June 27, 2016 / 13:17 IST
Motilal Oswal's research report on PVR
PVRL has significant pricing power to retain the benefits from a lower effective indirect tax rate, given its premium location advantage and strong brand. In the best case scenario of 18% GST, we see margin expansion of ~440bp and an EBITDA upgrade of 26%. Resultantly, RoCE shall increase from 15.4% to 23.5% in FY18. If the GST rate is higher at 20%, the margin expansion will be ~390bp, leading to an EBITDA upgrade of 21%. RoCE in this case shall be 22.0%.
We upgrade our revenue estimates by 2% each for FY17/FY18, translating into an EBITDA upgrade of 4.7%/3.6%. We expect PVRL to record 20% revenue CAGR and 26% EBITDA CAGR over FY16-18. Overall EBITDA margin should improve from 17.7% in FY16 to 19.5% in FY18, driven mainly by synergies resulting from the integration with DT Cinemas and better content. GST implementation could act as a huge trigger and drive further margin expansion. Maintain Buy with a target price of INR 1,140.
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