Multiplex December 30, 2019 Price Charts (Inox) Another superhit quarter for multiplexes! 13,000 450 12,000 400 Multiplexes remain the only segment that continues to deliver a strong 11,000 350 performance notwithstanding the economic slowdown. The strong content 10,000 300 9,000 performance, yet again, has resulted in ~35%+ growth in box office 250 collections (ex-regionals) so far in Q3FY20. Most importantly, this was 8,000 7,000 200 notwithstanding CAA protest in the key region of NCR. Moreover, the 6,000 150 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Dec-19 H1CY20 content pipeline also looks strong with movies like Street Dancer 3D, Tanhaji: The Unsung Warrior, Chhapaak, Baaghi 3, BHOOT: Part One – Price (R.H.S) Nifty (L.H.S) The Haunted Ship, Shubh Mangal Zyada Saavdhaan, Sooryavanshi, ’83, Coolie No.1, Laxmmi Bomb, etc. due for release. We now incorporate the Update Sector strong box office performance in Q3 in our estimates. Deriving comfort from Price Charts (PVR) 13,000 2,000 strong growth trigger, we remain positive on our multiplexes universe and 1,800 11,000 maintain BUY recommendation with a target price of | 2200/share for PVR 1,600 and | 465/share for Inox Leisure. 9,000 1,400 1,200 7,000 Content delivers yet again in Q3FY20 1,000 5,000 800 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19 We note that for Q3, so far, the box office collections (excluding regionals) have been a stupendous 35%+ YoY. Net box office collections for Q3FY20 Nifty (L.H.S) Price (R.H.S) were led by four movies (possibly five including Good Newwz that has collected ~| 66 crore, so far) with | 100 crore+ collections. The collections for the quarter were driven by movies like War, Housefull 4, Dabangg 3, Bala, Good Newwz and Pati Patni aur Woh. Going ahead, we expect multiplexes Key Highlights to continue their organic expansion spree as the overall business economic Box office collection has been robust in remains favourable. While PVR is expected to add 75 screens for FY21, for Q3FY20, aided by strong content Inox, we expect 60 screens addition for the year as few properties have performance faced delays due to approvals. Maintain BUY rating on Inox and PVR Movie pipeline strong, going ahead with revised target price of | 465/share and | 2200/share, respectively The H1CY20 content pipeline also looks strong with movies like Street Dancer 3D, Tanhaji: The Unsung Warrior, Chhapaak, Baaghi 3, BHOOT: Part Retail Equity Research Equity Retail One – The Haunted Ship, Shubh Mangal Zyada Saavdhaan, Sooryavanshi, – ’83, Coolie No.1, Laxmmi Bomb, etc, due for release. We highlight that both Research Analyst players are also comfortable in terms of leverage. While Inox has net debt Bhupendra Tiwary, CFA to equity of 0.05x as on Q2FY20 (virtually debt free including treasury [email protected] shares), PVR, post raising | 500 crore through QIP in Q3FY20, is comfortably placed with net debt equity at 0.5x currently. Valuation & Outlook Securities ICICI We continue to believe that the multiplex industry is the best placed media segment for growth driven by traction in content performance. Both PVR and Inox remain key beneficiaries of a flourishing