Buy PVR; target of Rs 780: ICICIdirect

ICICIdirect.com's report on PVR

"In a bid to further cement its leadership position, PVR entered into a definitive agreement to buy DT Cinemas, which has a portfolio of about 29 operational screens and 10 screens to be commissioned in a year. The properties are in premium locations. The deal is said to be valued at about Rs 500 crore. Though the deal may appear pricey when looked at from the EV/screen multiple of 17x vs. the current valuation of 7x for PVR, valuations looks justifiable on the grounds of higher EBITDA generating potential of DT Cinemas. According to sources, it has been consummated at 11x one year forward EV/EBITDA of DT Cinemas (inclusive of the potential EBITDA from 10 new screens), versus PVR’s current valuation of 10x FY17 EV/EBITDA. Average ticket prices (ATP) of DT Cinemas are~15-20% higher than PVR and would help PVR fortify its market share in the northern belt. Though the funding of the deal is unclear now, the company will execute the deal through a mix of debt and equity. The deal could lead to 3-5% equity dilution in the near term assuming 70:30 equity and debt funding for the deal but would eventually be EPS accretive. We believe the deal will be value accretive for PVR in the longer term but we will include DT Cinemas in our valuations once the deal contours are made available. We continue to maintain BUY on the stock valuing it at a 12x EV/EBITDA and arrive at a target price of Rs 780", says ICICIdirect.com research report.

For all recommendations, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More