06 FEB 2018 Quarterly Update

PVR HOLD
MEDIA Target Price: Rs 1,520

Operating matrix healthy; footfalls subdued

Q3 was largely in line with expectations. Limited box-office success led
CMP : Rs 1,461
to lower footfalls (down 2%) and occupancy (~29% vs. 32% YoY) Potential Upside : 4%
despite ~7% increase in screens. However, this was compensated by
healthy operating matrix performance, as ATP^ improved 6.5% YoY
and SPH# grew 12% YoY (SPH net of taxes was up 7% YoY). MARKET DATA
No. of Shares : 47 mn
We like PVR for its strong geographical presence and ability to Free Float : 80%
monetize footfalls (higher SPH/ ad revenue); however, disappointing Market Cap : Rs 68 bn
movie content has led to subdued footfalls for last six consecutive 52-week High / Low : Rs 1,660 / Rs 1,145
quarters. GST-led benefits (input tax credit) will aid margin expansion, Avg. Daily vol. (6mth) : 233,730 shares
but sub-par movie content could limit its ability to augment operating Bloomberg Code : PVRL IB Equity
performance. Maintain HOLD with revised TP of Rs 1,520 as we roll Promoters Holding : 20%
FII / DII : 41% / 10%
over to FY20E (12x EV/EBITDA; Rs 1,380 earlier).

Key highlights
♦ Q3 revenue grew 5% YoY to Rs 5.6 bn and EBITDA was up 25% YoY to Rs 1 bn (EBITDA margin expanded
290 bps YoY to 18%) on GST-led benefits, as overheads declined 7% YoY. Net profit grew 22% YoY to Rs 289 mn
♦ Ad revenue grew 11% YoY (ad revenue/ screen grew 2%). Despite near-term rise in competitive intensity,
management is confident to deliver mid-teen ad growth in medium term, as pricing pressure eases out
♦ PVRL added 36 screens YTD, taking the tally to 612 screens (two-third additions in South India); management
reiterated 60-70 screen additions annually over next 2-3 years. The company targets to upgrade 20% of its screens
to premium (under 7 different formats) and has already upgraded 55 screens (of aggregate 612 screens)
♦ PVRL is negotiating with key movie production houses to schedule 6-week window period between theatrical release
and Digital release (on pay-per-view basis for OTTs). This will limit any possible adverse impact on screen footfalls
♦ Distributor share increased 220 bps YoY to 45.1% (43.4% in H1), as GST led to lower input tax credit especially
for regional content (exempt earlier)
♦
Financial summary (Consolidated) Key drivers
Y/E March FY17 FY18E FY19E FY20E FY18E FY19E FY20E
Sales (Rs mn) 21,626 23,207 27,631 31,437 No. of Screens 639 699 759
Adj PAT (Rs mn) 1,037 1,251 2,041 2,464 Footfalls (mn) 82.7 95.4 104.3
Con. EPS* (Rs.) - 29.3 42.3 53.2 ATP (Rs) 204 210 216
EPS (Rs.) 22.2 26.8 43.7 52.7 SPH (Net of VAT) 80 85 90
Change YOY (%) (14.9) 20.7 63.1 20.7
P/E (x) 65.8 54.6 33.5 27.7
Price performance
RoE (%) 11.2 12.2 17.4 17.7
160
Sensex PVR
RoCE (%) 15.2 16.5 22.3 23.7
140
EV/EBITDA (x) 20.9 18.2 13.4 11.4
120
DPS 2.0 2.0 2.0 2.0
100
Source: *Consensus broker estimates, Company, Axis Capital
80
^ATP – Average Ticket Price; #SPH – F&B Spend per Head Jan-17 Apr-17 Jul-17 Oct-17 Jan-18
CMP as on 31 JAN 2018

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(…Continued from page 1)

♦ Benefit from input tax credit led to lower overheads – rent outgo and electricity/
CAM grew only 2-3% YoY, while repairs/ maintenance and other expenses
were flat YoY. Full benefits to be visible in FY19

♦ Management still awaits clarity on GST-related tax implications, and has not
decided on passing through input tax credit related benefits to consumers

♦ PVRL acquired 2.2% stake in US-based luxury theatre chain IPic Gold
for USD 4 mn. This company owns 121 screens with a superior revenue mix of
F&B (51% share) and theatricals (33% share). While management does not
intend to expand in US, it expects to implement its learning to boost
PVRL’s F&B sales across premium screens

♦ PVRL will be opening its first international screen in Sri Lanka in FY19. Focus
remains on expanding selectively in demographics similar to India’s

