PVR (PVRL IN) - Q4FY22 Result Update - Recovery in March sets the ball rolling - BUY

Rating: BUY | CMP: Rs1,706 | TP: Rs2,227

Q4FY22 Result Update - Recovery in March sets the ball rolling

Quick Pointers:

§  Target is to open 120-125 screens in FY23E which will entail capex of Rs3.5-4bn. Entire outlay will be funded by internal accruals.         

§  March 2022 witnessed highest ever NBOC and F&B revenue of ~Rs3bn.    

PVR reported decent performance in 4QFY22 with Ind-AS adjusted EBITDA loss of Rs342mn (PLe loss of Rs242mn) amid strong recovery in March. ATP and SPH have witnessed significant jump led by blockbuster content while management highlighted that ad-revenue (key margin lever) is expected to reach pre-COVID base within a quarter. While the last 2 years were marred by COVID, normalcy has finally set in and we expect the momentum to continue given strong content pipeline and easing occupancy restrictions. Plans to open 120-125 screens in FY23E, expected recovery in ad-revenue within a quarter to pre-COVID base, and improved pricing power (ATP/SPH were 19%/27% above pre-COVID base) is likely to result in revenue/EBITDA CAGR of 9.5%/10.9% over 4 years on a pre-COVID base of FY20. Retain BUY on the stock with a TP of Rs2,227 after assigning EV/EBITDA multiple of 15.5x (no change) to the merged entity.

Topline increased 196%YoY: Top-line increased 196% YoY to Rs5,371mn (PLe Rs5,109mn) buoyed by strong content like The Kashmir Files, Gangubai Kathiawadi, RRR, Valimai, Bheemla Nayak and Radhe Shyam. ATP/SPH increased 32.2%/28.4% YoY to Rs242/Rs122 (PLe of Rs230/Rs121) respectively with footfalls of 14.3mn (PLe 14mn).

Ind-AS EBITDA loss of Rs342mn: Ind-AS adjusted EBITDA loss came in at Rs342mn (PLe loss of Rs242mn) in comparison with Ind-AS adjusted EBITDA loss of Rs1,277mn in 4QFY21. Ind-AS adjusted loss stood at Rs956mn (PLe loss of Rs453mn) in comparison with Ind-AS adjusted loss of Rs2,717mn in 4QFY21.

Con-call highlights: 1) Full contracted rentals as per pre-COVID terms will be paid from FY23E. 2) It may take ~9 months to complete all regulatory formalities for merger with Inox. 3) Ad-revenue in the month of March was ~40% of pre-COVID levels and may take another quarter to stabilize. 4) Non-renewal of lease agreement with Cineline has led to loss of 23 screens and 9 properties. Revenue & profitability contribution from these screens was ~2% each 5) Film hire distribution agreements have reverted to pre-COVID terms. 6) From April onwards, ~5 shows are screened per day (similar to pre-COVID levels). 7) Given inflationary environment expected cost savings of ~10% in FY23E may be difficult to achieve. 8) Windowing gap will revert to 8-weeks for Hindi films by end of July. 9) Local and small retail advertisers contribute ~40% of revenue mix. Ad-revenue recovery is South is strong followed by North while West is lagging. 10) Average cost of debt is ~9%. 11) Convenience fee contracts with BMS and PAYTM were set to expire in 2021 but the term has been extended to 2023 as business was impacted by COVID in last 2 years. 12) FX loss of Rs87.2mn from Sri Lankan operations due to currency devaluation is non-cash in nature 13) PVR has tied up with Oma Cinemas of France to launch a new concept of “tiered balconies/cinema pods” to India.