Broker’s call: PVR Inox (Buy)

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Target: ₹2,657

CMP: ₹1,372.60

PVR Ltd and Inox Leisure merger into PVR Inox Ltd (PVR) was undertaken to overcome the disruption post Covid and take on the challenges from OTT platforms. With the film/exhibition content not resonating with the audiences occupancies hit all time lows impacting the overall financial performance.

In order to negate the impact of this new challenge, PVR undertook major business model metamorphosis from a COCO-FOCO setup to pre-dominantly FOCO & O&M formats which are asset light and help to advance breakeven/enhance profitability.

After undertaking the re-structuring exercise, the current screen count stands at 1,700. We expect the screen count to gain traction and reach 1,900 by FY27 (total capex of ₹400-450 crore). We believe that content creators are responding by catering to the changing taste of the audiences and the recent successes of films like Stree-2, Pushpa-2, etc are suggestive of green shoes with regards to occupancies. In our opinion the worst is over for the sector and we initiate with a contranium Buy-call on PVR.

We initiate coverage on the stock for a price target of ₹2,657 (4.4x FY 27 EV/EBITDA over the next 24 months. Our model assumptions indicate a significant margin of safety.