Domestic brokerage house Prabhudas Lilladher (PL) in its latest report said that in the third quarter of FY23 (Q3FY23), four movies (including regional) crossed the ₹100 crore mark. Despite that, the brokerage firm expects footfalls of multiplexes PVR and Inox to be down by 17 percent and 9 percent, respectively, as compared to the pre-COVID base of Q3FY20.
Meanwhile, in the fourth quarter of FY23 (Q4FY23), four movies are expected to cross the ₹100-crore mark, said PL. Overall, the content pipeline appears decent and hence, the brokerage has maintained its positive bias on multiplexes.
It retained a BUY on PVR and has a target price for the merged entity at ₹2,005 based on 15.5x FY24E EBITDA. The target implies a potential upside of 19 percent.
It also has a Buy call on Inox and a target price of ₹602 based on a swap ratio of 3:10. The target price implies a potential upside of 21 percent.
Having received NCLT approval, the brokerage expects the merger of PVR and Inox to go through by the end of Q4FY23 which could act as a re-rating lever from here on.
In Q3FY23, ‘Ponniyin Selvan- 1’, directed by Mani Ratnam, with a star cast including Vikram, Jayam Ravi, Aishwarya Rai Bachchan, and Karthi collected ₹500 crore at the box office. Apart from this, ‘Kantara’ and the much-awaited ‘Drishyam 2’ also saw box-office collections worth ₹450 crore and ₹343 crore, respectively. The spill from the star-studded movie ‘Brahmashtra’ was also witnessed in the previous quarter.
In Q4, the brokerage expects the Shah Rukh Khan-starrer ‘Pathaan’, Ajay Devgan's ‘Bhola’, Akshay Kumar's ‘Selfie’ and Kartik Aryan's ‘Shehzada’ to gross ₹100 crore. Apart from these, movies that may not touch the ₹100 crore mark but may act as fillers (neither a HIT nor a DUD) include ‘Ant-Man and the Wasp', ‘Tu Jhoothi Main Makkar’, ‘Shazam’ and ‘John Wick: Chapter 4’, added PL.
"Now in 4QFY23, Bhola's collection figures will not be reflected (spillover to happen in Q1FY24) and conservatively let's assume out of the balance 3 movies, one fails to achieve ₹100 crore mark. Thus, there would be at least 2 movies (Bollywood + Hollywood) with ₹100 crore of net box office collection in Q4FY23. On the other hand, so far, 2 movies from the regional genre namely Varisu and Thunivu have already netted ₹100 crore and ₹80 lakh, respectively," the brokerage stated.
Contrarian View
However, recently brokerage house Kotak Institutional Equities downgraded PVR from ‘buy’ to ‘add’ and cut the target price to ₹1,850 from ₹2,121, implying a valuation of 12 times EV/EBITDA for 2023-24. It expects the company’s profitability and margins to come under pressure due to weakness in Bollywood box-office collections.
As per the brokerage, though the NCLT’s recent approval for the merger of PVR-Inox would create a multiplex behemoth with better bargaining power, the unabated weakness in Bollywood box-office collections post pandemic suggests a structural change in consumer behaviour.
The brokerage firm pointed out that the total number of Hindi films crossing ₹100 crore of box-office collections fell to 7 in the calendar year 2022 from 17 in 2019. Also, the total number of Hindi films crossing ₹200 crore of box-office collections fell to 5 in 2022 from 7 in 2019.
“We are seeing low tolerance for mediocre Bollywood films… there is a paradigm shift induced by OTT platforms that are weighing on occupancy,” it said.
Earnings
Q3 results haven't been announced for the multiplex stocks. In Q2, PVR reported a bigger-than-expected second-quarter loss, as lackluster Bollywood and Hollywood movie performances drew fewer crowds, hitting ticket prices.
PVR's consolidated net loss for the quarter ended September, however, narrowed to ₹71.2 crore from ₹153 crore in the pandemic-hit period a year ago. Revenue from operations jumped 470.7 percent YoY to ₹687 crore but slumped 30 percent from the previous quarter. Admissions and average ticket prices during the quarter were impacted by the weak performance of Bollywood and Hollywood movies, PVR said in an exchange filing.
Meanwhile, Inox Leisure also reported a narrowing of its consolidated net loss to ₹40.37 crore in Q2FY23. The company had posted a net loss of ₹87.66 crore in the July-September period a year ago. Its revenue from operations during the quarter under review was at ₹374.12 crore, up multi-fold in comparison to the low base of the corresponding quarter of the previous year when the cine exhibition industry was impacted due to the second wave of the COVID-19 pandemic.
The multiplex chain is set to merge with rival PVR in an all-stock deal. The merged entity will be the country's largest exhibition company with 1,546 screens across 109 cities.
In the last 1 year, Inox has surged 31 percent whereas PVR has added 8 percent.
