Buy PVR; target of Rs 2096: Prabhudas Lilladher

Prabhudas Lilladher's research report on PVR

We increase our pre-IND AS EBITDA estimates for merged entity by 7.0%/7.5% for FY24E/FY25E, as we expect synergy benefits of ~Rs2bn to accrue over next 2 years. The PVR-INOX merger is expected to 1) lend invincible size advantage to combined entity (18%/30% screen/BO share respectively) 2) enhance BS strength (Inox had net cash BS as of Jan end) enabling rapid expansion into new markets and 3) improve bargaining power with various stakeholders in the value chain like film distributors, real estate developers, ad-networks and ticket aggregators resulting in material revenue/cost synergies. Though there are concerns over Bollywood underperformance, we believe it is not a structural issue (NBOC of Pathaan stood at ~Rs5.4bn despite high decibel negative campaigns); but a problem of content, as OTT proliferation has raised the bar of audience expectations from big screen.

Outlook

We expect merged entity to report footfalls of 170mn/185mn and pre-IND AS EBITDA margin of 19.7%/21.0% in FY24E/FY25E respectively. Retain ‘BUY’ on the stock with a TP of Rs2,096 after assigning EV/EBITDA multiple of 15.5x (no change) to merged entity.