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Result Update October 30, 2017 Rating matrix Rating : Hold PVR Ltd (PVRLIM) | 1420 Target : | 1440 Target Period : 12 months Potential Upside : 1% Relatively weak content during quarter… What’s changed? Topline at | 555.4 crore was largely in line with our estimate of Target Unchanged | 561.3 crore. The company reported net ticketing revenue of | 299.3 EPS FY18E Changed from | 26.7 to | 27.4 crore (up 7.6% YoY but strictly not comparable owing to exclusion of EPS FY19E Changed from | 37.3 to | 37.4 Rating Unchanged government subsidy provided by various state governments under previous tax regime). Footfalls at 18.7 million, up 1.1% YoY (down Quarterly performance 5% YoY on a comparable basis), were muted owing to weaker than Q2FY18 Q2FY17 YoY (%) Q1FY18 QoQ (%) anticipated performance of star studded movies like Jab Harry Met Revenue 555.4 554.2 0.2 636.6 -12.8 Sejal, Simran, Jagga Jaasoos. Ad revenues were up 10.2% YoY to EBITDA 90.5 93.0 (2.7) 112.0 -19.2 | 68.8 crore. Given the higher tax incidence (~18% currently vs. 12% EBITDA(%) 16.3 16.8 -49 bps 17.6 -130 bps earlier), F&B revenues grew a meagre 1.8% YoY to | 142.3 crore, PAT 25.2 29.1 (13.6) 44.5 NM despite 8.3% growth in SPH to | 91 EBITDA came in at | 90.5 crore vs. estimate of | 87.0 crore owing to Key financials lower rental and employee expenses. Hence, EBITDA margins came | Crore FY16 FY17 FY18E FY19E in at 16.3%, better than our estimate of 15.5% Net Sales 1,752 2,044 2,354 2,687 PAT came in at | 25.2 crore, better than our estimate of | 22.4 crore EBITDA 324 357 395 489 aided by a superior operating performance and lower depreciation Net Profit 98 96 128 175 EPS (|) 21.0 20.5 27.4 37.4 and interest cost Muted quarter; Q3 slate looks strong Valuation summary Q2 was relatively a weak quarter for PVR as weaker than anticipated run FY16 FY17 FY18E FY19E of Jab Harry met Sejal, Jagga Jasoos, Simran, etc, coupled with a heavy P/E 67.6 69.3 51.8 38.0 base quarter (Sultan & Rustom) led to softer footfalls. The performance in Target P/E 68.5 70.2 52.5 38.5 Q3FY18, so far, remains quite strong with releases such as Judwa 2 and EV / EBITDA 21.4 20.5 18.5 14.8 P/BV 7.5 6.9 6.1 5.3 Golmaal Again being superhits. Furthermore, the quarter is lined up with RoNW (%) 12.0 10.2 11.9 14.0 a star studded slate such as Padmavati and Tiger Zinda Hai. PVR being a RoCE (%) 16.1 13.7 15.6 18.3 market leader in the multiplex space would be a beneficiary of such a strong box office performance. We expect PVR to exhibit footfall growth Stock data of 9.4% CAGR in FY17-19E to 89.9 million aided by new screen additions Particulars Amount & good content, thereby leading to 13.7% CAGR in net ticketing revenues Market Capitalization (| Crore) 6,637.1 to | 1454.7 crore by FY19E. Total Debt (FY17) (| Crore) 730.1 SPH, advertisment to remain robust… Cash (FY17) (| Crore) 29.9 EV 7,245.8 The quarter saw stellar 8.3% YoY growth in SPH to | 91. However, given 52 week H/L 1655 / 1006 the higher tax incidence (~18% currently vs. 12% earlier), F&B revenues Equity capital 46.7 grew a meagre 1.8% YoY to | 142.3 crore. Going ahead, we expect F&B Face value 10.0 revenues to grow at 10.2% CAGR (lower than earlier estimates as we build in higher tax incidence) in FY17-19E to | 669.1 crore driven by 4% Price performance CAGR in SPH over FY17-19 to | 87.5. The company continued to deliver 1M 3M 6M 12M on the advertisement revenue front, which grew 10.2% YoY to | 67.4 PVR 17.3 5.0 -10.5 15.3 crore. The management has guided for 15-18% growth in ad revenues Inox 2.4 -12.1 -22.4 -14.0 over the next couple of years. We expect PVR to post 17.8% CAGR in FY17-19E to | 340.0 crore in its advertisement revenues. Research Analyst Valuations rich; maintain HOLD with target price of | 1440 Bhupendra Tiwary PVR remains a key play on multiplex industry given its leadership and [email protected] premium positing. However, the stock