While expenses during the quarter increased, analysts believe PVR
was able to keep costs in check, primarily due to sequentially lower CAM (common area management) expenses as the company received credit notes from developers upon settlement and also as it concluded rent re-negotiations for 88 per cent of its screen portfolio. Analysts at Edelweiss Securities see no escalation in rentals in FY22 and expect it to be largely similar to pre-Covid-19 levels.
The PVR management also indicated permanent savings of 10-15 per cent on select fixed costs. According to analysts at Kotak Institutional Equities, an assumption of modest 5 per cent savings versus 10-15 per cent guided, would translate into sustained cost savings of Rs 35-40 crore, resulting in 100 bps expansion in EBITDA (earnings before interest, tax, depreciation and amortisation) margin. That apart, Edelwiess expects ticket prices to increase once fresh content is released which will further shore up the revenue.
Meanwhile, the firm is looking to strengthen its balance sheet in order to resume screen expansion and participate in consolidation opportunities, if any, and has received board approval for raising Rs 800 crore.
Recovery in footfall?
Though cinema screens opened for business on October 15, 2020, a lack of strong content pipeline led to weak admits of nearly 1 million compared with 26 million in the year-ago quarter.
However, going by the trends in other Asian nations such as China and Japan, it seems that regions which have been able to control the pandemic well, are seeing box office collections near record highs for new content, said analysts at JM Financial and Edelweiss, adding that they expect a similar trend in India.
Besides that, a strong performance by Tamil film 'Master', second-biggest opening ever for any Tamil film, should give confidence to Bollywood and regional movie producers who are waiting on the sidelines for consumers to return to cinemas, said KIE. In the Souther region, including Sri Lanka, PVR has a total of 286 screens, representing 34 per cent of the total screens.
"With all but two states (Rajasthan and Jharkhand, constituting 6-7 per cent of Bollywood movie collection) allowing cinemas to reopen, we expect footfall to start moving up gradually as new movies are released. Progress on Covid-19 vaccine too bodes well. We are assigning a 12x FY22E EBITDA, which yields a target price of Rs 1,815 and maintain 'BUY' rating on the stock," said Edelweiss in an earnings update report.
JM Financial and Kotak Securities, too, have 'BUY' ratings on the stock with target prices of Rs Rs 1,835 and Rs 1,650, respectively.
"The rollout of vaccine and overwhelming opening of the recently released Tamil movie, 'Master', give us hope of normalization of business in 3-6 months. PVR is gearing up to capitalize on organic and inorganic growth opportunities. We tweak estimates, roll-over and revise fair value to Rs 1,650, from Rs 1,500, valuing PVR at 11X FY2023E EV/EBITDA," said Kotak Securities.
The outlook for the sector, going ahead remains robust. "Once the pandemic passes, we expect footfalls and consequently revenues to normalise for the theatre industry by FY23. In the worst-case scenario wherein FY22 turns out largely like FY21, losses would still have a mere 4-5 per cent impact on intrinsic value. With the low penetration level of total screens (lower for multiplexes), a double-digit pace of expansion can easily sustain, as per our workings," said JM Financial.
Moreover, this coupled with several levers to enhance monetisation of screens should help both Inox and PVR sustain a double-digit revenue growth trajectory on a steady-state basis, it added.
Analysts at Motilal Oswal, however, downgraded the PVR stock to 'Neutral' as they expect profitability and business scale to remain muted. "We roll forward our estimates to FY23E and revise down our FY22E EBITDA and PAT estimates by 3 per cent and 12 per cent, respectively, on the back of slower recovery, thriving OTT market, and changing consumer behaviour that could pose a risk to long term occupancies and business economics," said Motilal Oswal in a note.
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