Buy PVR Inox Ltd for the Target Rs. 1,380 by JM Financial Services Ltd
Admit’tedly Strong
India’s box office is on a roll. July, with GBOC of INR 14.3bn (+50% MoM), was the best month of the year – till now. Coolie (INR 3bn+) and War 2 (INR 2.5bn+), released only in midAug, have ensured momentum likely held up in August as well. An even stronger pipeline ahead (Exhibit 6) – Jolly LLB 3, Dhurandhar, Avatar, Border 2 – makes management’s target of 150mn+ admits in FY26 increasingly probable, despite the steep ask (10% YoY from 2Q4QFY26). Near term strength aside, some of the structural concerns are fading too. 2025 global box office estimate of USD 34.9bn (+14% YoY), highest since pandemic, indicate admissions globally are on a rebound. With only 12% of the movies in 2024 released directly on OTT, down from 33% in 2022 (Exhibit 9), economic importance of theatrical releases is getting re-established. PVR Inox’s more efficient operations (both cost and capital) mean these improving exogenous factors should translate into better cash flow and return metrics. Flat Rights-of-use assets/screen, lower increase in gross PPE/screen and sharp decline in CWIP in FY25 point to a more frugal capital/cost model, driving better FCF. Market has largely ignored that, resulting in FCF yield rising to c.5% (Exhibit 28), +1-SD above long-term mean. That makes current valuations attractive. BUY.
* Box office – Out of the box: Strong box office performance of Q1 has continued unabated in Q2. July has delivering the strongest month of the year (INR 14.3bn GBOC) on the back of Saiyaara, Mahavatar Narsimha and Jurassic World Rebirth. Mix has been favourable for PVR Inox as well. Success of July releases such as Jurassic World and Superman pushed Hollywood’s share up from 10% (Jan–Jun) to 12% (Jan–Jul) in India’s 2025 GBOC, indicating material increase MoM. August BOC has likely held up too. Coolie and War 2 have crossed INR 3/2.5bn mark, and are in the top-5 highest grossing movies of the year. Pipeline is strong across Bollywood – Jolly LLB 3, Thama, Dhurandhar, Border 2 - Hollywood – Avatar, Mortal Combat 2, Anaconda – and Regional – Kantara.
* FY25 AR Analysis – year of transition: FY25 was a year of transition for the company, marked by muted box office performance (admissions at 136.9mn vs 151.4mn in FY24) as Hindi and Hollywood slates remained weak. Management pivoted to manufacturing footfalls through a slew of initiatives – discounted days, re-releases, alternate content, CVP bundles, and the INR 99 weekday menu – which helped sustain occupancies during content lulls. The company accelerated its shift to an asset-light FOCO model, bringing capex down ~50% YoY (INR 6.3bn in FY24 to INR 3.3bn in FY25), while simultaneously delivering a net debt reduction of ~INR 3.5bn. Fixed costs per screen grew <1% over 5 years despite CPI inflation of 29%, reflecting strong operating discipline. Flat gross ROU assets/screen YoY reflects ongoing rental negotiations, a key focus area.
* FCF yield at 5%; BUY: PVR Inox’s FCF (adjusted for lease payment) jumped 76% YoY in FY25, reflecting its pivot towards asset light model and improved capital efficiency. While our DCF based TP reflects this improvement, market has likely ignored it as EV/EBITDA remains a dominant valuation metric for the stock. FCF yield – which has reached 5% or +1-SD above mean - is a better gauge of stock’s undervaluation, in our view. BUY.
India BO performance – Jul’25 & Aug’25
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SEBI Registration Number is INM000010361
