MOSL: PVR (Buy) - Revenue declines, margins lower than estimate
Motilal Oswal Securities Ltd.
04 Feb 2014
Available for Immediate Download
PVR (PVRL IN, Mkt Cap USD0.3b, CMP INR502, Buy) Niket Shah (Niket.Shah@MotilalOswal.com) / Atul Mehra (Atul.Mehra@MotilalOswal.com) Revenue declines, margins lower than estimate: PVRL reported sales of INR3.37b (est. INR3.63b), compared to INR2b (ex-Cinemax) in 2QFY13, marking a YoY growth of 69%. Lower revenue in 3QFY14 was primarily as only three big films delivered (Ram Leela, Krrish 3 and Dhoom 3), compared to seven big films (Student of The Year, English Vinglish, Jab Tak Hain Jaan, Son of Sardar, Talaash, Dabangg 2 and Life of Pi) in 3QFY13. EBITDA margin for 3QFY14 stood at 14.6% (est. 17.5%), primarily due to lower operating leverage. Due to lower revenue and margins and tax credit of INR41m, reported PAT stood at INR142m in 3QFY14, against INR91m (ex-Cinemax) in 3QFY13, marking a growth of 55%. Management believes that this quarter was an aberration and expects 25-30% growth in FY15E. Lower growth in Admits, strong growth in SPH and ad revenue: Total footfalls on a consolidated basis stood at 14.3m in 3QFY14, compared to 15.1m, marking a de-growth of 5%, primarily due to 23% decline in footfalls in Cinemax; PVRL showed a growth of 7% YoY. Consolidated ATP stood at INR175, compared to INR168 in 3QFY13, marking a growth of 4%, driven by 4% growth in PVRL and 1% ATP growth in Cinemax. Consolidated SPH stood at INR54 in 3QFY14, compared to INR47 in 3QFY13, marking a growth of 15%, driven by 19% increase in PVRL SPH and 7% growth in Cinemax SPH. Valuation and view: We downgrade the EBITDA for FY14E and FY15E by 8% and 6% respectively. PVRL is a strong long term bet on the multiplex industry, given lower screen density, shift from single screens to multiplex and its leadership position in a movie loving nation. Cinemaxs synergies, structural free cash flows as a result of improvement in mix of newer screens/existing screens will lead to stronger return ratios - RoCE and RoE. The stock is trading at 8.9x and 6.7x FY15E and FY16E EV/EBITDA respectively. We maintain a Buy and value PVRL at 8x FY16E EV/EBITDA and arrive at a target price of INR605.