Motilal Oswal recommend PVR for target implying upside of 22%

Motilal Oswal | July 24, 2012, midnight

‘Dangal’ crosses INR2.5b NBO collection, PVR has 20% market share: 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% marketshare, 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 lastweekend 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 HrithikRoshan’s ‘Kaabil’.

Impact of demonetization lower than initially expected: In 3QFY17, we broadly expect average ticket prices (ATP) to remain flattish given poor content overall (except for Dangal), SPH improvement of ~5%, and advertisement income increase of 10-11%. SSG are expected to decline by ~3%, which is lower than initial expectations. Considering addition of 32 screens from DT Cinemas(was not part of the base quarter, i.e. 3QFY16), we expect 10% YoY revenue growth in 3QFY17. It is important to note that the base quarter was very strong with footfall growth of 19.7% to 18.8m and occupancy at 37%, led bystrong content like Bajrangi Bhaijaan, Baahubali, Welcome Back, Drishyam and MI Rogue Nation (contributing 51% of net box office collection).

DT integration completed, to be rebranded to PVR: According to management, the integration of DT Cinemas with PVR is now complete, which adds to 32 screens to PVR and is expected to take total screens beyond 600 in FY17. DT Cinemas being located at premium location enjoys higher ATP andF&B SPH v/s PVR. We note that all DT Cinemas screens will be rebranded toPVR. In our view, F&B margin can expand significantly with PVR’s scale andexpertise coming into play.

Valuation and view: We expect the impact of demonetization to be lower than our previous estimates. We thus increase our earnings estimates by 22% forFY17 (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 of12x EV/EBITDA (earlier 14x FY18E), and maintain Buy with a target price of INR1,429, implying upside of 22%.

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