On Tuesday, BofA Securities revised its stance on PVR Inox Ltd (PVRINOX:IN), downgrading the company's stock rating from Buy to Underperform. The research firm also significantly reduced the price target for PVR Inox shares to INR1,150.00, a sharp decline from the previous target of INR1,860.00.
The downgrade was influenced by the increasing risks posed by over-the-top (OTT) streaming platforms, which have changed consumer behaviors regarding movie-watching preferences. Stifel analysts observed that audiences are becoming more comfortable waiting for new movie releases on OTT platforms rather than visiting multiplexes as frequently as before.
This shift has resulted in greater unpredictability in box office performances, with a few films achieving unexpected success while the majority experience mediocre or poor returns. This trend is expected to persist, leading to fluctuations in occupancy rates for theaters.
Another factor contributing to the downgrade is the devaluation of PVR Inox's market multiple. Historically, the company's multiple peaked at 30 times and averaged around 14 times over eight years. However, it has since depreciated to approximately 9 times. Analysts at BofA Securities anticipate that the multiples will continue to be suppressed, with no immediate catalysts likely to drive a significant revaluation.
Additionally, BofA Securities highlighted potential medium-term risks that could further impact PVR Inox. The rise of short-form social entertainment is seen as a notable threat, particularly among the tech-savvy younger demographics.
In India, where going to the movies has traditionally been a popular form of entertainment due to limited alternatives, the growing popularity of short-form content and live concerts could emerge as significant competitors, especially among Generation Z and Millennials.
This revised outlook by BofA Securities reflects concerns about the evolving entertainment landscape and its implications for traditional movie theater businesses like PVR Inox. The firm's analysts underscored the importance of these industry shifts and their potential to influence the company's performance in the foreseeable future.
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