PVR's Q3FY20 results (Neutral) - South circuit drags; Screen addition target on track…

Q3FY20 Results Highlights (ex Ind-AS 116)

• Rev. growth of ~8.6% yoy was in-line with our expectations. Q3 was expected to be weak given strong base quarter performance and drag in Southern movie circuit. EBITDA stood at ~Rs1.8bn (+9.7% yoy; 6% beat) due to lower op. costs, with margins improving ~20 bps yoy to 19.7% (IDFCe: 18.8%). Lower tax rate (36.5% vs 37.8% yoy) led to PAT growth of ~14.2% yoy (26% beat).
• Exhibition Segment (Actuals): NBOC grew ~6.4% yoy – gross ATP fell ~1% yoy to ~Rs210; occupancy fell to 33.4% (vs 35.6% yoy); footfalls were flat yoy at 25.9m. F&B revenue grew 12.6% yoy supported by a ~11.8% yoy growth in SPH to ~Rs100. Ad revenue up ~8% yoy to ~Rs1.2bn.
• Comparable Metrics: ATP down ~2% to Rs210 / Footfalls down ~6% to 21.4m / Occupancy at 34.0% (vs 36.1% yoy). NBOC rev. fell ~1% yoy to ~Rs3.8bn. F&B rev. grew ~5% yoy to ~Rs2bn (SPH up 11% to Rs101). Ad revenue up ~2% to ~Rs1bn.
• Ind-AS 116 Impacts: Reported EBITDA at ~Rs3.2bn was positively impacted by ~Rs1.3bn due to IndAS 116 adjustments. At the PAT level, there is a ~Rs226m hit, coming in at ~Rs363m.
• SPI Performance: Revenue down ~18% yoy to Rs11.3bn. Ex-Ind-AS 116 EBITDA was up ~1% yoy at ~Rs312m.

Key positives: Lower other expenses / SPH growth.

Key negatives: SPI performance weak.

Impact on financials: 6% increase in FY21E EBITDA. Introduce FY22E.

Valuations & view

Q3 was expected to be muted given the heavy base effect and the expected drag from the Southern circuit (due to its own base performance and weak content), but nonetheless, PVRL’s operating performance is commendable. For FY20E, screen addition target of 90-100 remains on track (67 added as of January 2020) which also is a positive. PVRL remains a picture-perfect play in the multiplex space given its flawless execution in delivering industry leading operating metrics (given its presence in best catchment areas across markets). Nevertheless, the stock is fully valued and leaves no room for error and assumes strong content pipeline in the near to medium-term. We roll-over our target multiple to September 2020E and continue to value PVRL at 12x EV/adj. EBITDA (ex. Ind-AS 116). Maintain Neutral.