PVR Inox: Is this stock the next big ticket for investors?

The numbers told a clear story.

Between 2013 and 2020, PVR's revenue climbed from INR 806 crore to INR 3,414 crore—a solid 23% annual growth. Operating margins were strong, too, moving from below 14% in 2013 to 20% in 2019, then shooting above 30% in 2020.

Then everything changed.

When covid hit, it wasn’t just the theatres that closed. Viewer habits began to shift, and PVR found itself in rough waters. Profits vanished, massive losses followed, and the entire industry was left reeling.

By 2023, the landscape had shifted again as PVR joined forces with INOX, creating India’s largest cinema chain—PVR INOX, which accounts for more than 50% of total multiplex revenues. But despite reducing losses, the company is still in the red in 2024.

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The stock tells a similar story. From 2013 to 2020, PVR’s stock delivered an impressive 33% annual return.

But after covid it plummeted 60%.

While the stock has recovered some ground, it's essentially back to 2017 levels. Someone who bought in 2017 and held on would have seen zero gains even though revenue is now three times what it was back then and the company has merged into an industry giant.

A lot has changed, hasn’t it?

The big question now is: what’s next for PVR INOX? Once a rock-solid opportunity in entertainment, is its stock still worth betting on? Can it deliver the returns investors hope for? Let’s dive in and find out.

Who really holds the upper hand in the movie business?

Three main players run the show:

• Producers: These are the visionaries who bring movies to life, whether it's a new face like Kriti Sanon producing her first film,Do Patti, or powerhouses such as Dharma Productions churning out hits.
• Distributors: They buy film rights from producers and handle distribution to theatres. Think of Eros International or Reliance Entertainment.
• Exhibitors: Cinemas such as PVR INOX.

Sure, there are others in the mix—talent managers, rights management firms, digital integrators—but let’s focus on the big three since they claim the largest slice of the revenue pie.

Who gets what?

Here’s how revenue is shared. When you buy a ticket and snacks at the theatre, the exhibitor keeps a portion and shares the ticket revenue with the distributor. But that split changes over time:

• Week 1: The distributor takes about 50%.
• Week 2: Their share drops to 42.5%.
• Week 3: It falls further to 37.5%.
• Week 4 and beyond: The share stabilises around 30%.

This is where multiplexes such as PVR INOX have an edge. With about 18% of India’s 10,000 screens—1,745 as of September 2024 to be exact—they offer unparalleled reach. If this were a single-screen setup, the distributor would typically command around 70% of the ticket revenue, tipping the scales in their favour. But multiplexes shift the balance of power.

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Typically, for PVR INOX, these costs are referred to as film hire charges (FHC) and hover around 46%, as shown in the PVR INOX expense analysis table.

Why does the producer often face the most risk?

Producers are the ones taking the leap of faith, putting up the money, hiring the cast, and funding the film’s production. If a movie isn’t a blockbuster, it usually fizzles out by week four.

That’s why many producers turn to streaming platforms to minimise risks and secure an exit route. The stakes are high—one bad investment in a big-budget film can lead to significant losses and no easy way to recoup them.

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The big studios, such as Yash Raj Films and Disney, saw this coming and moved quickly to consolidate. They handle casting, sign actors for multiple projects, produce movies, and manage distribution. This setup helps them control costs and spread the risk.

Smaller producers often don’t have this luxury, which is why we’ve seen legacy names such as Dharma Productions sell majority stakes. Karan Johar, knowing these dynamics all too well, capitalised on Dharma’s legacy by selling when the time was right.

The exhibitor’s dilemma: The right picks and fixed costs

Exhibitors face a different kind of challenge.

With more than 1,000 movies hitting theatres every year—in various languages—deciding which films to show and how many screens to allocate is critical.

Just 10 movies accounted for 40% of total box office revenue in 2023, highlighting how important it is to bet on the right films. Picking a dud or underestimating a hit can mean lost revenue.

And here’s the kicker: exhibitors operate with hefty fixed costs.

Maintaining physical infrastructure and paying salaries can eat up 55-60% of their revenue, as seen in FY24 and the first half of FY25. It’s a big financial commitment. While PVR INOX does engage in production and distribution through its arm, PVR INOX Pictures Limited, its primary focus is acquiring international film rights for distribution in India.

So, who holds the upper hand?

In the grand scheme of things, exhibitors—especially giants such as PVR INOX—seem to have a significant edge. They have the flexibility to choose what movies to screen and can leverage their scale for better deals with distributors.

