PVR's Q2FY20 results (Neutral) - Strong quarter; Q3 content pipeline healthy

Q2FY20 Results Highlights (ex Ind-AS 116)

• Overall cons. performance was ahead of estimates (as content in the qtr was very strong); however, yoy comparisons are not truly comparable as SPI was amalgamated only from 18 Aug 2018 onwards. Cons. rev. at ~Rs9.7bn (+37.3% yoy; 5% beat) was led by strong content pipeline. Comparable properties footfalls grew by 6% yoy while overall footfalls/footfalls (ex SPI) grew by strong 25%/18% yoy. Ex. Ind-AS 116 impacts, cons. EBITDA stood at ~Rs1.94bn (+57% yoy; 9% beat) with margin of 20% (up 250bp yoy; IDFCe: 19.2%). PAT (ex Ind-AS 116) stood at ~Rs636m (+79% yoy, 7% miss as PVR has decided to stay in the existing tax regime). Reported EBITDA/PAT stood at ~Rs3.18bn/479m. Ind-AS 116 has positively impacted EBITDA by ~Rs1.2bn while at PAT level, there is a ~Rs183m hit.
• Exhibition Segment (incl. SPI cinemas from 18 Aug 2018 onwards): Reported ATP fell 2.4% yoy to Rs201 due to lowering of GST, net ATP would have increased ~8% yoy. Footfalls inched up 25.2% yoy to 29.3m led by higher occupancy on strong content pipe-line (up 320bp yoy to 37.8% yoy). Strong performance in SPH as it grew by 12% yoy to Rs99. (Comparable: Footfalls grew 6% yoy; gross ATP flat yoy; SPH up 12%). Std. rev. (now includes SPI) grew 31.8% yoy to ~Rs9.2bn majorly driven by ticket/F&B sales (+32%/38% yoy) and convenience fee (up 41% yoy) even as ad rev. grew by 16% yoy. Comparable: Box office revenue up 15%; F&B up 18%; ad revenue up 5% yoy).
• SPI performance: Rev. stood at Rs1.13bn while EBITDA came in at Rs241m (ex. Ind-AS 116; 21.4% margin).

Key positives: Strong operating performance.

Key negatives: Ad rev growth tepid.

Impact on financials: Remain unchanged.

Valuations & view

Q2 performance was ahead of expectations and Q3 content slate looks promising. We also continue to like PVRL’s flawless execution in delivering industry leading operating metrics (given its presence in best catchment areas across markets), however, the risk to screen addition guidance (not yet factored in our estimates), on account of the massive pressure on real estate developers, is a concern. As a result we have a Neutral rating on the stock and maintain our 12x FY21E EV/adj. EBITDA (ex. IndAS 116) multiple. In addition, the impending QIP would be a near-term overhang on the stock price.