For instance, PVR’s average ticket price during April-September 2019 was Rs 202. This augurs well in the current situation as some experts believe that during times of stress, people look at such options for entertainment.
Strong footfalls, in turn, would also propel food and beverage (F&B) business. While movie tickets account for 53-56 per cent of the revenues of PVR
and Inox, F&B’s share is 26-27 per cent. Advertising and other operating income account for the rest. However, how the advertising revenue growth pans out at a time when many consumer companies
are facing volume growth pressure is something the Street will be eyeing closely.
Also, there is some scepticism on screen additions due the ongoing real estate slowdown. However, both the companies are on track to achieve their screen addition targets, says Jinesh Joshi. While PVR has guided for around 80 screen additions for FY20 (42 screen have been added till mid-October), it is 70-71 for Inox (27 screens have been added till date in FY20). According to updates from Inox’s analyst meet, which was conducted on last Friday, the industry will add around 200-300 screens each year.
Overall, the multiplex stocks
offer good investment opportunity given the growth outlook and attractive valuations. The current FY21 estimated enterprise value to EBITDA of PVR and Inox stands at 11 times and 9 times, which is still 5-15 per cent discount to their respective historical 1-year forward average valuations.
Analysts’ target price for both the stocks, as per Bloomberg, shows a 16-19 per cent upside from the current levels.