Inox has shown adequate aggression in expansion and analysts have found confidence in the fact that it is catching up with PVR in screen capacity expansion.
Shares of India’s second-largest multiplex by screen count, Inox Leisure, have gained 22 per cent in the past one month, compared with a flat ET Media index that tracks listed media and entertainment companies. There are three key reasons why the Street has developed such a high interest in Inox’s stock.
In recent quarters, Inox has been delivering better-than estimated financial results. In the December 2019 quarter, the company’s revenue grew faster than that of PVR, the segment leader by screen count — 18.4 per cent on-year to the rival’s 8.6 per cent growth. This was largely driven by prompt screen expansion, as well as improving food and beverages and in-cinema advertising revenue.
Secondly, in the past three years, Inox has shown adequate aggression in expansion and analysts have found confidence in the fact that it is catching up with PVR in screen capacity expansion. In the past five years, PVR’s screen capacity has increased at a compounded annual growth rate (CAGR) of 11 per cent to 825 screens at present. Inox reported a CAGR of close to 10 per cent in the same period. In early years of consolidation in the industry, Inox had added screens at a much slower pace than PVR.
Thirdly, given such favourable improvement in these two strong operational parameters, the valuation gap between PVR and Inox was expected to come down. In the past three years, on a price-to-earnings multiple basis, PVR has been trading at a premium of 38.9 to Inox’s stock. In the past one month, PVR’s premium against Inox’s stock has come down to 46 from 60.7. This difference is likely to narrow further if Inox maintains the current pace of expansion in screen count.
