JM Financial: PVR Inox stock drop creates opportunity, target set at Rs 1,600

PVR Inox

JM Financial, in its latest note, highlighted the recent 26 percent decline in PVR Inox Ltd’s stock  as an attractive entry point and maintained a "Buy" rating. The brokerage revised its target price to Rs 1,600 per share, reflecting a 20 percent reduction from its previous target, but still implying a 47 percent upside from the current market price.

The huge fall of over 26 percent in last three months, brokerage expect, while weaker-than-expected Q3 results may appear to be the reason, JM Financial attributes the decline primarily to technical factors. Most of the recent selling has come from arbitrage funds. These funds have been unwinding positions ahead of PVR Inox’s exit from the F&O segment on February 28, a process triggered by the narrowing of future-cash spreads since October. Arbitrage fund holdings in the stock have now fallen below 1 percent, suggesting limited further unwinding and marking the end of this technical overhang.

Looking ahead, JM Financial remains optimistic. The absence of headwinds in 2025, such as general elections and major sporting events like the T20 World Cup, coupled with a strong movie pipeline, is expected to drive footfall recovery. Additionally, slower screen additions should support higher occupancy rates.

PVR Inox’s shift toward an asset-light FOCO (franchise-owned company-operated) model is anticipated to boost cash flow growth, outpacing top-line recovery and aiding valuations. The brokerage has incorporated Q3 results into its estimates and now models a more gradual recovery, it said.

The 2024 Box Office Collection (BOC), at Rs 118 billion, was slightly below 2023’s record Rs 122 billion, with a 6 percent YoY decline in footfall. While skeptics may view this as a persistent impact of OTT platforms, JM Financial disagrees. Key factors such as the Hollywood writers’ strike, the absence of major Bollywood releases, and disruptions from elections and the T20 World Cup constrained the movie calendar.

Despite these challenges, the BOC drop of just 3 percent is not alarming. Importantly, 2025 appears promising, with a strong Hollywood slate including Jurassic Park, Avatar, and major Marvel and Disney releases, alongside Bollywood’s mega-star returns with films like Sikandar and Sitare Zameen Par. These developments are expected to restore growth trends and alleviate concerns about OTT competition.