Regional movies' revenue doing little for PVR, Inox; stay away, say experts

While there may be some bounce back, risks from OTT, sparse revenue from South Indian movies may put pressure on stock prices

PVR and Inox Leisure are bearing the brunt of Bollywood’s failure at the box office. The recent duds,  including Laal Singh Chaddha, Dobaaraa, Raksha Bandhan, and Shamshera, have forced investors to shun related players’ stocks amid fears of sub-par earnings.

"Bollywood box office performance has further deteriorated over the last two months. Poor content performance is largely underscored by deprecatory critics-reviews and social media influencing," said analysts at Emkay Global Financial Services.

However, after a successful June quarter for the 2022-23 financial year (Q1FY23), overall box office collections have meaningfully tapered in Q2FY23. Based on this, the brokerage has cut its FY23 revenue estimates for PVR/Inox by 11-12 per cent.

On the bourses, shares of PVR and Inox Leisure have slumped 14 per cent and 15 per cent, respectively, over the past one month, as against 1 per cent rise in the benchmark S&P BSE Sensex. And analysts see more pain ahead for the stocks.

“Bollywood's performance has dented prices of PVR and Inox Leisure. While there may be some bounce back, there are structural risks to the sector which may put further downward pressure on stock prices,” said AK Prabhakar, head of research at IDBI Capital.

PVR and Inox Leisure had reported their highest-ever revenue and net profit in Q1FY23. The former's revenue and profit after tax (PAT) stood at Rs 1,000.4 crore and Rs 68.3 crore, respectively, while the latter's was Rs 589 crore, and Rs 74 crore.

However, this improvement in earnings was driven by higher food and beverages (F&B) revenue, lower employee costs, lower advertisement and finance costs, and higher other income.

Further, net box office collection as a per cent of total revenue improved just 2 percentage points for both entities over Q1FY20, which was the pre-pandemic era.

Bollywood vs regional movies
 

Multiplex players had pinned hopes on regional cinema after the jaw-dropping success of KGF (Chapter 2), RRR, and Vikram. However, the latest releases, including Macherla Niyojakavargam, and Liger have bombed.

"There are only a couple of regional movies that do well at pan-India level. Thus, even if we see some blockbuster regional movies, they won't be able to fill the revenue gap. Multiplexes need a good show from Bollywood movies to regain muscle. Pinning hopes on regional movies is too optimistic," cautioned Deepak Jasani, head of retail research at HDFC Securities.

Hindi movies accounted for 46 per cent of PVR's total revenue at the end of Q1FY23, down from 47 per cent in Q1FY20. Contributions from regional movies, including Telugu, Tamil, and Kannada, account for revenue in the range of 1-14 per cent.

The rise of OTT
 

The rise of over-the-top (OTT) platforms, too, could challenge multiplexes' growth in the medium-to-long term, said G Chokkalingam, founder and chief investment officer at Equinomics Research.

"Apart from the perks of a wide variety of content, low prices, and the comfort of home, most of the low budget movies are being directly released on OTT platforms. Even big ticket movies make their way to these streaming platforms after two-three weeks of box office run. Thus, OTT will eat into multiplexes' revenues in the long-run,” he said.

A recent report by SBI Ecowrap pointed out that the emergence of OTT, which makes up about 7-9 per cent of the entertainment industry, is a ‘major disruption’. The industry is constantly growing with over 40-odd players offering original media content in all languages.

As per reports, there are 450 million OTT subscribers in India and it is expected to reach 500 million by end-2023.

Given this, Gaurang Shah, chief investment strategist at Geojit Financial Services, suggests investors shouldn't rush to ‘buy’ PVR post the recent correction. Minor accumulation, he said, could be done at lower levels, but with caution.

Chokkalingam, too, cautioned that the price-to-earnings (P/E) multiples of multiplex players may contract by 15-20 per cent in the absence of steady earnings growth.