PVR's Q2FY19 results (Neutral) - Steady quarter; content pipeline healthy…

Q2FY19 Results Highlights

• LTL Exhibition segment does well: Rev. grew by 21.6% yoy led by 17.4% yoy growth in net box office rev., 25% yoy growth in F&B rev and 13.2% yoy growth in ad rev. Convenience fee increased sharply by 90% after the favourable deal with BookMyShow & PayTM.
• Strong exhibition segment metrics: LTL ATP grew by 4% yoy to Rs211 led by good content (Sanju, Stree, Gold etc); footfalls rose by strong 14% yoy to 21.4m. Occupancy stood at 33.4% versus 29.6% yoy, SPH fell by 3% yoy to Rs88 as it took F&B price cuts in Maharashtra but this is mostly behind now (management guided for full year SPH increase of 4-5%); Same-store footfalls up 9% yoy (fell by 7% for Inox).
• LTL Exhibition EBITDA grew by strong 23.4% yoy to ~Rs1.1bn due to better content and positive impact of convenience fee. Margin up ~30bp to 17%. PAT grew by 26% yoy to Rs309m (includes Rs67m of exp. in fin. costs as per Ind-AS accounting of the BMS-paytm deal).
• Reported cons. Performance (including 43 days of SPI): Rev at Rs7.1bn (inline adj. for SPI) was up 28% yoy led by strong exhibition segment and SPI consolidation (43 days). EBITDA grew 35% yoy to Rs1.24bn (inline adj. for SPI). EBITDA margin improved 100 bps yoy to 17.5% (IDFCe: 17.3%). PAT at Rs330m (+28% yoy) missed est. by 12% on account of Rs67m charge mentioned earlier.

Key positives: Strong LTL exhibition segment performance.

Key negatives: SPH below est. on price cuts in Maharashtra.

Impact on financials: Account for SPI cinemas; FY19E/20E EBITDA upgraded by 6%/14% but EPS lowered by 14%/12% on finance charge accounting towards advance received from BMS & PayTM.

Valuations & view

PVRL’s execution has been flawless over the past as it continues to deliver industry leading operating metrics due to its presence in the best catchment areas across its markets. A strong content pipeline in H2FY19E sets the stage for strong box office and ad rev. performance for the year. Buyout of SPI Cinemas helps improve reach in South (which was low) and a favourable deal with BMS and PayTM reinforces the strength of its brand. We had downgraded the stock (to Neutral) after the F&B issue cropped up; however, we note that negative outcome chance is far lower now versus earlier (PIL hearing is still on, now in SC), We like the multiplex business and PVR is best placed in that and would look to upgrade the stock once the F&B issue is resolved. Maintain Neutral with a PT of Rs1,352 (10.5 FY20E EV/EBITDA).