Inox Narrows Gap With PVR On Key Metrics
Why analysts are more bullish on Inox than PVR...
Analysts expect Inox Leisure Ltd. to fare better than India’s No. 1 multiplex operator PVR Ltd. as it narrowed the gap with its larger peer on revenue per user and ticket prices.
While there has been a pullback in Inox shares since last month, India’s second-largest operator of cinema screens has returned 33 percent gains in the last 12 months compared with PVR’s 8 percent.
About 88 percent of the analysts covering Inox recommend a ‘Buy’ compared with 69 percent for PVR, according to Bloomberg data. Inox has an upside 14 percent against PVR’s 5 percent.
PVR boasts of superior metrics but Inox has been quick to note and take corrective action, Abneesh Roy, analyst at Edelweiss Securities, said in a note. That helped narrow gap in ticket prices and food and beverages—the two largest sources of revenue for multiplex companies.
Ticket Prices
Inox has narrowed the gap in average ticket prices—the biggest contributor to revenue— in the last five quarters from Rs 16 to Rs 6. To be sure, prices fell in the quarter ended March after the GST rate cut.
In the first quarter of 2017-18, PVR’s average ticket price was about 11 percent higher than Inox, according to Edelweiss, and the gap fell to around 3 percent by March this year. “In our view, this signals an increase in Inox’s relative pricing power and sustained customer demand,” Roy wrote, adding that a rise in premium properties for Inox also helped.
Spends And ARPU
While the spends per head rose for both, the gap between the average revenue per user—a combination of average ticket price and spends per head—narrowed between Inox and PVR.
Roy said PVR’s revenue per user fell about 5 percent over the past eight quarters, stemming from lower average ticket price for SPI Cinemas, its acquisition in south India, and the cut in GST rates. By comparison, ARPU rose for Inox by 2 percent.
Food & Beverages
Food and beverages account for more than a quarter of the revenue for multiplex operators. And Inox has been aggressive in promoting its corns and colas to samosas and wraps to catch up with PVR. The F&B growth of both the companies, according to Edelweiss Securities, will be aided by increasing footfalls and higher-priced offerings.
PVR’s Advertising Strength
PVR’s scale and premium properties fetch higher advertisement revenue per screen than Inox. It’s an important business stream for multiplexes that contributes 10-13 percent to their revenue.
Inox is now investing heavily in Inox Insignia for branding and bidding for metro, Karan Taurani, an analyst at Elara Capital, said. Inox can offset higher rentals by targeting advertisement revenue growth, he said.
The rentals have increased as Inox focuses on getting properties in premium locations.
The recent growth is on account of being rigorous in areas like content, F&B, advertising sales, operations, promotions and screen additions, Alok Tandon, chief executive officer at Inox Leisure, told BloombergQuint in an emailed response. The company has been looking at alternative content like showing Cricket World Cup matches in cinemas, Tandon said, adding that Inox plans to add 80 screens in 2019-20.
Valuations
PVR still trades at a premium to Inox Leisure because of better operating metrics like average ticket price, spend per head and ARPU. But Depesh Kashyap, an analyst at Equirus Capital, expects the valuation gap to narrow soon with Inox executing its expansion plan.