PVR Ltd. CMP: INR685 TP: INR750 Buy

Transcription

1 BSE SENSEX S&P CNX 27,860 8,324 Bloomberg PVRL IN Equity Shares (m) 41.3 M.Cap. (INR b) / (USD b) 28.3/ Week Range (INR) 747/465 1, 6, 12 Rel. Per (%) -6/9/-19 Financials & Valuation (INR Million) Y/E MAR 2015E 2016E 2017E Net Sales 15,695 19,068 22,758 EBITDA 2,515 3,237 4,100 Adj PAT ,577 EPS (INR) Gr. (%) BV/Sh.(INR) RoE (%) RoCE (%) P/E (x) P/BV (X) November QFY15 Results Update Sector: Media PVR Ltd CMP: INR685 TP: INR750 Buy Revenue in-line: Overall revenue grew 9.4% YoY to INR4b. Movie exhibition revenue grew 7.2% YoY to INR3.7b, movie distribution revenue grew 308% YoY to INR188m, while other revenue (bowling and restaurant) declined 3% YoY to INR182m. EBITDA margin declined 580bp YoY to 14.7% due to 150bp YoY decrease in gross margin, and the impact of aggressive expansion and unfavorable operating leverage. PAT declined 63.1% YoY to INR92m. Key performance indicators remain strong: ATP grew 6% YoY to INR180 largely due to higher pricing power and addition of new properties at better locations. SPH grew 20% YoY (6% price increase and 14% volume increase) to INR64 on account of improvement in F&B offerings, change in look and feel of the F&B bars, and better pricing. Advertising revenue also showed robust growth of 14% to INR405m on higher bargaining power vis-à-vis advertisers and unique offering of pay per eye ball contract with large advertisers. The company has also refinanced its debt, which will reduce interest cost by 50-70bp over next two years. Expect robust performance in 3QFY15: Our management interaction and channel checks indicate that 3QFY15 has begun on a robust note, with strong content like Bang Bang, Haider and Happy New Year driving footfall growth. Footfalls declined 5% to 15.7m in 2QFY15, but in October 2014, footfalls were 5.7m, significantly higher than the 3.5m in October We expect higher growth in 3Q to make up for the sedate revenue growth in 2Q. Maintain Buy: We believe growth has bottomed out and expect 20% revenue CAGR over FY14-17, led by strong content pipeline and footfalls. Movie screening is an under-penetrated business in India and we believe PVRL will be the biggest beneficiary of revival in discretionary spends. The stock trades at 13.4x FY15E and 10.1x FY16E EBITDA. We value PVRL at 11x FY16E EBITDA. Buy with a target price of INR750. Quarterly performance (INR Million) Y/E March FY14 FY15 FY14 FY15E FY15 Var 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE 2QE % Net Sales 3,352 3,658 3,373 3,142 3,623 4,002 4,216 3,834 13,475 15,695 4, YoY Change (%) Total Expenditure 2,758 2,910 2,880 2,811 3,075 3,416 3,459 3,239 11,358 13,179 3,261 EBITDA ,117 2, Margins (%) Depreciation , Interest Other Income PBT before EO expense Extra-Ord expense PBT Tax (0) Rate (%) Minority Interest & Profit/Loss o Reported PAT YoY Change (%) , Margins (%) E: MOSL Estimates Niket Shah (Niket.Shah@MotilalOswal.com); Atul Mehra (Atul.Mehra@MotilalOswal.com) / Sagar Shah (Sagar.Shah@MotilalOswal.com) Investors are advised to refer through disclosures made at the end of the Research Report.

