Buy PVR; target of Rs 1429: Motilal Oswal

The Hindi film Dangal reported stellar net box office collection (NBO) of INR2.4b until 31-December 2016 in India, which is expected to aid PVR (20% market share, according to management) in the current quarter. Stellar numbers by Dangal show that demonetization cannot have much impact on the multiplex business if content is good. No competition from other Hindi cinemas over last weekend and the holiday season contributed to Dangal’s continued successful run at the box office. The movie pipeline also appears strong with Shahrukh Khan’s ‘Raees’ scheduled to be released on 26-January 2017 along with Hrithik Roshan’s ‘Kaabil’.

We expect the impact of demonetization to be lower than our previous estimates. We thus increase our earnings estimates by 22% for FY17 (was mainly cut because of impact on operating leverage in view of demonetization) while broadly maintaining FY18 estimates. We introduce FY19 estimates, and expect 21% revenue CAGR and 29% PAT CAGR over FY16-19E, driven by EBITDA margin. We expect overall EBITDA margin to improve from 17.7% in FY16 to 19% in FY19, mainly driven by synergies from DT Cinemas integration. We roll over our valuation to December-18 with target multiple of 12x EV/EBITDA (earlier 14x FY18E), and maintain Buy with a target price of INR 1,429, implying upside of 22%.