Buy PVR Ltd For The Target Rs.2,200 By Emkay Global Financial Services
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Record quarter despite weak Bollywood performance
* PVR delivered record revenues, EBITDA and PAT in Q1FY23, as the industry had its first full quarter of operations since Covid. The company also witnessed the highest-ever ATP of Rs250 and SPH of Rs134, with footfalls trending toward pre-Covid levels.
* Ad revenue saw a sharp sequential recovery, while pre-Covid levels would be achieved in Q4FY23 as some large advertisers are taking time for decision making. In addition, we believe the sub-par performance of Bollywood movies is also delaying a full recovery.
* PVR opened 14 screens in FY23, with another 82 screens under fit-out. Management remains confident on adding 120+ screens in FY23. Capex would be funded through internal accruals. Management believes full footfall recovery will take 6 more months.
* Although there is a strong Bollywood movie line-up for the upcoming quarters, consumer acceptance is key. Given the strong performance, we raise FY23/24 EBITDA estimates by 7.2%/2.3%. Maintain Buy with a revised TP of Rs2,200 (Sep’24E pro forma EBITDA).
Record operational parameters:
PVR posted record results for Q1FY23, with strong growth across parameters. ATP rose 3.3% QoQ to Rs250, while SPH increased 9.8% QoQ to Rs134. Both ATP and SPH were at all-time highs. Footfalls stood at 25mn and were near pre-Covid levels. NBOC grew 80.4% QoQ to Rs5.3bn, while F&B revenue was up 90.2% to Rs3.2bn. Ad revenue bounced back with 192% QoQ growth to Rs627mn, but remained much below pre-Covid levels. Overall EBITDA jumped 242% QoQ, with lower growth in employee expenses and repair & maintenance costs. EBITDA profit (adj. for INDAS) was Rs1,890mn vs. a loss of Rs341mn in Q4FY22. Other income fell to Rs209mn from Rs425mn in Q4 due to lower rental concessions. Net profit was Rs534mn vs. our estimate of Rs270mn. Net debt at Q1-end was Rs14.1bn vs. Rs15bn at Q4FY22-end.
Outlook:
The film exhibition segment has seen a sharp rebound as audiences come back to cinemas. With Bollywood still failing to live up to its past glory, it was regional and Hollywood movies that helped the industry deliver record box-office collections. However, we believe that Bollywood content success is necessary to sustain and surpass these collections as the performance of regional movies has been sporadic. The content pipeline looks very strong in the near term, with a few big-budget films lined up for the upcoming quarters. The return of content windowing to 8 weeks from August should also help the multiplex industry. Management sounded confident about sustained improvement in the SPH-ATP ratio, going ahead. It believes that with the company’s focus on improving menu options and sustained growth, SPH and ATP should converge. Key risks: 1) resurgence in Covid-19 cases leading to closure of theatres; 2) OTTs grabbing high-quality content; 3) delayed recovery in ad revenues; 4) regulatory push-back to the merger; and 5) structural increase in the revenue share to producers/distributors.
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