PVR INOX Stock Could Surge 88% in Two Years, Ventura Securities Recommends ‘Buy

PVR INOX

PVR INOX: Ventura Securities Projects 88% Growth in Two Years, Sets ‘Buy’ Rating

PVR INOX, India’s largest cinema exhibition chain, has attracted significant attention from analysts and investors after Ventura Securities recently initiated coverage on the stock.

The domestic brokerage firm has issued a ‘Buy’ rating for PVR INOX and set a target price of Rs 2,657. This implies an upside potential of about 88% from the current market price of around Rs 1,372.

With this bold forecast, Ventura believes PVR INOX is well-positioned for substantial growth in the next two years, driven by a combination of industry recovery, strategic business model changes, and improving financial metrics.

A Strong Recovery in the Film Sector

The Indian cinema industry, like many others globally, took a significant hit during the COVID-19 pandemic. Lockdowns and safety concerns kept moviegoers at home, and cinemas witnessed an unprecedented decline in footfall.

The financial health of major players, including PVR INOX, was severely affected, with losses mounting as the number of viewers dwindled to historic lows.

However, with the gradual resumption of normalcy and the return of audiences to theatres, the sector has started showing signs of recovery.

The recent successes of high-profile films such as Stree 2 and Pushpa 2 have been major catalysts in this turnaround.

These films not only attracted large crowds but also demonstrated that audiences are once again willing to return to cinemas, marking the end of the industry’s worst phase.

Ventura Securities views these developments as key indicators that PVR INOX, which operates a vast network of theatres, is poised to benefit from the ongoing recovery.

Transformation of Business Model: The Key to Accelerated Growth

One of the most important factors driving Ventura’s positive outlook for PVR INOX is the company’s strategic shift in its business model.

Historically, PVR INOX followed a COCO-FOCO (Company-Owned, Company-Operated; Franchise-Owned, Company-Operated) model, which required substantial capital investment for setting up and operating each cinema.

However, in recent years, the company has moved toward a more asset-light model focused on FOCO (Franchise-Owned, Company-Operated) and O&M (Operations & Maintenance) formats.

This new approach is designed to reduce the capital expenditure and operational risks associated with owning and managing cinemas.

By focusing more on franchised operations, PVR INOX can accelerate the expansion of its network without incurring as much financial burden, making it easier to reach the breakeven point faster and ramp up profitability.

The FOCO model allows the company to scale more quickly, especially in tier-2 and tier-3 cities, where the demand for movie theatres is growing, but initial capital costs can be prohibitively high.

Under the O&M format, PVR INOX can expand its reach without bearing the full operational costs, leading to a more efficient and profitable business model.

Expanding Theatre Network: The Road to 1,900 Screens by 2027

As part of its transformation, PVR INOX is also focused on expanding its theatre network. Currently, the company operates over 1,700 screens across India.

Ventura expects this number to grow to 1,900 screens by FY2027, representing a steady expansion in line with the company’s strategy to penetrate new markets and strengthen its foothold in existing ones.

This expansion will likely involve a capital expenditure of Rs 400-450 crore, a sum that will be used for setting up new screens and upgrading existing ones to meet the demands of modern moviegoers.

This ongoing investment will help the company remain competitive in an increasingly fragmented market.

Revenue Projections: A Conservative but Positive Outlook

Ventura Securities is optimistic about PVR INOX’s long-term growth prospects. While the brokerage maintains a conservative stance on certain factors—such as occupancy rates and growth in food and beverage (F&B) revenues—it still projects strong growth in the company’s overall revenue.

According to Ventura, PVR INOX’s revenue is expected to reach Rs 4,500 crore by FY2027, representing a compound annual growth rate (CAGR) of 10.5%.

This growth will be driven by a combination of factors:

• Movie Ticket Sales: With the return of audiences to theatres, ticket sales are projected to increase steadily, especially as the slate of big-ticket films continues to grow.
• Food & Beverage (F&B) Sales: The F&B segment is a critical revenue stream for cinema chains. Ventura expects PVR INOX to capitalize on this opportunity, especially as the consumer experience in theatres improves with premium offerings such as gourmet snacks and beverages.
• Advertising Revenue: As the company expands its reach and footfall, advertising revenue from on-screen and in-lobby promotions is expected to grow significantly, further boosting the top line.

EBITDA and Net Income Growth Projections

Ventura Securities also provided projections for the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) and net income.

According to the brokerage, PVR INOX’s EBITDA is expected to grow at a CAGR of 13.2% by FY2027, while net income is forecasted to increase at a more robust CAGR of 25.4% over the same period.

This strong growth in profitability can be attributed to the company’s improving operational efficiency and the asset-light business model, which is expected to yield higher margins.

Moreover, as the cinema sector recovers and moviegoing becomes more popular again, PVR INOX stands to benefit from the leveraging of its fixed costs, which should boost profitability even further.

Stock Performance and Market Sentiment

PVR INOX’s stock has faced some headwinds recently, with the share price having fallen by about 17.34% so far this year.

As of Tuesday, December 24, the stock closed at Rs 1,372.45, reflecting a modest 0.84% increase on the day.

Despite these short-term challenges, Ventura Securities believes that the company’s long-term prospects remain strong.

The brokerage’s target price of Rs 2,657 represents an 88% upside potential, which is an attractive proposition for investors looking for growth opportunities in the Indian stock market.

The decline in stock price in 2024 could be attributed to a combination of factors, including investor sentiment and broader market conditions.

However, Ventura believes that these challenges are temporary, and the company’s underlying fundamentals remain strong.

Once the cinema sector fully recovers and PVR INOX’s strategic initiatives start paying off, the stock is expected to rebound significantly.

Final Remarks: A Promising Investment Opportunity

In conclusion, PVR INOX’s transformation into an asset-light model, its growing network of screens, and the resurgence of the Indian cinema sector make it an attractive investment opportunity for long-term growth.

Ventura Securities’ target price of Rs 2,657 reflects an 88% upside potential, highlighting the significant growth opportunity ahead for investors.

While near-term stock price volatility may persist, the company’s solid business model and recovery prospects make it well-positioned for strong returns in the coming years.

As movie theatres regain their importance in the entertainment ecosystem and PVR INOX expands its footprint, the company’s stock could emerge as a compelling growth pick for investors looking to capitalize on the resurgence of the Indian cinema industry.