PVR (BUY): Incredible come back! – ICICI Securities

PVR’s Q1FY23 cash EBITDA was Rs1.9bn, which is higher than Rs1.6bn in Q1FY20. Ticket revenue and F&B were significantly higher at Rs5bn (Rs4bn in Q1FY20) and Rs3.2bn (from Rs2.2bn). However, gross margin was lower at 67.9% (vs 69.2% in Q1FY20) due to lower ad revenue and higher film hire %. Further, the company has to take heavy lifting of three-year inflation in rental and CAM expense and higher employee cost from increments. Strong occupancy at 33.6% with increased ATP and SPH should rest fears of an impact from OTT. This is despite reduced window for movie streaming on OTT. PVR remains confident of sustaining higher ATP and SPH which implies despite rise in cost inflation on one-time rebasing, margins will continue to remain healthy. We are excited by the strong movie pipeline release for the remaining 9MFY23, and believe multiplexes should perform well. We have increased our revenue and EBITDA estimates for FY24 by 6% and 10% on improved realisations. Accordingly, we have raised our target price to Rs2,300 (from Rs1,965), valuing the company at 16x FY24 EBITDA (vs earlier 15x). Maintain BUY.

Strong come-back on each parameter. PVR’s ATP rose 3.3% QoQ, on a high base, to Rs250 which benefited from higher contribution of box-office mix from blockbusters. It is expecting ATP to remain high on strong movie pipeline. Occupancy was healthy at 33.6%, and admit at 25mn. Shows per screen was 4.6 shows/day which is back to normal. This drove ticket revenue to Rs5bn (vs Rs4bn in Q1FY20). SPH was at strong Rs134 (53.6% of ATP) which aided F&B revenue to Rs3.2bn (vs Rs2.2bn in Q1FY20). Company maintained guidance of 125 screen addition for FY23, largely in H2FY23 (it added nil screens in Q1FY23) which will be completely funded via internal accruals.

Adj EBITDA margin at 19.3%, capped by cost inflation. Revenue stood at Rs9.8bn (vs Rs8.8bn in Q1FY20); however, high margin ad revenue was lower at Rs627mn (vs Rs916mn in Q1FY20). Film hire % was higher at 45.6% which drove gross profit down to 67.9% (vs 69.2% in Q1FY20). Power cost/screen (annualised) was Rs2.7mn vs Rs3mn in Q1FY20; rental/screen has increased to Rs8.4mn vs 7.4mn and CAM rose to Rs2.1mn from Rs1.9mn during the same period. This has restricted EBITDA (adj for Ind AS) margin to 19.3%, and EBITDA at Rs1.9bn (vs Rs1.6bn in Q1FY20). Net profit was Rs534mn vs Rs176mn in Q1FY20.

Other highlights. 1) PVR said higher ATP is sustainable, and worst case dip on fall in blockbuster will be just Rs10-12; 2) SPH has been growing steadily, and it believes it will continue to grow even from Q1FY23 levels; 3) box-office collection was Rs57bn in H1CY22, which is higher than CY19 levels; 4) window of eight weeks for OTT release will be reinstated from Aug’22; 5) ad revenue is expected to narrow in the next subsequent quarter, and the company expects to achieve pre-covid levels before end-FY23; 6) net debt dipped to Rs8.4bn from Rs9.3bn in FY22; and 7) company has filed merger documents with the NCLT, and approval may take 5-7 months. BCS Bureau