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The share price of PVR and Inox had been on a roll gaining 20% on an average (since July this year) with many states slowly re-opening their economy. However, the news of Maharastra opening up theatres from October 22, 2021, shot up the share price of the companies on September 27.

Now with steady vaccine roll-out, lower number of cases, states including Andhra Pradesh, Telangana, and Maharashtra are considering to re-open movie theatres which is a big positive for multiplex players – PVR and Inox. In the past month, the stocks have rallied 20% and 24% respectively. 

Is the re-opening of the movie theatres the only positive driving these stocks? Read to find out more:

Positives for PVR and Inox

Big budget movies lined up for 2022:  With Maharashtra announcing that theatres will open in the state, many big-budget Bollywood movies announced their release dates scheduled for the rest of 2021. These movies include Rohit Shetty’s Sooryavanshi starring Akshay Kumar, Yash Raj Film’s (YRF) Jayeshbhai Jordaar starring Ranveer Singh and Shalini Pandey, Bunty and Babli 2, Shamshera starring Ranbir Kapoor among others.

This along with some Hollywood movies include  Top Gun, The Eternals, Doctor Strange -, Multiverse of Madness, Fast & Furious 9 among others.

Theatre penetration: Theatre screen penetration in India is relatively low compared to other developed markets. This aids in the screen expansion plans of both Inox and PVR. For instance, despite the restrictions put in place, Inox was able to open five new screens as of April 2021. 

Boost entertainment industry: Maharashtra is expected to re-open theatres by the end of October 2021. Similarly, other states including Andhra Pradesh, Telangana, Karnataka, and Tamil Nadu are expected to re-open movie theatres between 50% and 100% capacity. Both PVR and Inox have a strong presence across most of these States.

Strong pan India presence: While PVR has nearly 35% of its screens in the South comprising 292 screens, Inox has 22% of its screens (146 screens) in the South. But Inox has 40% of its screen in the West versus PVR having 29% of its screens in the same region.  

Premium features to boost growth

  • PVR’s Luxe and Director’s Cut offer superior projection and sound systems, special assistance services and so on. This helps the company in monetizing higher ticket prices. The average ticket prices for Luxe and Director’s Cut screens are around Rs 800-1200. 
  • PVR also has PVR Utsav where the ticket price starts around Rs 100.
  • Similarly, Inox too has launched different viewing experiences catering to customers across all income levels.
  • Thus, cinema screens featuring quality infrastructure, the latest audio-visual systems and multiple foods and beverages offerings, augur well for both PVR and Inox growth prospects.

Barrier to entry for new players: The barrier for a new player to enter is high in the multiplex market due to the costs and regulations involved in doing the same. Plus the widespread geography of both players will be hard to beat. The market continues to be dominated by big players such as PVR and Inox, which will aid in the growth of these multiplex operators. 

Slowdown in single screens: Single screens, usually owned and operated by regional players are slowly coming down and the Covid-19 has hit them hard, this gives screen expansion opportunities for the multiplex operators.

Other factors: Increasing vaccine population, reduction in number of covid-19 cases and strong pent-up demand bodes well for multiplex players – PVR and Inox. 

Concerns 

While the outlook for PVR and Inox appears fairly steady, there are two points of concerns that investors should keep in mind. 

Competition from OTT: One, the direct release of movies on OTT. While it is a temporary phenomenon, during the lockdown period, multiple movies that were slated for theatre release have hit viewing platforms such as Netflix, Amazon Prime among others. These movies include Radhe, Suraraipotru, Black Widow and so on. 

Though big-budget movies are awaiting theatre release, the small and medium budget movies are moving to the streaming platforms where they get a better audience. But many industry experts believe that theatre releases are going to continue, and OTT direct release is going to be a temporary phenomenon. This is further supported by media reports on Disney’s 2021 movie pipeline having an exclusive theatre release. 

New covid variants: Two, if there is another outbreak of the Covid variant, then it could postpone the re-opening of movie theatres this year. This in turn could hamper the growth prospects of the multiplex players. 

Is it worth buying PVR and Inox stocks – Investors to note

The release of pent-up demand across all regions in the country should drive the performance of both PVR and Inox in the second half of FY22. As both companies were able to save significantly on their fixed costs such as rent and common area maintenance (CAM), it should help in boosting their margins in the coming quarters. 

Similarly, the expansion of screens (already in the pipeline) should also help in improving the revenue for both companies. For instance, Inox has plans to open 10 new properties in FY22 with 44 screens offering 8,156 seating capacity across multiple cities. Similarly, PVR too has plans to open its cinemas and screens across multiple cities. 

While both companies are at comfortable debt positions, their financials are weak as FY21 was nearly a wash-out year for both PVR and Inox. 

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