multiplex business, which is one of the proxies on rising urban discretionary consumption spends. We value PVR at 14.5x FY21E EV/EBITDA (ex-Ind-AS 116) and arrive at a target price of | 2200 with a BUY rating. We value Inox at 10x FY21E (ex-Ind-AS 116) EV/EBITDA (~30% discount to target EV/EBITDA multiple of PVR) to arrive at a target price of | 465/share and maintain BUY rating. Sector Update | Multiplex ICICI Direct Research Exhibit 1: Quarterly trend of box office (excluding regional) collections Q1FY18 Collections (| cr) Q1FY19 Collections (| cr) Q1FY20 Collections (| cr) Baahubali 2 511 Avengers: Infinity War 223 Avengers: Endgame 366 Tubelight 121 Race 3 161 Bharat 209 The Fate Of The Furious 77 Raazi 123 Kabir Singh* 182 Hindi Medium 69 Baaghi 2 120 De De Pyaar De 102 Half Girlfriend 60 Veere Di Wedding 80 Kalank 81 Top 5 839 Top 5 707 Top 5 940 Others 175 Others 436 Others 371 Total Collections 1,014 Total Collections 1,143 Total Collections 1,310 YoY (%) 13% YoY (%) 15% Q2FY18 Q2FY19 Q2FY20 Toilet - Ek Prem Katha 134 Sanju* 268 Mission Mangal 200 Baadshaho 78 Stree 127 The Lion King 159 Jab Harry Met Sejal 63 Gold 107 Chhichhore 150 Mubarakan 55 Satyameva Jayate 89 Saaho 149 Jagga Jasoos 53 Mission: Impossible - Fallout 77 Super 30 147 Top 5 382 Top 5 669 Top 5 805 Others 458 Others 372 Others 644 Total Collections 840 Total Collections 1,040 Total Collections 1,449 YoY (%) 24% 39% Q3FY18 Q3FY19 Q3FY20TD Tiger Zinda Hai* 252 2.0(Hindi) 188 War 318 Golmaal Again 206 Thugs Of Hindostan 145 Houseful 4 206 Judwaa 2* 101 Badhaai Ho 137 Dabangg 3 134 Fukrey Returns 79 Simmba* 96 Bala 117 Secret Superstar 62 Zero 95 Pati Patni aur Woh 85 Top 5 700 Top 5 661 Top 5 859 Others 197 Others 366 Others 552 Total Collections 897 Total Collections 1,027 Total Collections 1,411 YoY (%) 15% YoY (%) 37% Q4FY18 Q4FY19 Padmaavat 300 Uri - The Surgical Strike 243 Sonu Ke Titu Ki Sweety 102 Total Dhamaal 151 Raid 97 Simmba* 144 Tiger Zinda Hai* 87 Gully Boy 139 PadMan 79 Kesari 117 Top 5 665 Top 5 794 Others 253 Others 474 Total Collections 918 Total Collections 1,268 YoY (%) 38% * collections during the quarter Source: Company, Koimoi.com, ICICI Direct Research ICICI Securities | Retail Research 2 Sector Update | Multiplex ICICI Direct Research Financial to be seen ex-Ind AS for comparability Multiplexes have transitioned to Ind-AS 116, which has led to major accounting changes. The present value of lease rentals is recognised as rights of use (RoU) assets with lease liability is created. RoU is to be amortised on a straight line basis while lease payment is apportioned between finance charge and reduction of lease liability. The overall effect is likely to be higher EBITDA and lower PBT in initial years (higher PBT in later years) but no impact on cash flows. Exhibit 2: Excerpt of Inox Leisure P&L (excluding Ind-AS 116) (Year-end March) FY18 FY19 FY20E FY21E Total operating Income 1,348.1 1,692.2 2,009.3 2,352.9 Growth (%) 10.4 25.5 18.7 17.1 Employee Expenses 96.4 115.2 146.5 169.6 Exhibition Cost 367.3 444.2 525.1 616.3 Cost of F&B 74.4 112.5 136.9 174.8 Rent 203.9 302.3 386.9 447.4 Other Expenses 397.0 409.7 448.5 470.0 Total Operating