Q1FY24 Review: PVR INOX: Weak but in-line Q1; Q2 off to a promising start

2 Aug 2023 , 12:26 PM

PVR-Inox’s Q1FY24 operational performance was weak, but in-line. Reported PAT loss was Rs816mn, while net debt (ex-lease liabilities) marginally rose to Rs15.1bn. On the earnings call, management stated that Q2 has witnessed a promising start, and the healthy content slate for the rest of 2023 is auguring well. Ad revenue recovery, which has been elusive since the post-pandemic restart, has seen green shoots. Analysts of IIFL Capital Services raise FY24 Ebitda estimates by 3%, while they largely maintain FY25 Ebitda. Initial signs of lower volatility of Bollywood box collections improve the visibility of their estimates. Analysts of IIFL Capital Services raise their target EV/Ebitda multiple to 12x from 11.5x and roll forward to Sep’24, which yields new TP of Rs1,779 (vs 1,599 earlier). Maintain BUY. 

In-line Q1; some increase in net debt: 

PVR-Inox reported pre-Ind AS 116 Ebitda of Rs754mn vs analysts of IIFL Capital Services est. of Rs786mn. Reported PAT loss of Rs816mn was worse than their estimate, due to higher D&A and lower Other income. PVR-Inox saw an increase in net debt (ex-lease liabilities) to Rs15.1bn (5.5x net debt-to-TTM Ebitda) as of end-Q1FY24 vs Rs14.3bn as of end-FY23. However, an improvement in footfalls can quickly bring the leverage ratio down. 

Q2 off to a stellar start; ad revenue outlook improving: 

Key takeaways from the earnings call: 1) Since April, PVR-Inox has seen consistent MoM improvement in footfalls. 2) Improvement in Average Ticket Price (ATP) and F&B spend per head (SPH) should continue. 3) Q3 should see improvement in ad revenue, since a strong July has revived the interest of large advertisers. 4) PVR-Inox maintained gross screen addition guidance of 150-165 for FY24 (46 YTD). 5) Convenience fee income came down as the contract with BookMyShow (BMS) got renegotiated on a revenue-share basis on expiry vs the earlier minimum guarantee model. 

FY24 sees 3% Ebitda upgrade: 

A solid start to Q2 augurs well for PVRInox and reinforces their view that the demand for theatrical experience remains healthy, if the content quality is good. Analysts of IIFL Capital Services now build in 27%/28% occupancy ratio in FY24/25 (well below ~32% in FY20, but higher than ~25% in FY23). Every 100bps change in occupancy ratio swings ex-Ind AS 116 Ebitda/PAT by 9%/14%. We build in Rs1.4bn/Rs1.9bn Ebitda synergy in FY24/25. Their TP is based on 12x EV/Ebitda multiple (~5% lower than 2014-19 average).