PVR Inox (BUY): Content makes a strong comeback; PVR Inox’s bull case scenario playing out

PVR Inox performance update states that they have achieved ‘highest ever daily and weekend admissions and box office’. On 13th Aug’23, PVR Inox had 1.28mn admits and 3.36mn admits over Friday to Sunday with GBO revenue >INR 1bn. We think this implies an occupancy of 72-75% on Sunday and 63-65% over 3 days. We have been bullish on the recovery of the movie exhibition business given the strong pipeline since Q2FY24 (link). However, the current performance is a positive surprise. Merger synergies have also started playing out (link). Given the high operating leverage that plays out in this business, we believe earnings upgrades are necessary. We, therefore, upgrade adjusted EBITDA estimates for FY24E/25E by 48%/12%. We are now 52%/8% above consensus. Given our bull case is playing out, it remains a top pick (link) as we raise our target price to INR 2,240. Re-iterate BUY.

Hindi movie-goers returning to theatres should assuage investor concerns

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• We believe investor concerns around digital disruption by OTT players was one of the key reasons behind PVR Inox’s de-rating. Now, as a strong content pipeline manifests into tangible box office collections, we think investor concerns regarding relevance of movie exhibition in today’s context should be assuaged.
• In our deep dive on PVR Inox (link), we analysed trends in the global music industry over the last two decades to understand the impact of digital disruption on content industry. We noted that though digital streaming completely upended the physical distribution mediums (CDs, cassettes), the ‘experiential’ aspect of live music managed to grow at a steady CAGR of 6% over 15 years.
• We believe a similar trend is likely to play out in the movie exhibition business, given its ‘experiential’ appeal. However, we believe the growth rates will be higher given the low penetration of screens in India and a strong growth outlook for discretionary incomes.

ICICI Securities