Should You Invest in PVR INOX Ltd for the Long Term? Stock Analysis by Finology

PVR INOX, India’s largest multiplex chain, grew at a remarkable 60 %+ CAGR over the last 3 years.

Finology Research Desk has analysed the company this week, providing a clear verdict on whether PVR INOX Ltd. is a good long-term stock or not. Find out in this article.

What makes the Entertainment Industry special?

The movie and entertainment industry in India is expected to grow at 10% CAGR to reach $10,172.7 million by 2030. The sector generated $5,215.9 million in revenues for FY23, with box office collections (films) emerging as the largest revenue-generating product.
 

 

Source: Grand View Research

The buzz about movies has increased over the years. From just a single film garnering 100 Cr.+ revenues each in 2008 and 2009, the cinema industry now witnesses multiple 100 Cr.+ movies in a year. In fact, in 2023 and 2024 combined, the industry saw 24 movies crossing the 100 Cr.+ mark.

 

Source: Bollywood Hungama

While the rising trend of big box office collections looks interesting, sadly, the success rate for a film in India is very low. For instance, in 2024 alone, 1,800 films were released in the country, of which only 10 crossed the 100 Cr.+ mark, translating to just a 0.5% strike rate.

Although the odds of getting a share of successful films are low, there is one possible way to ride the journey of a handful of successful films - the movie screening and distribution services. Multiplexes show films on their screens and earn a share of the revenues generated by these films.

The Indian film exhibition industry is still underpenetrated, with only 7 screens per 10 lakh people vs the global average of 27 screens per 10 lakh people. The gap is even wider when compared to countries like China (58 screens/10 lakh people) and the USA(117 screens/10 lakh people).

With growing buzz for cinemas and untapped potential for growth in screens in the country, our search led us to a company that could benefit the most out of both these themes - PVR INOX Ltd.

Business Model of PVR INOX

PVR INOX Ltd. is engaged in movie exhibition, distribution and production. It also earns revenues from in-house advertisements, food and beverage sales, gaming, and restaurants. Post the merger of PVR with INOX, the company became India's largest multiplex chain.
 

 

Source: Investor Presentation Q4FY25

Revenue Mix of PVR INOX

 

 

Source: Investor Presentation Q4FY25

The majority 50% of the company's revenue is generated from the sale of movie tickets. Sales of popcorn, drinks, etc, during movies account for ~31% of the company's revenues. The food and beverages segment is a high-margin segment for the company due to its ability to charge higher prices for the services. Advertisements before and after movie shows account for ~8% of the total revenues. Others, which include distribution, convenience fees, etc, account for ~11% of the total revenues.

Unit Economics of PVR INOX
 

 

Source: Company

Major input costs for the company are movie exhibition costs and food and beverage consumption costs, which account for ~28% of the total expenses. Employee costs at 10.6% has remained stable over the years (excluding COVID impacted years).

Finance costs at 13% has been higher due to higher lease liabilities on the balance sheet and therefore, is not a concerning factor. Depreciation and amortisation expenses have been very high at ~21% for the company. This has been majorly due to the company accelerating depreciation on recent screens shut down by the company.

Other expenses include electricity and water charges, common area maintenance charges, movie production, distribution and print charges, etc.

Porter 5 Forces Analysis of PVR INOX

 

 

Source: Finology Research Desk

1. Low Threat of New Entrants: The company has a low threat of new entrants in the business because of the capital-intensive nature of the business and high cyclicality in the business due to dependence on success of movies to recover invested capital. Also, the need to get licence from the government for opening a screen acts as a barrier for new players to expand their business at a faster pace.

2. Moderate Bargaining Power of Suppliers: Bargaining power of suppliers is moderate in the industry. There are many movie producers vs cinema screen operators in the country. Thus, the concentration of theatre owners vs movie producers enables PVR INOX to have high pricing power over producers. However, the pricing power has reduced over the years with the growth of OTT platforms and producers considering OTTs as an alternate distribution channel.

3. Moderate Bargaining Power of Customers: The company has limited pricing power over its customers because going to theatres for watching a movie is a discretionary decision and also, the customers have an option to watch movies at home once it gets telecasted on TV or on any OTT platform. However, If the customer enters the multiplex, then the company has a stong pricing power and can charge premium prices for its foods and beverages. On an overall basis, the company thus has moderate bargaining power over customers.

4. High Threat of Substitutes: The company faces high threats from substitute channels of distribution- TV, OTT,etc. These provide viewers flexibility to watch movies at the comfort of their homes unlike PVR INOX, for which the customers are required to go to the location where they have their screens present. 

5. Low Competition in the Industry: In India, the competitive intensity in multiplexes was higher earlier when two big players- PVR and INOX were separate entities. But since the merger of these 2 entities, the competitive intensity in the industry has remained muted.

What led us to reject PVR INOX Ltd. for Finology 30?

1.Business volatility and interdependent revenue mix: The film exhibition business is inherently susceptible to fluctuations in profitability, due to variability in performance of content. Such fluctuations impact multiplex players, given their high fixed operating cost, and high dependence on occupancy, which is driven by success of films.

Also, while the company’s revenue sources appear well diversified, their interdependence makes the business vulnerable to steep fall in business in bad times. For instance, food and beverages, which account for ~31% of the company’s sales is dependent on movie ticket sales. If movie ticket sales decline due to any reasons, the food and beverages sales will also take a hit simultaneously because of the same.

2. Rising competition from alternative media and broadcasting mediums: Other forms of entertainment and new content distribution platforms, including OTTs, have emerged as competitors for content distribution. This trend has posed significant challenges in sustaining profitability and growth for PVR INOX. Post pandemic, the company has not been able to achieve pre-covid occupancy rate levels. This has been especially the case for small- and medium-budget movies and longer form content.

PVR INOX occupancy rate (%) - Pre COVID vs Post COVID

 

Source: Company, Finology Research Desk

3. Low Promoter Holding and increased share pledging: The company has a very low promoter shareholding of 27.53%. A low promoter holding in any business indicates a lack of confidence in the business model. Moreover, the promoter's pledging of shares has also increased over the years. We prefer to invest in businesses where the promoters have significant skin in the game and do not carry high share pledge %.

 

Source: Finology Ticker

The Bottom Line

PVR INOX Ltd., India's largest multiplex chain, has demonstrated impressive growth with a compound annual growth rate (CAGR) exceeding 60% in sales over the past 3 years. As of Q4FY25, the company had 1,743 screens across 111 cities.

However, we found concerns about PVR INOX's business cyclicality, revenue interdependence, low promoter shareholding, and increased shares pledged to 10.1% of their holdings, which also raises concerns about potential control issues. Additionally, the company's business faces challenges from new channels of content distribution (OTT).

For Finology 30, our ideology has been to focus on robust business models with good defensibility of its services, healthy financials and strong management pedigree. For now, PVR INOX failed to pass our investment checklist. So, we decided not to go ahead with PVR INOX Ltd.