But this comes with a caveat: their power hinges on the health of the film industry itself. As long as movies are being made and audiences are watching, exhibitors remain key players.

So, can PVR INOX grow the business?

For PVR INOX specifically, the question is: how can they realistically grow revenue? Let’s walk through the key levers and see how each one plays out.

1. Ticket sales: The core driver

This is the most obvious source of revenue, but it’s highly dependent on the content. Can PVR INOX control what kind of movies are made? Not really. Their power lies in choosing which films to exhibit from the more than 1,000 movies produced each year, hoping they pick winners.

What about expanding the number of seats they can sell by adding more screens? Technically, yes, but it’s not that simple. Opening new PVR INOX locations means securing prime spots in top-grade malls. And here’s the catch: the development of Grade-A malls isn’t exactly booming, so there’s a bottleneck.

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Could they buy up single screens or smaller theatre chains to boost capacity? Sure, but there’s a limit. The company isn’t going to buy just any screen unless it adds strategic value, like capturing market share in a particular region. Plus, with occupancy rates hovering around 25%, they’re already underutilising their existing capacity.

The numbers after the PVR-INOX merger tell the same story. Screens went up from 1,680 to 1,745—modest 2.5% growth. So, simply adding more seats isn’t a silver bullet.

2. Raising ticket prices: A tightrope walk

Could PVR INOX simply hike prices to rake in more revenue? Not really. Imagine if ticket prices doubled from ₹250 to ₹500 overnight. Would you still choose PVR INOX for every movie? Probably not. While people are willing to pay more for a premium experience every now and then, frequent visits would likely shift to more affordable options.

The data backs this up. Post-merger, the average ticket price increased only slightly, from ₹240 to ₹247, while the average spend per head on food and beverages went from ₹128 to ₹135—a modest 3% rise over 18 months. So, relying solely on higher ticket prices for growth isn’t the answer.

3. Filling more seats: Maximising capacity

What about boosting occupancy? That’s a more nuanced game. One interesting trend has been the re-release of movies. Surprisingly, re-releases have gained traction over the last 8-9 months, contributing 6% to admissions in Q2. Management noted that this model is profitable even with a lower average ticket price (ATP).

Why? Because film-hire charges for older movies are cheaper, leading to higher gross margins in percentage terms. However, the lower ATP means the actual gross profit from older movies can be on par with newer releases.

PVR INOX has been busy in this area, marketing around 80 re-releases in the first half of the year and planning to hit 140-150 by year-end. But while it’s a good strategy for lean periods, it won’t revolutionise their revenue on its own.

4. Leveraging F&B: The wild card

The F&B segment does have potential. PVR INOX plans to launch two new food courts in the coming months, at a cost of ₹5-6 crore each. It’s also partnering with Swiggy and Zomato to roll out cafes in their cinema halls and even exploring dark kitchen setups in southern locations. Since many cinemas are located on the ground floor of malls, this could be a smart move.

The big question is: how much will this actually impact overall revenue and profits? It’s too early to tell, but diversifying income streams is always a plus.

What about stock returns?

A lot has changed since the merger of PVR and INOX. People are returning to theatres, defying post-covid scepticism. This is undeniably a positive sign for PVR INOX.

Currently, the company trades at an EV/Ebitda ratio of 24, with Ebitda margins hovering around 11%. This leaves room for optimism.

With more movie releases, better capacity utilisation, and a box office resurgence, PVR INOX aims to leverage these trends and its diversified business model to boost margins. If the company can push Ebitda margins back to pre-covid, pre-merger levels of around 16% the valuation could look even more attractive.

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Given that PVR INOX is the dominant player in the multiplex space and arguably has the best infrastructure among cinema exhibitors, there’s potential for margin improvement.

But key questions remain: will the content pipeline support this recovery? And will much of this content come through multiplexes and not streaming platforms?

The company is laying the groundwork for growth, but whether this translates to good stock returns will depend on the quality of content and how well PVR INOX continues to adapt in a competitive market.

For more such analysis, read Profit Pulse.

Note: We have relied on data from the annual reports throughout this article. For forecasting, we have used our assumptions.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.The views expressed are my own and do not reflect or represent the views of my present or past employers.

Parth Parikh has more than a decade of experience in finance and research, and currently heads the growth and content vertical at Finsire. He has a keen interest in Indian and global stocks and holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he held research positions at various companies.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article