20140806-Maybank_KERPL-1Q_miss_but_big_picture_intact_12页_221kb

PVR (PVRL) Summary

Core Content

PVR (PVRL) reported a 1QFY15 that was seasonally weak due to fewer big movie releases, leading to a 7% YoY decline in footfalls for top-10 movies. However, the company managed to increase ATP by 5% YoY, driven by its market leadership and a 14% YoY increase in capacity. Despite this, the EBITDA margin declined 260bps YoY to 15.1%, primarily due to the impact of F&B gross margin and fixed costs. The company's share price was INR621, with a target price of INR746 (+20%), and a market cap of USD 406M.

Key Financials

• Revenue: INR3.6b (+8% YoY), in line with consensus.
• EBITDA: INR547M, down 8% YoY, but expected to improve in 2Q/3Q to 19.4%.
• Core EPS: INR25 (FY15E), down 4% from previous estimates.
• Core P/E: 25.3 (FY15E), 17.3 (FY16E).
• P/BV: 5.2 (FY15E), 4.1 (FY16E).
• EV/EBITDA: 10.8 (FY15E), 8.0 (FY16E).
• Net Debt/Equity: 112.0% (FY15E), 69.5% (FY16E).

Performance Analysis

• Share Price Performance: 1Mth: -7.0%, 3Mth: +22.9%, 12Mth: +77.3%.
• Relative to Index: 1Mth: -6.1%, 3Mth: +7.3%, 12Mth: +32.2%.

Strategic Highlights

• Movie Slate: Strong slate of movies for FY15 is expected to drive growth, with 15.8% footfall growth and 4.5% ATP increase.
• F&B Growth: F&B sales increased by 20% YoY to INR890M, with an average spend of INR64, contributing 37% of ATP.
• Acquisition Plan: PVRL plans to raise INR5b for acquisitions, targeting regional players with 20-40 screens, but will be cautious on valuations.
• Capacity Expansion: PVRL aims to add 65-70 screens annually over the next four to five years, with a target to double capacity.

Portfolio and Capacity

• Total Screens: 444 as of FY15.
• Capacity: 185.3m footfalls pa.
• Footfalls: 15.2m in 1QFY15, with a target of 69m for FY15F and 78m for FY16F.
• F&B Spend: INR64 in 1QFY15, expected to remain stable at INR64 for FY15F.

Peer Comparison

• Cinemark Holdings (CNK:US): PAT (USD m) FY14F: 197, FY15F: 236 (+20%); EBITDA (USD m) FY14F: 588, FY15F: 666 (+13%).
• Regal Entertainment Group (RGC: US): PAT (USD m) FY14F: 154, FY15F: 196 (+27%); EBITDA (USD m) FY14F: 572, FY15F: 639 (+12%).
• Major Cineplex Group (MAJOR: TB): PAT (INR m) FY15F: 1,010, FY16F: 1,471 (+46%); EBITDA (INR m) FY15F: 2,937, FY16F: 3,835 (+31%).

Valuation and Outlook

• Target Price: INR746, based on 20x FY16F PER.
• Earnings Revisions: FY15F EBITDA increased slightly to INR2,937M, while FY16F EBITDA is expected to be INR3,835M.
• ROAE: 22.8% (FY15E), 26.5% (FY16E).
• ROAA: 7.0% (FY15E), 9.1% (FY16E).

Conclusion

Despite a weak 1QFY15, PVR's long-term growth prospects remain strong due to its market leadership, expansion plans, and a robust movie slate for FY15. The company is expected to see improvements in EBITDA margin and revenue in the upcoming quarters. With a target price of INR746 and a market cap of INR24.8B, PVR is viewed as a buy by Maybank, with confidence in its ability to maintain and grow its market position.