2 Revenue in-line; Strong outlook going forward PVR reported overall revenue of INR4b as against INR3.7b in 2QFY14 marking a YoY growth of 9.4%. Movie exhibition revenue grew by 7.2% to INR3.7b, Movie production revenue grew by 308% to INR188m while other revenues (bowling and restaurant revenue) de-grew marginally by 3% to INR 182m. EBITDA margins declined by 580bps from 20.4% in 2QFY14 to 14.7% in 1QFY15 due to 150bps decrease in gross margins and 400bps due to aggressive expansion and unfavorable operating leverage. Consequently, PAT de-grew from INR275m in 2QFY14 to INR92m in 2QFY15 marking a de-growth of 63.1% YoY Company has added 10 screens during 2QFY15 and is planning to add ~70 screens for FY15E. Management indicated that new initiatives like Saver days: Weekend start from Thursdays is increasing the occupancy during weekdays. As a result the revenue split between weekdays and weekend has improved to 50:50. Average occupancy for the quarter has remained at 33%. Increase in power cost in some parts of Maharashtra by 40-50% has affected profitability to an extent. Management has approved an enabling resolution of raising INR5b through the issue of NCDs. Management indicated that it is open for an inorganic acquisition if it is earnings accretive. Company expects capex to be INR b for FY15E ; ~INR b on account of new screen additions and balance on account of renovation of existing screens. Exhibit 1: Revenue trend Revenue (INR m) YoY growth (%) Exhibit 2: EBITDA trend EBITDA (INR m) Margin (%) ,142 3,623 4, ,799 1,927 1,999 2,448 3,352 3,658 3, Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 3 November

3 Exhibit 3: Strong property growth continues Exhibit 4: along with increase in number of screens Number of properties Number of screens FY08 FY09 FY10 FY11 FY12 FY13 FY14 1QFY15 2QFY15 FY08 FY09 FY10 FY11 FY12 FY13 FY14 1QFY15 2QFY15 Exhibit 5: Total number of seats continues to rise Exhibit 6: Quarterly footfall trend 21,912 27,886 32,232 36,877 42,252 Number of seats 87, , , , Footfalls (mn) FY08 FY09 FY10 FY11 FY12 FY13 FY14 1QFY15 2QFY15 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Key performance indicators continue to be strong ATP marked a growth of 6% from INR169 in 2QFY14 to INR180 in 2QFY15 largely due better pricing power and new properties additions in better locations. SPH marked a significant growth of 20% (6% price increase and 14% volume increase) from INR 54 to INR64 on account of improvement in F&B offering, change of the look and feel of the F&B bar and better pricing. Pop corn is one of the dominant contributors to F&B revenue with 65% of the revenue contribution. SPH to ATP ratio has improved significantly over past 2 years from 30% to 35%. Most of the Asian markets are in similar range whereas US market has higher ratio upto 40%. Management believes that this ratio can further be improved as unlike other countries India has an interval in between movies which will drive this growth. Advertising revenue also showed a robust growth of 14% to INR405m on account of better bargaining power with the advertisers and unique offering of pay per eye ball contract with large advertisers. Company has also re-financed its debt of INR1.5b which will reduce the interest cost by 50-70bps over next two years. The overall interest cost will remain in range of 11.4% 3 November

4 Exhibit 7: Spend per head trend Exhibit 8: ATP continues to be robust SPH (INR) ATP (INR) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Exhibit 9: Snapshot of key matrices Consolidated 2QFY15 2QFY14 Change % 1QFY15 Change % Location % % Screens % % Seats 107,809 96, % 105, % Footfalls (lakhs) % % ATP % % SPH % % Exhibit 10: Consolidated revenue break up (INR m) Particulars 2QFY15 2QFY14 Change % 1QFY15 Change % Ticket sales 2,281 2, , Sale of Food and beverages Advertisement and royalty income Q expected to be strong Our interaction with the management and channel checks indicate that 3QFY15 has begun on a robust note with strong content like Bang Bang, Haider and Happy New Year driving footfall growth. While 2QFY15 saw a de-growth of 5% in footfalls to 15.7m admits, October 14 footfall has clocked a significant higher footfall of 5.7m (vs 3.5m in October 13). Thus we expect lower revenue of 2QFY15 is likely to be made up by higher growth in 3QFY14. 3 November

