PVR's Q4FY18 results (Outperformer) - Strong quarter; higher capex guidance not worrisome…

Q4FY18 result highlights

• Exhibition segment: Rev. grew by 19.3% yoy led by 18.1% yoy growth in net box office rev, 22.3% yoy growth in F&B rev, 36.5% yoy growth in ad rev. Other operating income fell 11% yoy on lower convenience fees.
• Strong exhibition segment metrics: ATP grew by 10% yoy to Rs209 led by strong content (Padmavat, Sonu ke Tittu, Raid, Padman); footfalls rose 4.4% yoy to 19.0m (occupancy stood at 31.5% versus 31.6% yoy), SPH was up 11% yoy to Rs87; Comparable footfalls fell 2% yoy, while comparable ATP rose 9% yoy.
• Exhibition business EBITDA grew by 86% yoy to ~Rs1bn due to strong content, higher ATP, SPH, and higher Ad rev. Margins improved ~630bp to 17.5%. Adj. PAT stood at Rs282m (17x growth yoy).
• Cons. Fin Performance: Rev at Rs5.9bn was up 18.4% yoy, slower than Exhibition segment growth as Others Segment (which included Bowling Alleys biz in the base which was sold in Q2FY18) declined 10.2% yoy. Cons. EBITDA grew 61.9% yoy to Rs944m (8% beat) led by strong exhibition EBITDA performance. EBITDA margin improved 430 bps yoy to 16.1%. Adjusted PAT came in at Rs262m (vs Rs 15m yoy); 22% beat) due to EBITDA performance and higher other income.

Key positives: Strong ad rev. growth, sharp increase in ATP/SPH.

Key negatives: Fall in comparable footfalls, higher capex guidance.

Impact on financials: We increase our capex estimates as we build aggressive maintenance capex and now build 70 screen additions pa for FY19E/20E (vs. 55 earlier). Owing to higher screen addition, FY19E/20E EBITDA is upward revised by 2.2%/3%.

Valuations & view

We expect screen additions to accelerate over the next couple of years led by opening of previously delayed screens and marginal improvement in mall development activity. PVRL’s execution is almost flawless with industry leading operating metrics because of its presence in the best catchment areas across cities. However, good content is the only driver of earnings because of it being a high operating leverage business. Forthcoming movie pipeline appears to be strong and we expect PVRL’s cons. EBITDA to post a strong CAGR of 21% over FY18-20E (on a depressed base). Given PVRL’s brand and execution capabilities coupled with lack of outdoor entertainment options and India’s love for movies should keep the stock in vogue. Maintain Outperformer with a price target of Rs1,568 (14x FY20E EV/EBITDA).