PVR has recently added to its screen presence with the opening of its four screen property at Chandigarh. This is in addition to the activation of screens in its Mumbai and Gurgaon properties; taking its overall screen count to 101, across 14 cities.
We believe for the core exhibition business, occupancy rates will pick up Q209 onwards as content quality likely improves and PVR’s owned property comes on stream-both being positive for margins.
Profitability on a y-o-y basis is likely to be at higher end of peer set, despite recent headwinds like a weak movie pipeline as it draws on economies of scale. PVR’s screen expansion plans are on track, according to our recent management interaction and new initiatives like movie production and F&B retailing are off to a reasonable start.
We have modified our earnings estimates and target price to build in lower occupancies (in H1FY09, for the exhibition segment), increased contribution from the movie production subsidiary and increased cost of capital.
Valuations at 13x FY09E EPS given a 70% EPS CAGR over FY07-09E offers a reasonable risk reward from a 9-12 month perspective.
PVR remains a preferred exposure to the exhibition space given reasonable project execution thus far, diversification into the movie production business and its competitive positioning. Retain our BUY rating with a price target of Rs288 (Rs340 earlier).