Absolute : LONG PVR Ltd Relative : Overweight 2QFY19 Result: Estimate (), TP (), Rating () Regular Coverage 17% ATR in 17 Months SPI Cinemas to accelerate growth trajectory for PVR — maintain LONG Media & Entertainment © 2018 Equirus All rights reserved PVRL’s 2QFY19 revenues grew ~28% yoy to ~Rs 7.1bn (+4% vs. EE) driven by box-office Change in Estimates Rating Information (+25% yoy), F&B (+37% yoy) and advertising (+18% yoy) revenues. Overall footfalls at Rs. Mn FY19E Chg (%) FY20E Chg (%) Price (Rs) 1,284 21.4mn grew ~25% yoy on a 9% growth in comparable footfalls and addition of 2mn Sales 29,840 2% 36,504 3% Target Price (Rs) 1,594 footfalls from the acquisition of SPI Cinemas (SPI). EBITDA at Rs 1.24bn was up ~35% yoy EBITDA 5,513 4% 6,929 2% Target Date 31st Mar'20 (+8% vs. EE) as EBITDAM expanded by ~100bps mainly due to the consolidation of SPI with 36.9 -1% 49.8 0% Target Set On 25th Oct'18 EPS standalone EBITDAM remaining flattish. PVRL is set to benefit from (a) its unmatched Implied yrs of growth (DCF) 15 presence in tier-1 cities, (b) expansion in the South and (c) an improved content pipeline. Fair Value (DCF) 1,541 Consolidated Financials Fair Value (DDM) NA We expect revenue/EBITDA/PAT CAGR of 21%/28%/38% over FY18-FY21E and broadly Rs. Mn YE Mar FY18A FY19E FY20E FY21E Ind Benchmark NSEMED maintain our FY19/FY20 estimates. Reiterate LONG with a Mar’20 TP of Rs 1,594 set at a Sales 23,341 29,840 36,504 41,433 Model Portfolio Position NA 32x TTM P/E (TP, P/E multiple unchanged). EBITDA 4,018 5,513 6,929 8,412 New screen additions, SPI acquisition to keep up growth momentum: PVRL completed Depreciation 1,537 1,838 2,194 2,476 Stock Information the SPI acquisition in mid-Aug, with 2QFY19 thus reflecting ~1.5 months of the latter’s Interest Expense 837 1,108 1,306 1,226 Market Cap (Rs Mn) 60,015 Other Income 313 187 219 242 Free Float (%) 79.75 % contribution. Given the higher occupancy ratios of SPI and a strong content pipeline Reported PAT 1,247 1,724 2,408 3,268 52 Wk H/L (Rs) 1568.45/1062.8 (Thugs of Hindostan, Fantastic Beasts, 2.0, Simba) for the rest of FY19, we expect Recurring PAT 1,253 1,724 2,408 3,268 Avg Daily Volume (1yr) 3,70,634 acceleration in footfall growth. Along with SPI, PVRL has already added 7 properties and Total Equity 10,754 12,478 17,466 20,735 Avg Daily Value (Rs Mn) 495 34 screens YTD. Management stated it is on track to achieve 99 screen additions for full- Gross Debt 8,305 12,805 13,305 12,505 Equity Cap (Rs Mn) 467 year FY19 (91 screens for base business, 8 for SPI). Face Value (Rs) 10 Cash 339 821 1,395 1,584 F&B revenues solid despite price cuts in some markets: F&B revenues for the base Bloomberg Code PVRL IN Rs Per Share FY18A FY19E FY20E FY21E business increased ~25% yoy despite a ~3% yoy decline in SPH as (a) the conversion ratio Earnings 26.8 36.9 49.8 67.6 Ownership Recent 3M 12M improved and (b) the GST rate on F&B products came down to 5% from 18% earlier. Book Value 230 267 361 429 Promoters 20.3 % 0.0 % 0.0 % Contribution margin for F&B declined to ~73.3% in 2QFY19 vs. 73.9% in 2QFY18 mainly due Dividends 2.0 2.6 3.5 4.7 DII 30.2 % 1.0 % 3.8 % to unavailability of input tax credit and rationalization of F&B pricing. Although FCFF 20.2 -121.8 46.0 62.5 FII 39.5 % -1.5 % -1.9 % advertising revenue growth for the base business slowed down in 1HFY19 (+10% yoy), Public 10.0 % 0.4 % -1.9 % P/E (x) 47.9 34.8 25.8 19.0 management has guided for >15% growth for full-year FY19 as it plans to get the P/B (x) 5.6 4.8 3.6 3.0 Price % 1M 3M 12M maximum out of its strong pipeline in the next two quarters. EV/EBITDA (x) 16.9 13.5 10.6 8.5 Absolute 2.4 % 12.8 % -7.5 % Maintain LONG with a Mar’20 TP of Rs 1,594: Management reassured that SPH would ROE (%) 12 % 15 % 16 % 17 % Vs Industry 8.6 % 29.8 % 15.5 % soon be back on the growth track and has guided for SPH growth of ~5% in 2HFY19. Also, Core ROIC (%) 9 % 10 % 10 % 12 % Inox Leisure -10.7 % -0.3 % -11.3 % EBITDA Margin (%) 17 % 18 % 19 % 20 % Mukta Arts -9.6 % -12.3 % -60.3 % it is confident about adding 22 screens in 3QFY19 and 43 in 4QFY19 to achieve full-year Net Margin (%) 5 % 6 % 7 % 8 % Consolidated Quarterly EPS forecast guidance of 99 screens. We expect revenue/EBITDA/PAT CAGR of 21%/28%/38% over Rs/Share 1Q 2Q 3Q 4Q FY18-FY21E and broadly maintain our FY19/FY20 estimates. Reiterate LONG with a Mar’20 TP of Rs 1,594 set at a 32x TTM P/E (TP, P/E multiple unchanged). Key risk: Prolonged EPS (18A) 9.2 5.3 6.0 5.4 EPS (19E) 10.8 6.8 11.3 6.8 slowdown in mall development across the country. October 25, 2018 Analysts: Harshit Patel (+91-9825406497)/Depesh Kashyap, CFA (+91-7228934327) Page 1 of 12 Before reading this report, you must refer to the disclaimer on the last page. PVR Ltd Absolute – LONG Relative – Overweight 17% ATR in 17 months Quarterly performance, consolidated % Change 2QFY19 2QFY19E 1QFY19 2QFY18 Comments 2QFY19E 1QFY19 2QFY18 Net Sales 7,086 6,788 6,963 5,554 4% 2% 28% Movie Exhibition Cost 1,650 1,519 1,663 1,335 9% -1% 24% Consumption of Food and Beverages 543 505 508 385 8% 7% 41% Employee Benefits Expense 770 805 742 587 -4% 4% 31% Other Expenses 2,882 2,811 2,678 2,332 3% 8% 24% Total Operating Expenses 5,845 5,639 5,591 4,638 4% 5% 26% EBITDA 1,240 1,149 1,372 916 8% -10% 35% Depreciation 448 458 401 357 -2% 12% 25% EBIT 792 691 971 558 15% -18% 42% Interest 298 241 208 207 24% 43% 44% Other Income 61 43 43 42 41% 43% 47% PBT 555 493 805 393 13% -31% 41% Tax 212 168 283 140 26% -25% 51% PAT before MI & Associates 344 325 522 253 6% -34% 36% Minority Interest -12 -10 1 5 21% -1173% -362% Profit from Assoc. -2 0 -2 0 NA -17% NA Recurring PAT 330 316 522 258 5% -37% 28% Extraordinaires 0 0 0 6 NA NA -100% Reported PAT 330 316 522 252 5% -37% 31% EPS (Rs) 6.8 6.5 10.8 5.3 5% -37% 28% Gross Margin 69.0% 70.2% 68.8% 69.0% -115 bps 22 bps 0 bps EBITDA Margin 17.5% 16.9% 19.7% 16.5% 57 bps -220 bps 102 bps EBIT Margin 11.2% 10.2% 13.9% 10.1% 100 bps -276 bps 113 bps PBT Margin 7.8% 7.3% 11.6% 7.1% 57 bps -373 bps 76 bps PAT Margin 4.7% 4.6% 7.5% 4.5% 1 bps -283 bps 13 bps Tax Rate 38.1% 34.0% 35.2% 35.6% 412 bps 296 bps 254 bps Key Operational Metrics Footfalls (mn) 23.4 22.1 22.7 18.7 6% 3% 25% Average Ticket Price (Rs) 206 204 217 204 1% -5% 1% October 25, 2018 Analysts: Harshit Patel (+91-9825406497)/Depesh Kashyap, CFA (+91-7228934327) Page 2 of 12 PVR Ltd Absolute – LONG Relative – Overweight 17% ATR in 17 months Earnings call takeaways Other highlights Box-office highlights ▪ PVRL added 3 properties and 13 screens in 2QFY19. YTD, it has added 7 properties and 34 screens (including 1 property and 4 screens for SPI Cinemas). ▪ Top-5 films accounted for ~44% of GBOC for 2QFY19 vs. ~29% for 2QFY18. Sanju, ▪ Management has guided to add a total of 99 screens in FY19 (including 8 screens of Stree, Gold and Mission Impossible: Fallout were the major hits for 2QFY19. SPI Cinemas). The company would add 22 screens in 3QFY19 and 43 in 4QFY19. ▪ Overall footfalls for the quarter grew ~25% yoy to 23.4mn. Growth was mainly led by ▪ Acquisition of SPI Cinemas was completed on 17 Aug’18 (71.7% stake). By FY19-end, ~9% growth in comparable footfalls in the standalone business and addition of ~2mn the company would be able to close the merger process (entire 100% stake). footfalls from SPI Cinemas. ▪ To encourage early booking, PVRL has launched a seat cancellation feature across all ▪ Overall occupancies for 2QFY19 stood at ~34.6%, standalone business occupancy at cinemas in October for customers booking through PVR web/app and BookMyShow. ~33.4% (+380bps yoy) and SPI occupancy at ~54.7% (weaker than FY18 occupancy of Cancellation fees vary from 25-50%, depending on the time of ticket cancellation. 58%). ▪ Bulk of growth in advertising revenues would come in 3Q and 4QFY19. Management ▪ Average Ticket Price (ATP) for the standalone business grew ~3% yoy to Rs 211 has guided for 15-17% growth in advertising revenues for FY19. whereas blended ATP came in at Rs 206 due to SPI Cinema’s lower ATP of Rs 154.