Buy PVR, fair value Rs 1,800: Kotak Institutional Equities

Kotak Institutional Equities has upgraded PVR from reduce to buy with a fair value of Rs 1,800 (Rs 1,850 earlier) valuing it at 11times FY2022E EV/EBITDA (unchanged). While Covid-19 would significantly impact the business in the short term (say two months), it is expected to bounce back thereafter led by pent-up demand and a packed line-up of movies. The brokerage had cut FY2020-21E EBITDA estimates by 10-23 per cent and retained FY2022E estimates. A sharp 40 per cent correction from peak presents an opportunity to buy this stock at an attractive valuation.
Share price of the company moved down by -9.49% from its previous close of Rs 1308.35. The stock last traded price is 1184.2

With state governments ordering complete shutdown of cinemas to contain Covid-19 outbreak, PVR would incur an estimated EBITDA loss of Rs 600 mn/month and cash loss (including interest expense) of Rs 850 million/month. Net debt as of date is about Rs 9.2 billion.


PVR Ltd, incorporated in 1995, is a midcap company (having a market cap of Rs 6742.76 crore, operating in Media & Entertainment sector.

Investment Rationale

Kotak likes PVR for its thought leadership, premium location presence and branding, leadership in monetization and profitability, and execution track record. We value the stock at 11 times FY2022E EV/EBITDA (excluding Ind-AS 116). The brokerage has cut FY2020-21E EBITDA estimates by 10-23 per cent factoring in a complete shutdown of about two months (base case).

A strong bounce-back in demand is expected post Covid-19, led by pent-up demand, and packed line-up of movies in Q4 of FY20 and Q1 of FY21. Releases deferred would be scheduled during the second and fourth quarter of FY21. Further, PVR’s performance is largely linked to content quality and weak macro has modest impact on the operating performance. Footfalls are expected to largely recover post Covid-19 even in case of some incremental weakness in macro.

Financials

For the quarter ended 31-12-2019, the company reported consolidated sales of Rs 915.74 crore, down -5.90 per cent from last quarter sales of Rs 973.18 crore and up 8.61 per cent from last year same quarter sales of Rs 843.11 crore. The company has reported net profit after tax of Rs 36.41 crore in the latest quarter.