Most brokerage firms are upbeat about the stock of PVR after the PVR-Inox merger as they believe it will drive the annual EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin over the next two years.
As Mint reported, in March last year, the boards of PVR and Inox Leisure had approved an all-stock merger of the companies to create India’s largest film exhibition entity with a network of more than 1,500 screens.
PVR Ltd and Inox Leisure Ltd successfully merged on February 6. The combined business has 1,674 screens spread across 358 properties in 114 cities.
Shares of PVR hit their 52-week high of ₹2,211.55 on August 4, 2022, on BSE. As of March 14, the stock is down 31 percent from its one-year peak.
Brokerages positive about the merged entity
Brokerage firm Nuvama Wealth Management has a 'buy' recommendation on the stock with a target price of ₹2,125, implying a 39 percent upside from the stock's March 14 closing of ₹1,527.65 on BSE.
Nuvama said the PVR-Inox merger will drive annual EBITDA margin synergies of ₹200–250 crore over 12–24 months.
Nuvama added that the merged entity will look at the international distribution of Indian movies in an efficient manner. Leadership across key operating metrics with experienced promoters, key managerial personnel and a senior management team with an established track record would further add value.
The brokerage firm underscored that the strong numbers for 'Pathaan', followed by an upbeat ‘Tu Jhooti Main Makkar’ indicate that the revival is on track for the Bollywood industry after the last two flops—'Selfiee' and 'Shehzada'.
"In light of the merged PVR-Inox, improving line-up of Hindi movies and a strong pipeline for the overall cinema industry in FY24, we reiterate our positive stance on multiplexes over the medium-to-long term," said Nuvama.
Brokerage firm Prabhudas Lilladher also has a 'buy' call on the stock with a target price of ₹2,096, implying a 37 percent upside.
The brokerage firm has increased its pre-IND AS (pre-India accounting standard) EBITDA estimates for the merged entity by 7 percent and 7.5 percent for FY24 and FY25, respectively, as it expects synergy benefits of about ₹200 crore to accrue over the next two years.
"The PVR-Inox merger is expected to (1) lend invincible size advantage to the combined entity (18 percent and 30 percent screen and box office share respectively) (2) enhance balance sheet (BS) strength (Inox had net cash BS as of Jan end) enabling rapid expansion into new markets, and (3) improve bargaining power with various stakeholders in the value chain like film distributors, real estate developers, ad-networks and ticket aggregators resulting in material revenue/cost synergies," Prabhudas Lilladher said.
The brokerage firm underscored that even though there are concerns over Bollywood's underperformance, it is not a structural issue but a problem of content, as OTT proliferation has raised the bar of audience expectations from the big screen.
Prabhudas Lilladher expects the merged entity to report footfalls of 170mn/185mn and pre-IND AS EBITDA margin of 19.7 percent and 21 percent in FY24 and FY25, respectively.
Brokerage firm Motilal Oswal Financial Services has a 'neutral' view on the stock with a target price of ₹1,570.
"The rich valuation, the company commanded historically has contracted, given the slow recovery and risk posed by OTT players. We value the merged entity at 9 times FY24E EV/EBITDA and maintain our target price of ₹1,570. We reiterate our neutral rating on the stock," Motilal Oswal said.
Motilal Oswal highlighted that the merged entity with a screen presence of over 1,600 enjoys a dominant position within the multiplex space.
"Revenue and EBITDA generation capacity of nearly ₹5,660 crore and ₹800 crore, respectively, for FY23 for the merged entity can further aid the footprint expansion plans without denting the leverage position of the company," Motilal Oswal said.
The brokerage firm, however, added that the continued uncertainty around the acceptability of content, slower recovery in occupancies and advertising revenues, and the traction of movie releases over OTT platforms continue to be the key monitorable.
Technical indicators are also flashing positive signs for the stock and analysts recommend one can buy this stock for the short term.
Jigar S. Patel, Senior Manager - Equity Research at Anand Rathi Share and Stock Brokers, highlighted that after making the top of ₹2,214.85 on NSE on August 4, 2022, this counter has been making a lower top lower bottom structure, resulting in a 31 percent cut in price.
Patel added that at the current juncture, the daily RSI has made a bullish divergence which is a sign of bullish sentiment for the coming few sessions.
"If PVR sustains above ₹1,595 on a closing basis, then fresh longs will get triggered. Buy only above ₹1,595 with an upside target of ₹1,750 with a stop loss of ₹1,520," said Patel.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.