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Inox Leisure could narrow valuation gap with PVR

Analysts acknowledge that the company has upped its presence in premium locations

Nov 01, 2019, 07.53 AM IST
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inox-toi
This means Inox has scope for acquisitions or growing organically to enhance its presence in premium locations.
Mumbai: One of the key questions that investors in India’s second largest multiplex operator, Inox Leisure, have is about the prolonged valuation gap between the company and the sector leader PVR. That too when there isn’t any considerable difference between the performance variables of the two companies.

According to Bloomberg data, on a one-year forward basis, PVR is trading at a price-to-earnings multiple of 38.2 against Inox’s 24.13. This amounts to a premium of 58 per cent for PVR, which is far higher than the past three-year average premium of 38 per cent. Why is PVR commanding so much premium?

The answer to this can be understood if one takes into account the factors which have helped PVR surge ahead of Inox. Firstly, it is important to understand that the exhibition business is all about locations. It is not just about having screens, but the locations which play a crucial role in making the business highly profitable. On this parameter, largely through a string of acquisitions and with the early mover advantage, PVR (with as many as 771 screens now) earned the premium perception from the Street.
inox-graph

Also, thanks to the promoters’ single line of business, periodic acquisitions sent a message to investors that the promoters have been extremely focussed on making it big in the industry. Consequently, PVR's premium story transcended the sector and, in the past few years, the company has evolved into a consumption story rather than just an entertainment industry story.

Does Inox have similar factors in its favour to generate strong interest from the Street in the coming quarters? In the past four years, Inox has shown aggression in adding screens (it has close to 600 screens) and boasts of maximum new signings (around 900).

Analysts acknowledge the fact that the company has upped its presence in premium locations (at Atria Mall in Mumbai’s Worli, for instance) which gives clarity about the promoters' intention to prove a serious contender to PVR.

Inox added 85 screens in FY19 and in the next two years, it is expected to launch another 150 screens. In comparison, PVR has been adding 50-60 screens per year in the past few years. Inox is debt-free and has a promoter holding of 51.8 per cent, as against less than 20 per cent promoter holding for PVR. This means Inox has scope for acquisitions or growing organically to enhance its presence in premium locations.

Given these factors, analysts believe that even though the premium in valuations between PVR and Inox will remain, it is likely to narrow in the next one-two years, provided Inox continues to remain focused and market itself well.


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