Results update
Quarter ended YTD YTD %
(Rs mn) Dec-17 Dec-16 % Chg Sep-17 % Chg FY18 FY17 Chg
Net Sales 5,573 5,309 5.0 5,554 0.3 17,633 16,553 6.5
Film distributor's share/Movie Dist 1,323 1,167 13.4 1,335 (0.9) 4,106 3,526 16.4
Consumption of F&B 379 347 9.3 385 (1.5) 1,177 1,067 10.3
Employee cost 622 576 8.0 587 6.0 1,888 1,667 13.3
Rent 994 - - 972 2.3 3,050 2,860 6.6
Other overheads 1,252 991 26.3 1,371 (8.7) 4,243 4,537 (6.5)
EBIDTA 1,003 800 25.5 905 10.9 3,170 2,897 9.4
EBIDTA margin (%) 18.0 15.1 - 16.3 - 18.0 17.5 -
Depreciation 375 345 8.8 347 8.1 1,097 1,021 7.5
EBIT 629 455 - 558 - 2,072 1,876 -
EBIT margin (%) 11.3 8.6 - 10.1 - 11.8 11.3 -
Interest 212 204 3.9 207 2.2 627 590 6.4
Other income 32 111 (71.2) 42 (22.8) 98 223 (56.2)
PBT 449 363 23.8 393 14.3 1,543 1,509 2.2
Tax 154 127 20.7 140 9.9 551 525 5.0
Reported PAT 289 236 22.4 252 14.7 983 950 3.5
No. of shares (mn) 47 47 - 47 - 47 47 0.3
EPS (Rs.) 6.2 5.1 20.7 5.4 14.7 20.4 18.7 9.2
Source: Company, Axis Capital

Operating matrix
Dec-17 Dec-16 % Chg Sep-17 % Chg FY17 FY16 % Chg
No of screens 603 562 7 600 0 579 516 12.2
No of seats 136,539 128,587 6 136,272 0 132,026 118,124 11.8
Footfalls (mn) 17.4 17.9 (2.8) 18.7 (7.0) 75.2 69.6 8.0
Average Ticket Price (ATP) 212.0 199.0 6.5 204.0 3.9 196.0 188.0 4.3
F&B spend per head (SPH) 92.0 82.0 12.2 91.0 1.1 81.0 72.0 12.5
Revenue break up (Rs mn)
Ticket Sales 2,931 2721.3 7.7 2,993 (2.1) 11,275 9,948 13.3
F&B revenues 1,438 1349 6.6 1,423 1.0 5,794 4,977 16.4
Ad/ Sponsorship revenues 867 783.5 10.6 688 26.0 2,518 2,145 17.3

Source: Company, Axis Capital

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 06 FEB 2018 Quarterly Update
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MEDIA

Six consecutive quarters of no footfall growth ATP; gross SPH leading the operating performance
Screens Footfalls (RHS) Blended ATP SPH (RHS)
650 (mn) 22 220 100
(No) (Rs) (Rs)
600 20 210
90
18 200
550
16 190 80
500
14 180
70
450 12 170
400 10 160 60

Q3FY16
Q4FY16
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18

Q1FY16
Q2FY16

Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Source: Company, Axis Capital Source: Company, Axis Capital

Revenue break up – F&B/ ad revenue growth encouraging

Ticket sales F&B revenue Sponsorship revenue Other Op Income
7
(Rs bn)
6 0.8
0.6 0.7 0.5 0.3
5 0.5
0.7 0.5
0.5 0.7 0.9
0.4 0.4 0.7 0.6 0.8
4 0.3 0.5 0.5 0.5 1.6
0.4 0.7 0.5 1.5
0.5 1.4 1.4 1.4
0.3 0.4 1.3 1.2 0.5 1.3 1.3
3 0.4
0.9 1.0 0.3
1.1
0.9 0.4 1.0
2 0.7 3.4
2.7 2.7 3.1 2.8 2.7 2.6 3.0 2.9
1 2.0 2.3 2.3 2.5 2.1
1.6
0
Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Source: Company, Axis Capital

Revenue and Operating margin trend

Revenue EBITDA margin (RHS)
7 (Rs bn) 25
(%)
23
6 18 18 20
17 17
16
20 15 19
5 10 15

4 12 10

3 5
Q1FY16

Q3FY16

Q4FY16

Q1FY17

Q3FY17

Q4FY17

Q2FY18

Q3FY18
Q2FY16

Q2FY17

Q1FY18

Source: Company, Axis Capital

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Financial summary (Consolidated)

