PVR's Q3FY18 results (Outperformer) - EBITDA beat on cost efficiencies, content remains key driver of earnings!

Q3FY18 result highlights

• Exhibition segment: Rev. grew by 7.3% yoy led by 7.7% yoy growth in net box office rev, 6.6% growth in F&B rev, 10.6% yoy growth in ad rev and 2.8% yoy fall in other operating rev as E-tax refunds are not booked anymore (but is there in the base).
• Mixed exhibition segment metrics: ATP grew by 6.5% yoy to Rs212 led by big star content (Tiger Zinda Hai); footfalls fell by 2.8% yoy to 17.4m (occupancy stood at 29.1% versus 32% yoy) as one big release (Padmavat) got pushed to Q4 and rest of the content was decent in this quarter (Tiger Zinda Hai, Golmaal Returns, Judwaa 2’). Same store footfalls declined by 7% yoy on poor yoy content.
• Exhibition business fixed expenses increased just 4% yoy due to GST ITC benefits (LTL expenses fell 1% yoy). EBITDA grew by 13.1% yoy to Rs957mn. Margin improved by ~100bp to 17.5% on overall positive operating metrics (higher ATP, SPH, Ad rev.) and impact of GST despite fall in footfalls. Adj. PAT stood at Rs283m and grew by 21% yoy led by EBITDA growth.
• Cons. Fin Performance: Rev at Rs5.6bn was up 3.6% yoy, despite a 7.7% yoy growth in Exhibition segment, due to 52% yoy fall in Others Segment (included Bowling Alleys biz in the base which was sold in Q2FY18). Cons. EBITDA grew 13% yoy to Rs1bn (10% beat) led by exhibition EBITDA and one-off gains in ‘Others’ segment on stake sale in ‘Vkaao’ to bookmyshow (amount un-quantified). PAT came at Rs289mn (+21% yoy; 12% beat due to EBITDA beat).

Key positives: Lower expenses due to GST ITC, ATP/SPH increase.

Key negatives: Fall in footfalls.

Impact on financials: Cut FY18E/19E EBITDA by 10%/3% to reflect poor performance of content in this fiscal. Introduce FY20E estimates

Valuations & view

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 revised price target of Rs1,552 (roll forward to 14x FY20E EV/EBITDA).