MOSL: PVR (Buy) - Strong quarter, despite poor content, driven by higher margins
Motilal Oswal Securities Ltd.
05 Nov 2013
Available for Immediate Download
PVR (PVRL IN, Mkt Cap USD0.4b, CMP INR597, Buy) Niket Shah (Niket.Shah@MotilalOswal.com) Margins higher than est., content pipeline robust: PVRL reported sales of INR3.65b (est. INR3.55b), compared to INR1.92b (ex-Cinemax) in 2QFY13, marking a YoY growth of 90%. While 2QFY13 saw weak content release, we expect 3QFY14 as the strongest one for the company, given the strong content pipeline of big movies like Boss, Krishh 3, Ram Leela, Dhoom 3 among others. EBITDA margin for 2QFY14 stood at 20.4% (est. 19.5%), primarily driven by 100bp decline in film hire charges QoQ and due to better negotiations and new agreements with film producers. Due to higher margins and lower tax rates, Adj PAT stood at INR301m in 2QFY14, from INR162m (ex-Cinemax) in 2QFY13, marking a growth of 84%. Key matrices encouraging, Cinemax synergies visible: Total footfalls on a consolidated basis stood at 16.6m in 2QFY14, compared to 15.3m, marking a growth of 8.4%. We are positively surprised with the footfall growth in spite of a decline of 9% in footfalls in Cinemax due to closure of the Panipat multiplex and fire in Pune multiplex. Consolidated ATP stood at INR168.6 in 2QFY14, compared to INR163 in 2QFY13, marking a growth of 3.7%. This growth was on the back of a 6% growth in standalone PVRL ATP and flat ATP in Cinemax on account of flexi pricing in line with the company’s pricing strategy and tax free Marathi film played in the western circuit. Consolidated SPH stood at INR52 in 2QFY14, compared to INR46 in 2QFY13, marking a growth of 13% due to flexi pricing strategy, increase in selling prices and newer and better F&B products. Valuation and view: We raise our footfalls assumptions and margin assumptions, thereby leading to 7% and 8% upgrade for FY14E and FY15E EBITDA respectively. Given strong growth visibility, strong industry positioning complimented by increased bargaining power, synergies from Cinemax acquisition, balance sheet discipline and improving RoCE and RoE going forward, premium valuations are justified. We value the stock at 10x FY15E EV/EBITDA and arrive at a target price of INR650. Maintain Buy.