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PVR Shares Gain As Analysts Bet On Bollywood Content Reversal After Q2 Loss

Most brokerages retained 'buy' ratings even as poor Bollywood performance dented PVR's Q2 show.

<div class="paragraphs"><p>PVR City Mall, Mumbai. (Photo: BQ Prime)</p></div>
PVR City Mall, Mumbai. (Photo: BQ Prime)

Shares of PVR Ltd. gained on Tuesday after most brokerages retained 'buy' ratings even as poor Bollywood performance dented the movie exhibitor's second-quarter show.

The country's largest multiplex operator posted a net loss of Rs 71.23 crore in the July-September period against a net profit of Rs 53.38 crore in the previous three months. Footfalls fell 28% sequentially, resulting in a 30% decline in revenue, according to its exchange filing.

Net box office collections fell 38% to Rs 330 crore over the previous quarter, the company said in its presentation. Average ticket price and spend per head declined sequentially to Rs 224 and Rs 129, respectively from the all-time high in Q1 FY23, attributable to weaker movie performance.

Both average ticker price and spend per head were also affected by the special initiatives, such as flat Rs 75 ticket pricing on National Cinema Day, aimed at driving up footfalls.

Advertisement revenue was 9% lower sequentially and continues to be below pre-Covid levels.

Net debt at end-Q2 increased to Rs 1,100 crore as against Rs 840 crore at the end of Q1 FY23 on operational losses in Q2.

But the management indicated that a good content pipeline will provide for a healthy recovery from the third quarter. PVR expects ad revenue recovery to be gradual through the festive season. It saw a 62% recovery in the current quarter compared with 2019. It anticipates that the recovery will reach 70-72% of 2019 levels by the fourth quarter.

PVR is also confident about meeting new screen-addition guidance of 110-125 in FY23. Analysts expect these initiatives to support revenue growth going ahead. They, however, have cut target price for the movie exhibitor citing risks emanating from rising scale and the traction of movie releases over over-the-top platforms like Netflix, Disney Hotstar, Amazon Prime, etc.

Shares of PVR rose over 1.1% on Tuesday, as against a 1.2% gain in the Nifty 50. The stock rose over 2% in intraday trade on Monday before reversing gains to close 0.20% lower.

Of the 31 analysts tracking the company, 27 have a 'buy' rating, two suggest a 'hold, and two recommend a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 28%.

Here's what brokerages have to say about PVR's Q2 FY23 results:

Emkay Global

  • Maintains 'buy' rating on the stock with an unchanged target price of Rs 2,340 per share, implying a potential upside of 38.6%.

  • Content acceptance remains the primary factor for PVR’s success.

  • Despite the weak performance in the quarter, maintains FY24/25 estimates, in the hope of a Bollywood content-reversal.

  • However, if this weakness persists, the risk of an earnings cut, and a de-rating looms large.

  • Advertising revenue fall of 9% QoQ was not as sharp.

  • PVR is fairly confident about meeting screen-addition guidance of 110-125 in FY23, despite opening only 14 screens in the first half of FY23.

IDBI Capital

  • Reiterates 'buy' rating but lowers target price to Rs 2,100 per share, implying a potential downside of 24%.

  • As a caution, the brokerage has revised its EPS estimates for FY24 downwards by 6%, fearing variability in content could impact occupancy and average ticket price.

  • Higher premium screens, robust spend per head on food and cost controls are expected to lead to strong profit growth in FY23.

  • The synergy benefits due to the merger with INOX will lead to a premium valuation given its economies of scale, healthy balance sheet and expansion plans. It bodes well for long-term growth of the company.

  • Improving pricing and cost rationalisation benefits of Covid era will help the company to improve its margins above pre-Covid levels. IDBI Capital expects the company to register Ebitda margins of 20.8% in FY24.

Axis Capital

  • Retains 'buy' rating on the stock with a target price of Rs 2,270 per share, implying a potential upside of 34%.

  • The brokerage cuts FY23E EBITDA by 14% to factor in weak near-term content through medium-term prospects remain intact.

  • Timelines for the proposed PVR-INOX merger are in place.

  • Discounted offerings on National Cinema Day were able to attract footfalls but led to 14% Q-o-Q dip in net ATP and Q-o-Q flat SPH.

  • Ad revenue recovery is expected to be back-ended given adverse macro.

Motilal Oswal

  • Maintains 'neutral' rating on the stock and reduces target price to Rs 1,675 apiece, implying potential downside of 1%.

  • While the management attributed lower footfalls to a weak content slate, the same movies are racking good viewership on OTT platforms, raising concerns. Some of the Bollywood movies, such as Laal Singh Chadda and Dhakkad, that failed to impress the audience at the box office are seeing good traction on Netflix

  • Expects recovery in admits on the back of underpinning hopes of a better content pipeline in the coming months and addition of screens.

  • The business is likely to normalize by end-FY23 with Ebitda margins nearing pre-covid levels of 16%.

  • The rich valuation it has been commanding historically has contracted, given the slower growth in the business and the risk posed by OTT players.