Buy PVR; target of Rs 775: Motilal Oswal

Motilal Oswal's report on PVR

"PVR acquired DT Cinemas from DLF for INR5b. DT Cinemas currently has 29 operational screens (10 upcoming)—primarily in Delhi, Gurgaon and Chandigarh; its presence in DLF malls gives it a huge locational advantage, resulting in heavy footfalls. The acquisition gives PVR the right of first refusal in malls that DLF will develop in future. PVR has announced that it will raise (subject to shareholder approval) INR3.5b (INR700/share) in fresh equity from Multiples Private Equity to fund the deal. This preferential allotment will dilute PVR’s equity by 10.7%."

"We believe the acquisition fits completely with PVR’s business model, with full set of synergies in F&B and advertising likely to materialize over next the 12-18 months. With DT acquisition adding ~39 screens and PVR targeting to open 60 new screens annually over the next two years, we expect total screen count at ~608 by FY17 strengthening PVRs numero uno position in multiplex business in India. We expect 24% revenue CAGR and 37% EBTDA CAGR over FY15-17 on the back of better outlook for content in FY16 and expected revival in discretionary spends. We model DT Cinemas’ acquisition and consequent dilution to fund the deal and, hence upgrade FY17 EBITDA by 13%, build higher debt (20% vs earlier forecast) and dilution (10.7%). We value PVR at 11x FY17E EV/EBITDA. Maintain Buy with a revised target price of INR775", says Motilal Oswal research report.

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