How Inox Leisure stock is giving PVR a run for its money

BL Research Bureau

The stock of Inox Leisure, one of the largest multiplexes, has gained over 75 per cent in the last six months and 22 per cent in the last one month. This is mainly attributed to the company’s continuous focus on branding, screen additions in key locations and aggressive advertising, sales and promotions. As multiplex operators continued to defy the overall macro-economic consumption-led slowdown, Inox too registered healthy revenue and profit growth of 26 and 68 per cent eary-on-year (y-o-y) respectively, in the nine months ended December 2019. Though advertisement revenue came under pressure, revenue growth from box office collections was able to offset the impact.

While the stock of PVR, market leader in the multiplex industry, also registered healthy December quarter results, the stock, however, gained only 39 per cent in the last six months (8 per cent in the last one month). Although PVR still commands higher market share and higher valuation than Inox, the gap between the two is narrowing. At ₹486, Inox trades at 34 times its 12-month trailing earnings, lower than its three-year average (41 times) and its peer PVR trades at 53 times trailing 12-month earnings.

Inox makes improvements

Locations of screens are important for a multiplex operator to grow. In this regard, PVR had a first mover advantage in the industry compared to its peers, enabling it to command a higher market share. It focused on expanding its screen presence in various key locations, particularly in metros. It has expanded to international markets as well, given the increasing export of film content, especially to Asian markets such as China and Japan. The slow rise in premium-format screens such as IMAX, Onyx and P[XL] and PVR’s premium service offering, also helped the company surge ahead of its competitors like Inox.

But Inox is catching up too. Over the last two years, the company has been ramping up screen additions across tier II cities but more so in metro cities. From 492 screens in FY18, it has increased its screen presence to 574 in FY19 and as of February 2020, the company has 614 screens. It has plans to open 70 screens before close of FY20, of which 46 are already open. The company has plans to open 1,118 screens post FY20 and according to management, agreements are already signed with reputed players.

Similarly, to increase new and repeat footfalls, Inox had been focusing on improving customer experience, particularly for premium screens. This includes providing facilities such as chef curated menu, better 3D experience, luxurious seating, and so on. As a result, the company had witnessed higher occupancy levels in premium screens than normal screens, according to the management. The footfalls of the company stood at 5.32 crore, a growth of 19 per cent y-o-y in 9MFY20.

Also, the company has been focusing on non-movie content including music concerts, live concerts and sporting events such as ICC World Cup to generate revenue beyond box office. For instance, Inox hosted an exclusive Westlife concert across its screens in November last year. It has also been showing documentaries and films to educational institutes.

Inox Rewards wherein customers would receive reward points post registration (through mobile number) for spending on movie bookings and F&B, is yet another innovative move. The accumulation of points enables customers to get access to free movie tickets and F&B. Members can also get the benefits of zero ticket cancellation fee, offers on ticket purchases and access to Inox’s 7-star Insignia lounges. These efforts could help the company maintain steady footfalls throughout the year, going ahead.

Gap narrows

Inox has narrowed the gap with PVR in terms of ticket prices and food and beverages (F&B) segments, key revenue contributors for both operators.

In the case of PVR, the average ticket price stood at ₹210 in Q3FY20, a marginal increase from ₹209 in Q4FY18. But in the case of Inox, with improvement in quality of movie experience and added services, its average ticket price has seen steady increase in the last two years. From ₹190, the average ticket price increased to ₹204 in December FY20.

Inox has also been aggressive in promoting its F&B revenue segment with over 200 options. The effort has resulted in 10 per cent y-o-y growth in average spend per head, while the F&B segment registered a growth of 22 per cent y-o-y to ₹130 crore in the recent quarter. During the same period, the F&B segment of PVR registered growth of 13 per cent y-o-y to ₹244 crore.

In another step towards increasing F&B revenue, Inox has partnered with Swiggy for delivering its food items. The revenue share from this stream is expected to pick up, though it was not material in 3QFY20.

While both Inox and PVR generate 55-57 per cent of revenue from box office collections and 26-27 per cent from F&B, PVR has an upper hand in terms of advertisement revenue. The scale and premium properties fetch higher advertisement revenue per screen than Inox; though, ad revenue for both companies is around 10-12 per cent of total revenue.

That said, PVR has debt of ₹1,282 crore which limit the expansion or acquisition for the company, while Inox is debt-free (net debt of ₹96 crore) giving scope for expansion to improve its presence in premium locations.

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