Profit & loss (Rs mn) Cash flow (Rs mn)
Y/E March FY17 FY18E FY19E FY20E Y/E March FY17 FY18E FY19E FY20E
Net sales 21,626 23,207 27,631 31,437 Profit before tax 1,566 1,910 3,117 3,762
Other operating income - - - - Depreciation & Amortisation 1,384 1,531 1,775 2,032
Total operating income 21,626 23,207 27,631 31,437 Chg in working capital (246) 593 349 336
Cost of goods sold (6,676) (7,581) (8,897) (10,086) Cash flow from operations 3,196 3,969 4,657 5,220
Gross profit 14,950 15,626 18,733 21,352 Capital expenditure (6,324) (1,821) (2,329) (2,443)
Gross margin (%) 69.1 67.3 67.8 67.9 Cash flow from investing (6,170) (2,003) (2,629) (2,732)
Total operating expenses (11,385) (11,592) (13,350) (15,169) Equity raised/ (repaid) 10 - - -
EBITDA 3,565 4,034 5,383 6,182 Debt raised/ (repaid) 1,439 (800) (800) (800)
EBITDA margin (%) 16.5 17.4 19.5 19.7 Dividend paid (117) (109) (109) (109)
Depreciation (1,384) (1,531) (1,775) (2,032) Cash flow from financing 602 (1,703) (1,611) (1,519)
EBIT 2,182 2,504 3,608 4,151 Net chg in cash (2,372) 263 418 969
Net interest (806) (794) (702) (610)
Other income 191 200 210 221 Key ratios
Profit before tax 1,566 1,910 3,117 3,762 Y/E March FY17 FY18E FY19E FY20E
Total taxation (529) (659) (1,075) (1,298) OPERATIONAL
Tax rate (%) 33.8 34.5 34.5 34.5 FDEPS (Rs) 22.2 26.8 43.7 52.7
Profit after tax 1,037 1,251 2,041 2,464 CEPS (Rs) 51.8 59.5 81.7 96.2
Minorities - - - - DPS (Rs) 2.0 2.0 2.0 2.0
Profit/ Loss associate co(s) - - - - Dividend payout ratio (%) 9.0 7.5 4.6 3.8
Adjusted net profit 1,037 1,251 2,041 2,464 GROWTH
Adj. PAT margin (%) 4.8 5.4 7.4 7.8 Net sales (%) 15.0 7.3 19.1 13.8
Net non-recurring items - - - - EBITDA (%) 10.1 13.2 33.4 14.8
Reported net profit 1,037 1,251 2,041 2,464 Adj net profit (%) (14.8) 20.7 63.1 20.7
FDEPS (%) (14.9) 20.7 63.1 20.7
Balance sheet (Rs mn) PERFORMANCE
Y/E March FY17 FY18E FY19E FY20E RoE (%) 11.2 12.2 17.4 17.7
Paid-up capital 467 467 467 467 RoCE (%) 15.2 16.5 22.3 23.7
Reserves & surplus 9,183 10,325 12,257 14,613 EFFICIENCY
Net worth 9,650 10,792 12,725 15,080 Asset turnover (x) 1.5 1.5 1.7 1.9
Borrowing 6,050 5,250 4,450 3,650 Sales/ total assets (x) 1.0 1.0 1.1 1.2
Other non-current liabilities 80 80 80 80 Working capital/ sales (x) (0.1) (0.2) (0.2) (0.1)
Total liabilities 16,186 16,528 17,660 19,215 Receivable days 17.2 18.0 18.0 18.0
Gross fixed assets 17,092 18,913 21,242 23,685 Inventory days 3.8 4.0 4.0 4.0
Less: Depreciation (2,005) (3,536) (5,311) (7,342) Payable days 39.9 43.5 44.0 43.9
Net fixed assets 15,087 15,377 15,931 16,343 FINANCIAL STABILITY
Add: Capital WIP 1,056 1,056 1,056 1,056 Total debt/ equity (x) 0.6 0.5 0.4 0.3
Total fixed assets 16,143 16,433 16,987 17,398 Net debt/ equity (x) 0.6 0.4 0.3 0.1
Total Investment 20 20 20 20 Current ratio (x) 0.5 0.5 0.5 0.6
Inventory 190 208 244 276 Interest cover (x) 2.7 3.2 5.1 6.8
Debtors 1,021 1,144 1,363 1,550 VALUATION
Cash & bank 299 562 980 1,949 PE (x) 65.8 54.6 33.5 27.7
Loans & advances 53 53 53 53 EV/ EBITDA (x) 20.9 18.2 13.4 11.4
Current liabilities 6,071 6,806 7,409 7,965 EV/ Net sales (x) 3.4 3.2 2.6 2.2
Net current assets (3,277) (3,608) (3,539) (2,906) PB (x) 7.1 6.3 5.4 4.5
Other non-current assets 3,300 3,683 4,193 4,703 Dividend yield (%) 0.1 0.1 0.1 0.1
Total assets 16,186 16,528 17,660 19,216 Free cash flow yield (%) - - - -
Source: Company, Axis Capital Source: Company, Axis Capital

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 06 FEB 2018 Quarterly Update
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Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
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1 Siji Philip Research Analyst siji.philip@axissecurities.in
2 Rohit Chawla Research Associate rohit.chawla@axissecurities.in

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 06 FEB 2018 Quarterly Update
PVR
MEDIA

DEFINITION OF RATINGS
Ratings Expected absolute returns over 12-18 months
BUY More than 10%
HOLD Between 10% and -10%
SELL Less than -10%
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Axis Securities Limited, SEBI Single Reg. No.- NSE, BSE & MSEI – INZ000161633, ARN No. 64610, CDSL-IN-DP-CDSL-693-2013, SEBI-Research Analyst
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06