Brokerage firm Elara Securities has suggested a 'reduce' rating for PVR Ltd and raised the target price to Rs 1,510 per share.
PVR reported a sharp decline of around 30 percent in Hindi box office revenue compared to pre-Covid levels due to factors such as large budget films, talent preferences, direct OTT releases, and slowdowns by larger studios.
Elara believes that the revival of Hindi content relies on high-quality content, scripts, and franchise-driven, technologically advanced films utilising visual effects. In the medium term, regional content is expected to play a significant role in driving growth, with dubbed films accounting for 21 percent of Hindi box office revenue in FY23.
"In the medium term, regional content is likely to play a critical role in driving growth, as it has gained acceptance in Hindi-speaking areas. Dubbed films alone accounted for 21 percent of the Hindi box office revenue in FY23. The merger of PVR and INOX has resulted in a market share of only 15% in regional films, particularly in the south. This presents a significant untapped opportunity for the merged entity to expand its reach in this region," Elara Securities said in its latest report.
PVRL/INOX has seen a 16 percent increase in average ticket price and a 29 percent increase in spend per head compared to the pre-Covid levels. Elara suggests a sustainable 3-4 percent hike in ticket and food prices.
"These metrics have been crucial in driving growth post-Covid once cinemas were allowed to open without restrictions. However, we believe that a sustainable 3-4 percent hike in ticket and food prices is feasible in the medium term. The recovery of footfall remains a crucial factor in achieving double-digit revenue growth. If occupancy levels remain at our base-case scenario of 24 percent, we expect a reduction in screen addition guidance, which may have a negative impact on overall growth. To achieve higher operating leverage, there needs to be a realignment of costs, particularly with respect to employees and rentals, in case footfall fails to return to pre-Covid levels," the report said.
The merged entity is expected to achieve occupancy levels of 24% in the medium term, with a risk of lower EBITDA CAGR of 11 percent over the next three years (FY20-25) compared to pre-Covid CAGR of 25 percent (FY17-20), due to several factors, including inconsistent Hindi content performance, lower ad revenue, and a higher fixed cost structure, Elara said.
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