appears expensive (trading at the higher end of historical EV/EBITDA range of 10-15x) on the valuations Sameer Pardikar front vis-à-vis Inox (trading at 9.7x FY19E EV/EBITDA, 34% discount to [email protected] PVR) which has better levers for growth as it ramps up its ad revenues. Furthermore, there is an uncertainty over the implementation of local body tax, while at the present form, GST is largely a neutral affair. We continue to prefer Inox over PVR. We maintain our HOLD rating on PVR and value it at 15x FY19E EV/EBITDA, arriving at a target price of | 1440. ICICI Securities Ltd | Retail Equity Research Variance analysis Q2FY18 Q2FY18E Q2FY17 Q1FY18 YoY (%) QoQ (%) Comments Revenue 555.4 561.3 554.2 636.6 0.2 -12.8 Net ticketing revenues were up 7.6% YoY at | 299.3 crore. Ad revenues were up 10.2% YoY to | 68.8 crore. Given the higher tax incidence (~18% currently vs. 12% earlier), F&B revenues grew by a meagre 1.8% YoY despite 8.3% growth in SPH to | 91 Other Income 4.2 8.0 4.9 16.4 -14.4 -74.7 Employee Expenses 58.7 67.5 54.4 67.9 7.8 -13.7 Film Distributors share 133.5 122.8 114.4 144.9 16.6 -7.9 F&B Cost 38.5 37.2 35.6 41.3 8.0 -6.8 Rent 97.2 110.6 95.3 108.5 1.9 -10.5 Input credit on rental expenses led to lower costs during the quarter Repairs and Maintenance 137.1 136.1 161.4 162.0 -15.0 -15.4 EBITDA 90.5 87.0 93.0 112.0 -2.7 -19.2 EBITDA was higher led by lower rental and employee expenses EBITDA Margin (%) 16.3 15.5 16.8 17.6 -49 bps -130 bps Depreciation 34.7 38.6 34.6 37.6 0.3 -7.8 Interest 20.7 22.2 19.3 20.8 7.1 -0.6 Less: Exceptional Items 0.6 0.0 0.0 0.0 NA NA Total Tax 14.0 11.6 14.9 25.8 NA -45.8 PAT 25.2 22.4 29.1 44.5 -13.6 NM PAT was higher boosted by a superior operating performance Key Metrics Footfalls (mn) 18.7 18.3 18.5 21.0 1.1 -11.0 Footfalls were muted owing to the weaker than anticipated performance of star studded movies like Jab Harry Met Sejal, Simran, Jagga Jaasoos Occupancy (%) 29.6 29.9 32.1 35.1 -7.8 -15.7 SPH (|) 91.0 87.8 86.8 87.0 4.9 4.6 ATP (|) 204.0 210.1 202.0 214.0 1.0 -4.7 Source: Company, ICICIdirect.com Research Change in estimates FY18E FY19E (| Crore) Old New % Change Old New % Change Comments Revenue 2,384.9 2,353.9 -1.3 2,743.8 2,686.8 -2.1 We have realigned our estimates based on H1FY18 performance & exclude Blu O revenues (now sold) EBITDA 387.0 394.9 2.0 494.7 489.2 -1.1 EBITDA Margin (%) 16.2 16.8 55 bps 18.0 18.2 18 bps PAT 124.7 128.0 2.7 174.1 174.5 0.2 EPS (|) 26.7 27.4 2.7 37.3 37.4 0.2 Source: Company, ICICIdirect.com Research Assumptions Current Earlier Comments FY16 FY17E FY18E FY19E FY18E FY19E Footfalls (mn) inclusive of DT Cinemas69.6 75.2 79.9 89.9 79.8 89.6 We have realigned our estimates based on H1FY18 performance SPH (|) 72.0 81.0 87.1 87.5 84.5 88.1 ATP (|) 188.0 196.0 205.7 212.8 207.1 214.3 Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 2 Company Analysis Factoring in footfall growth of 8.3% CAGR in FY17-19E Q2 was relatively weak for PVR as the weaker than anticipated run of Jab Harry met Sejal, Jagga Jasoos, Simran etc, coupled with a heavy base quarter (Sultan & Rustom) led to softer footfalls at 18.7 million, up 1.1% YoY (down 5% YoY on a comparable basis). The company reported net ticketing revenues of | 299.3 crore (up 7.6% YoY but strictly not comparable owing to exclusion of government subsidy provided by various state governments under previous tax regime). The performance in Q3FY18, so far, remains quite strong with releases such as Judwa 2 and Golmaal Again being superhits. Furthermore, the quarter is lined with a star studded slate such as Padmavati and Tiger Zinda Hai. PVR being a market leader in the multiplex space would be a beneficiary of such a strong box office performance. We expect PVR to exhibit footfall growth of 9.4% CAGR in FY17-19E to 89.9 million aided by new screen additions & good content, thereby leading to 13.7% CAGR in net ticketing revenues to | 1454.7 crore by FY19E.