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Buy PVR Ltd For Target Rs.1540

Recovery likely from H2FY22…

PVR reported losses for a fifth consecutive quarter as expected. While regional releases fared well, lack of Bollywood content and limit to occupancy kept footfalls muted. The box office revenue at | 87.9 crore was down 73.9% YoY while ad revenues were at | 13.6 crore (down 80% YoY). The company reported | 56.6 crore of F&B revenues (down 67.7% YoY). EBITDA loss (ex-Ind-AS 116) was at | 127.5 crore. It reported a net loss (exInd-AS 116) at | 271.8 crore as the company recognised one-time deferred tax expense of | 113 crore. On a reported basis, net loss was at | 289.1 crore as it accounted for rental waiver of | 70.4 crore as other income.

Second wave halts recovery

Notwithstanding the strong response to regional releases, restrictions on occupancy and lack of major Bollywood releases meant footfalls remained limited. Footfalls at 5.8 million were down 70% YoY and ATP at 183 was down 10% YoY (largely owing to mix of releases tilted towards regional). The spend per head (for F&B) was largely flattish YoY at | 95. Given the second wave, all screens have shut down since April, 2021. The management expects big budget releases from H2FY22 onwards. We bake in 40 screens addition in FY22E and 90 screens addition in FY23E.

Consequently, we build in footfalls growth of 1.8% CAGR in FY20-23E to 107.3 mn coupled with 1.3% CAGR in ATP to lead to 3.2% FY20-23E CAGR in net box office revenues to | 1904 crore. F&B revenue CAGR is estimated at 3.5% over FY20-23E leading to a total of | 1051 crore. Ad revenue is expected to take longer to recover and we expect ad revenue of | 370 crore in FY23E (similar to FY20). We incorporate strong recovery from H2FY22 and expect FY23 to witness all variables back to pre-Covid levels.

Negotiating for rental waiver again; liquidity strong

PVR indicated that in FY21, waivers on rent and CAM for the majority of their properties resulted in a 71% reduction in charges. The company indicated that they have again started discussions for discounts/waiver since the last discussions were valid for FY21 only. PVR also mentioned that 10-15% of cost savings, which took place in FY21 for other fixed costs was permanent in nature. With | 1100 crore of equity raise, the company currently has gross cash of ~| 732 crore (net debt at ~| 620 crore), which should help in combating cash burn amid the closure during the second wave.

Valuation & Outlook

We continue to believe PVR is a proxy play on urban/semi urban discretionary spends. We expect the recovery to be a function of speed of vaccination and response to new content. We now upgrade to BUY (vs. HOLD earlier) as we believe that recovery with increased vaccination push will be sharp. We assign FY23E EV/EBITDA multiple of 12.5x (vs. 11x, earlier) with a target price of | 1540/share (earlier TP | 1440).

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