Our cautious outlook on exhibition stocks is underpinned by likely delays on property handover front given delays from real estate developers and a weak macro for consumption that is expected to adversely impact property footfalls and occupancies.
High dependence on a difficult to predict content slate may also not help exhibitors. For PVR, new investments towards retail entertainment formats and other allied ventures is likely to drag earnings over FY09-10 and come in the backdrop of an adverse macro that will delay business break-evens.
We opine consolidated margins will struggle over the medium term, with limited available levers, as operators counter a rising cost base (new properties), slowing revenues (lower occupancies) and investments towards business lines. Also likely peaked ATP’s and SPH’s will be another pressure point.
We see no immediate catalysts as focus will remain on macro for consumption and timely handovers from real estate developers- our outlook remains negative.
Profits are expected to decline over FY08-10E; expect PVR’s PAT to be Rs158 million by FY10E from Rs216.2 million in FY08.
This is expected to translate into a fully diluted EPS of Rs.5.1 (Rs.8.3 earlier) in FY09E and Rs.6.5 (Rs.9.3 earlier) in FY10E. FY09E PAT includes the exceptional item reported in Q3FY09. PVR reported a consolidated EPS of Rs.8.9 for FY08.
Lower revenue growth rates and margin pressure given rising cost structures being the factors, in our opinion.
Faster than expected turnaround in consumer sentiment and new investments, better content and higher occupancies remain upside risks to our call.
We retain our conventional DCF based methodology for valuing the stock. We thus arrive at a DCF based price target of Rs86 (Rs100 earlier).
Our revised price target and recommendation reflects our caution on property handovers, expected lower occupancies and lack of sufficient margin levers in a challenging environment.
We maintain a REDUCE rating given above overhangs for the stock. See no immediate catalysts as focus will remain on macro for consumption and timely handovers from real estate developers- both are unlikely to see near term positive news flow.