Q2FY24 Review: PVR INOX: Stellar but in-line Q2; synergies above guidance

20 Oct 2023 , 01:48 PM

PVR-Inox’s Q2FY24 Ebitda performance was stellar but in-line, as revenue beat was offset by higher costs. More importantly, H1 FCF was +Rs3.1bn, partly aided by Rs1.2bn advances received from online ticketing aggregators. The company expects positive FCF in FY24 after many years (analysts of IIFL Capital Services estimate is +Rs4.4bn). With Rs1.2- 1.4bn Ebitda synergy in H1 (as per mgmt estimate), the company is tracking ahead of the original Rs2.25bn annualised synergy target within 12-18 months, after the merger-closure. While management was confident of a healthy content pipeline in the coming months, Q2 performance may be difficult to replicate. In analysts of IIFL Capital Services view, Q2 performance largely concerns around change in theatre going habits post-pandemic. A more gradual ad-revenue recovery profile and higher costs offset the increased synergy benefits and hence, analysts of IIFL Capital Services maintain estimates. Analysts of IIFL Capital Services TP based on 13x EV/Ebitda target multiple rises from Rs1,933 to Rs1,969 on roll-forward to Dec’24. 

Stellar but in-line Q2:

PVR-Inox reported pre-Ind AS 116 Ebitda of Rs4.25bn vs analysts of IIFL Capital Services est. of Rs4.1bn. Revenue beat was offset by higher costs, due to screen additions and variable portion of rent going up. Reported PAT of Rs1.66bn was largely in line with their estimate. PVR-Inox saw decrease in net debt (ex-lease liabilities) to Rs11bn (1.6 x net debt-toTTM Ebitda) as of Q2FY24-end vs Rs15.1bn, as of Q1FY24-end. 

Synergies tracking ahead of guidance: 

Key takeaways from the earnings call: 1) The pipeline for upcoming months looks solid not withstanding a light October and November. 2) PVR-Inox reiterated gross screen addition guidance of 150-160 (vs 68 in H1) for FY24. 3) The company expects ad revenue to reach the pre-Covid levels during FY25. 4) H1 saw Rs1.2-1.4bn synergy benefits mostly from exhibition revenue, F&B revenue and reduction in overheads. 5) PVR-Inox targets positive FCF in FY24 and reducing net debt-to-Ebitda to 1.0x over time. 

Largely maintain estimates: 

Q2 performance reinforces analysts of IIFL Capital Services view that the demand for theatrical experience remains healthy, if the content quality is good. Analysts of IIFL Capital Services build in 27%/28% occupancy ratio in FY24/25 (well below ~32% in FY20 and Q2FY24). They raise their Ebitda synergy est. to Rs2.7bn/Rs2.8bn in FY24/25. This is offset by slower ad-revenue recovery. PAT is influenced by higher D&A and lower interest cost.