Expenditure 1,138.9 1,383.8 1,643.8 1,878.1 EBITDA 209.2 308.3 365.4 474.7 Margin (%) 15.5 18.2 18.2 20.2 Source: Company, ICICI Direct Research Exhibit 3: Excerpt of PVR P&L (excluding Ind-AS 116) (Year-end March) FY18 FY19 FY20E FY21E Total operating Income 2,334.1 3,085.6 3,718.9 4,212.7 Growth (%) 7.9 32.2 20.5 13.3 Film Distributors Cost 537.7 701.9 815.4 950.3 F&B Cost 159.1 238.7 284.5 320.5 Employee Expenses 254.1 337.3 414.9 451.2 Other Expenses 981.5 1,221.3 1,512.1 1,677.9 Total Operating Expenditure 1,932.3 2,499.2 3,027.0 3,400.0 EBITDA 401.8 586.3 692.0 812.7 Growth (%) 12.6 45.9 18.0 17.5 Margins (%) 17.2 19.0 18.6 19.3 Source: Company, ICICI Direct Research ICICI Securities | Retail Research 3 Sector Update | Multiplex ICICI Direct Research Financial Summary (PVR) Exhibit 4: Profit & Loss statement Exhibit 5: Cash flow statement (Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E Total operating Income 2,334.1 3,085.6 3,718.9 4,212.7 PAT 123.3 183.2 129.5 224.4 Growth (%) 7.9 32.2 20.5 13.3 Add: Depreciation 153.7 191.3 543.4 601.0 Film Distributors Cost 537.7 701.9 815.4 950.3 Add: Interest Paid 83.7 128.0 468.2 466.0 F&B Cost 159.1 238.7 284.5 320.5 (Inc)/dec in Current Assets -14.4 -95.4 -98.5 -82.2 Employee Expenses 254.1 337.3 414.9 451.2 Inc/(dec) in CL and Provisions 41.9 366.2 128.2 64.4 Other Expenses 981.5 1,221.3 1,014.2 1,103.7 Others 0.0 0.0 0.0 0.0 Total Operating Expenditure 1,932.3 2,499.2 2,529.0 2,825.8 CF from operating activities 388.3 773.2 1,170.8 1,273.6 EBITDA 401.8 586.3 1,189.9 1,386.9 (Inc)/dec in Investments -16.7 8.7 0.0 0.0 Growth (%) 12.6 45.9 102.9 16.6 (Inc)/dec in Fixed Assets -230.2 -844.2 -450.0 -450.0 Depreciation 153.7 191.3 543.4 601.0 Others -52.7 -241.2 480.2 -294.6 Interest 83.7 128.0 468.2 466.0 CF from investing activities -299.6 -1076.7 30.2 -744.6 Other Income 31.3 33.1 25.0 30.0 Issue/(Buy back) of Equity 0.0 0.0 4.5 0.0 Exceptional Items 0.6 0.0 0.0 0.0 Inc/(dec) in loan funds 10.9 451.9 -300.0 -150.0 PBT 195.2 300.2 203.3 349.8 Dividend paid & dividend tax -10.9 -13.3 -12.0 -12.0 MI/PAT from associates 1.4 7.3 2.0 1.3 Less: Interest Paid 83.7 128.0 468.2 466.0 Total Tax 70.4 109.7 71.8 124.2 Others -169.5 -261.7 -948.4 -932.1 PAT 123.3 183.2 129.5 224.4 CF from financing activities -85.8 304.9 -787.6 -628.0 Growth (%) 28.8 48.5 -29.3 73.3 Net Cash flow 2.9 1.5 413.4 -99.1 EPS (|) 26.4 39.2 25.3 43.8 Opening Cash 29.9 32.8 34.2 447.6 Source: Company, ICICI Direct Research * PAT is not comparable from FY20 onwards as IND Closing Cash 32.8 34.2 447.6 348.5 AS 116 has been implemented Source: Company, ICICI Direct Research Exhibit 6: Balance sheet Exhibit 7: Key Ratios (Year-end March) FY18 FY19 FY20E FY21E (Year-end March) FY18 FY19 FY20E FY21E Liabilities Per share data (|) Equity Capital 46.7 46.7 51.2 51.2 EPS (Diluted) 26.4 39.2 25.3 43.8 Reserve and Surplus 1,028.6 1,192.8 1,298.4 1,510.8 Cash EPS 59.3 80.2 131.3 161.1 Total Shareholders funds 1,075.4 1,239.5 1,349.6 1,562.0 BV 230.2 265.3 263.4 304.8 Total Debt 830.5 1,282.4 982.4 832.4 DPS 2.3 2.8 2.6 2.6 Others 1.4 579.2 4,745.4 4,810.8 Cash Per Share 7.0 7.3 87.3 68.0 Total Liabilities 1,907.3 3,101.1 7,077.5 7,205.2