5 PVR Ltd Exhibit 11: Upcoming films for Nov 14 Exhibit 12: Strong content for Dec November

6 Exhibit 13: Upcoming film for Jan November

7 PVR Ltd: an investment profile Company description PVR, a pioneer in multiplex development in India, is the largest cinema exhibition player in the country today. Post the acquisition of Cinemax, PVR has become India s largest multiplex chain with 102 properties, 454 screens and 108k seats. Being the only player that is still expanding aggressively, it is further extending its leadership. Key investments arguments India s largest and fastest growing multiplex chain with 23-25% bollywood market share and 33-35% Hollywood market share. Evolving into a lifestyle entertainment company Acquisition of Cinemax a master stroke as it help to become industry leadership with economies of scale. Balance discipline, with improvement in RoCE and RoE with free cash flow visibility. Recent developments Commissioning of newer multiplexes. Negotiations on Film Hire with large producers. Improvement in F&B margins due to economies of scale synergies and higher ad revenues. Valuation and view We believe growth has bottomed out and expect 20% revenue CAGR over FY14-17, led by strong content pipeline and footfalls. Movie screening is an under-penetrated business in India and we believe PVRL will be the biggest beneficiary of revival in discretionary spends. The stock trades at 13.4x FY15E and 10.1x FY16E EBITDA. We value PVRL at 11x FY16E EBITDA. Buy with a target price of INR750. Investment risks Timely execution, given aggressive roll-out plan. Quality of content. Escalating rental costs. EPS: MOSL forecast v/s consensus (INR) MOSL Consensus Variation Forecast Forecast (%) FY FY Target price and recommendation Current Target Upside Reco. Price (INR) Price (INR) (%) Buy Shareholding pattern (%) Sep-14 Jun-14 Sep-13 Promoter DII FII Others Stock performance (1-year) PVR Sensex - Rebased 400 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 3 November

8 Financials and valuation Income statement (INR Million) Y/E Mar E 2016E 2017E Net Sales 13,475 15,695 19,068 22,758 Change (%) EBITDA 2,117 2,515 3,237 4,100 EBITDA Margin (%) Depreciation 944 1,279 1,431 1,556 EBIT 1,173 1,236 1,805 2,543 Interest Other Income Extraordinary items PBT ,238 2,103 Tax Tax Rate (%) Reported PAT ,577 Adjusted PAT ,577 Change (%) Min. Int. & Assoc. Share Net Profit ,577 Balance sheet (INR Million) Y/E Mar E 2016E 2017E Share Capital Reserves 3,582 4,014 4,775 6,185 Net Worth 3,993 4,425 5,186 6,596 Debt 6,133 5,683 5,033 4,033 Deferred Tax Total Capital Employed 10,902 10,884 10,995 11,405 Gross Fixed Assets 11,889 13,689 14,939 16,189 Less: Acc Depreciation 3,723 5,002 6,433 7,989 Net Fixed Assets 8,166 8,687 8,506 8,199 Intangible Assets Capital WIP ,024 Investments Current Assets 4,294 4,193 4,988 5,839 Inventory Debtors Cash & Bank Loans & Adv, Others 3,392 3,588 3,976 4,591 Curr Liabs & Provns 2,631 3,047 3,623 3,924 Net Current Assets 1,663 1,146 1,365 1,915 Total Assets 10,902 10,884 10,995 11,405 E: MOSL Estimates Ratios Y/E Mar E 2016E 2017E Basic (INR) EPS Cash EPS Book Value DPS Payout (incl. Div. Tax.) Valuation(x) P/E Cash P/E Price / Book Value EV/Sales EV/EBITDA Dividend Yield (%) Profitability Ratios (%) RoE RoCE Turnover Ratios (%) Asset Turnover (x) Debtors (No. of Days) Inventory (No. of Days) Leverage Ratios (%) Debt/Equity (x) Cash flow statement (INR Million) Y/E Mar E 2016E 2017E OP/(Loss) before Tax ,238 2,103 Depreciation 944 1,279 1,431 1,556 Interest Direct Taxes Paid (Inc)/Dec in Wkg Cap Extraordinary items (net) CF from Op. Activity 2,132 2,937 3,158 3,305 (Inc)/Dec in FA & CWIP -1,273-1,778-1,323-1,416 (Pur)/Sale of Invt CF from Inv. Activity -1,065-1,778-1,323-1,416 Inc/(Dec) in Net Worth Inc / (Dec) in Debt ,000 Interest Paid Divd Paid (incl Tax) Others CF from Fin. Activity -1,162-1,367-1,540-1,779 Inc/(Dec) in Cash Add: Opening Balance Closing Balance November

9 N O T E S 3 November

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