Analyst Corner: Maintain ‘buy’ on PVR with revised fair value of Rs 1,650

A step closer to recovery. PVR continued good management of costs and liquidity in 3Q and concluded rent/CAM renegotiations for 88% of its screens (from 60% post 2Q). The rollout of vaccine and overwhelming opening of the recently released Tamil movie, ‘Master’, give us hope of normalisation of business in 3-6 months. PVR is gearing up to capitalize on organic/inorganic growth opportunities. We tweak estimates, roll-over and revise FV to Rs 1,650 (from Rs 1,500) valuing PVR at 11X FY2023E EV/EBITDA. BUY.

PVR’s 3Q results have limited relevance as cinemas resumed operations gradually with capacity restrictions and occupancy was negligible due to lack of content.

EBITDA loss adjusted for Ind-AS 116 lease accounting stood at Rs 1.25 bn in 3Q, marginally better than our estimate. Monthly fixed costs (including rent and CAM) were contained well at Rs 527 mn. The management indicated that salary cuts of frontline workers were reversed and that of corporate staff are being rolled back in a staggered manner. Gross debt as at Dec-20 stood at Rs 15 bn. Cash and cash equivalents stood at Rs 3.7 bn.

PVR has concluded rent/CAM renegotiations for 88% of its screen portfolio. At a broad level, PVR has managed a full waiver on rent for the lockdown period and reduced rent (say 50%+ discount) post opening until end-FY2021, and 30-50% discount on CAM in FY2021.

Recently released (Jan 15, 2021) Tamil big-star movie, ‘Master’, has witnessed overwhelming demand and its opening day NBOC of Rs 205 mn in the state of Tamil Nadu is the second- highest ever, notwithstanding 50% capacity restriction. We believe that the success of ‘Master’ should give confidence to Bollywood/regional movie producers (with ready movies) who are waiting on the sidelines for consumers to return to cinemas.

PVR management indicated that it expects permanent savings of 10-15% on select fixed costs (primarily employee and other expenses that aggregated to about Rs 7.5 bn in FY2020). Even if we assume modest 5% savings (versus 10-15% guided), it would translate into sustained cost savings of Rs 350-400 mn, driving 100 bps expansion in EBITDA margin.