Kotak Institutional expects PVR business to recover, sees 30% upside for stock

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Kotak Institutional expects PVR business to recover, sees 30% upside for stock

 

Synopsis
As for the September quarter, PVR logged a significant fall in footfalls owing to a number of factors at play. Nonetheless, the brokerage iterated that given the encouraging start to Q3FY23 and the strong movie pipeline, PVR could make a strong recovery in footfalls in 2HFY23.

Even as the September quarter for the multiplex industry remained weak, Kotak Institutional Equities maintained a buy rating on PVR for a target price of Rs 2,200, signifying decent gains to the tune of over 30% from the current market price.

The brokerage is of the view that as the Bollywood content may improve, there will be a recovery in the company’s business. Also, the Inox-PVR merger process which is currently underway will boost EBITDA by 15%. The PVR-Inox merger deal received shareholders’ nod in October and the final NCLT approval will take three more months.

As for the September quarter, PVR logged a significant fall in footfalls owing to a number of factors at play. Nonetheless, the brokerage iterated that given the encouraging start to Q3FY23 and the strong movie pipeline, PVR could make a strong recovery in footfalls in 2HFY23.

In respect of both the average ticket price (ATP) as well as F&B spends per head (SPH) that registered a decline during the quarter, the company expects to recover to 1QFY23 (Rs 250) levels while in the F&B segment it eyes Rs 135-140 range in 3QFY23E.

“EBITDA margin of (-) 0.3% was below our estimate, owing to the fall in occupancy to 24% (versus 38% in 2QFY20). PVR’s efforts to either cut costs variable have reduced its break-even occupancy level to 21-22% (subject to 100% ad recovery),” noted the brokerage.

We maintain our estimates and fair value of Rs 2,200 (14X FY2024E pro forma pre-Ind AS 116 EV/EBITDA of merged entity), it added. Our pro forma estimates factor in 29.6% occupancy of MergeCo in FY2024E versus pre-pandemic occupancy of 32-32.5%, said the report.

 

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