Buy PVR, target price Rs 1,582: Emkay Global

Emkay Global has upgraded PVR to a buy rating from “hold” on PVR with a target price of Rs 1,582. The market correction and Covid-19 led shutdowns have led to correction in PVR stock prices due to a lack of clarity on the extent of the shutdown. The brokerage believes the current prices factor in a potential washout in the first quarter of FY21 as well.

The brokerage has cut FY21/22E EBITDA by 8%-28% for PVR with a notable reduction in FY21 estimates. The target EV/EBITDA stands lower at 10 times for PVR to arrive at Rs 1582 target price with a buy rating.
The company’s share price moved up by 9.48% from its previous close of Rs 1322.65. The last traded price is Rs 1446.35. Incorporated in 1995, PVR is a midcap company with a market cap of Rs 6783.83 crore.


Investment Rationale

The brokerage’s worst-case numbers and trough multiples on FY22E EBITDA suggest some more downside in PVR. However, the base case numbers and new target multiples (15% lower than earlier) gives a 31% upside on PVR, leading to an upgrade to “buy” rating (from “hold”).

The stock price correction has factored in a weak Q4, while uncertainty relating to Covid-19 spread in Q1FY21 stays, and taking this into account, the brokerage recommends staggered buying in PVR.
Key risks: With no cinema experience for probably, two months, consumer habits of content consumption on OTT should not lead to stickiness; sustained Covid-19 impact in the entire Q1FY21; delay in future releases due to the disruption in production activities; significant slowdown in screen openings; and weaker-than-expected content performance.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 915.74 crore, down -5.90 % from last quarter Sales of Rs 973.18 Crore and up 8.61 % from last year's same quarter Sales of Rs 843.11 Crore. The company reported net profit after tax of Rs 36.41 Crore in the latest quarter.