Buy PVR; target of Rs 1640: Motilal Oswal

Motilal Oswal's research report on PVR

Results below estimates; margins expand 150bp: PVR’s revenue grew 2.1% YoY to INR5,554m (est. of INR5,930m). EBITDA increased 13% YoY to INR905m (est. of INR1,008m), with the margin expanding 150bp YoY to 16.3% (est. of 17%) led by reduced rent cost (-40bp to 17.5% of sales) and significantly lower admin expenses (-500bp to 24.7%), partly offset by higher movie exhibition cost (+290bp to 24%). Consequently, adj. PAT increased to INR255m (est. of INR291m) in 2QFY18 from INR291m in the year-ago period.  Significant screen additions planned for 2HFY18: PVR has already added 21 screens in 1HFY18 (13 additions in 2QFY18 – 10 in Pune and 3 in Delhi). The company plans to further add 48 screens in 2HFY18, with 65% of these to be in south India. With Golmaal Again running well on box office and the content pipeline appearing promising with the likes of Padmavati and Tiger Zinda Hain, the company is set to leverage the expected increase in traction. Growth in ad revenue intact: PVR clocked growth of 10% YoY to INR688m in sponsorship revenue in 2QFY18 (+20% YoY in 1HFY18). The increase in ad revenue can primarily be ascribed to better content, and with 2HFY18 lined up with crowd-pulling content, ad revenue is expected to continue growing at a rate over 15% in the next couple of years.

Outlook
We believe PVR is set to benefit from multiple factors, including aggressive screen additions in the under-penetrated markets, a steady rise in advertisement revenue and the newly launched loyalty program for customer stickiness. We expect revenue CAGR of 16% and PAT CAGR of 40% over FY17-20E. We value the stock at 15.5x EV/EBITDA and maintain our Buy rating with a target price of INR1,640. For all recommendations report, click here

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